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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
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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: Class A Common Stock, par value $.015 per share
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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 check mark 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. [X]
Aggregate market value of all Class A Common Stock held by non-affiliates as of
March 18, 1998, was $879,112,800.
17,519,684 shares of $.015 par value Class A Common Stock were issued and
outstanding as of March 18, 1998.
The Index of Exhibits filed with this Report begins at page ___.
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PART I
Item 1. BUSINESS.
Certain of the information contained or incorporated by reference in this
Form 10-K, including the discussion which follows in this Item 1 of the
Company's plans and strategies for its business and related financing, and the
Management's Discussion and Analysis included herein, contain forward-looking
statements. For a discussion of important factors that could cause actual
results to differ materially from such forward-looking statements, please
carefully review the discussion of Risk Factors contained in this Item 1, as
well as the other information contained in this Report and in the Company's
periodic reports filed with the Securities and Exchange Commission (the "SEC" or
"Commission").
GENERAL
ACC is a switch-based provider of telecommunications services in the United
States, Canada, the United Kingdom (the "U.K."), and Germany. ACC primarily
provides long distance telecommunications services to a diversified customer
base of businesses, residential customers and educational institutions. ACC also
provides local telephone service as a switch-based local exchange reseller in
upstate New York and Massachusetts and as a reseller of local exchange services
in Ontario and Quebec, Canada. ACC entered the German market during 1997 as a
switchless reseller of long distance telecommunications services and became a
switch-based provider in Germany in February of 1998. ACC operates an advanced
telecommunications network, consisting of ten long distance international and
domestic switches located in the U.S., Canada, the U.K. and Germany, six local
exchange switches located in the U.S., leased transmission lines, indefeasible
rights of use in international submarine cables ("IRUs") and network management
systems designed to optimize traffic routing.
ACC's objective is to grow its telecommunications customer base in its
existing markets and to establish itself in deregulating Western European
markets that have high density telecommunications traffic when ACC believes that
business and regulatory conditions warrant. The key elements of ACC's business
strategy are: (1) to broaden ACC's penetration of the U.S., Canadian, U.K. and
German telecommunications markets by expanding its long distance, local and
other service offerings and geographic reach; (2) to utilize ACC's operating
experience as an early entrant in deregulating markets in the U.S., Canada and
the U.K. to penetrate other deregulating telecommunications markets that have
high density telecommunications traffic; (3) to achieve economies of scale and
scope in the utilization of ACC's network; and (4) to seek acquisitions,
investments or strategic alliances involving assets or businesses that are
complementary to ACC's current operations.
ACC's principal competitive strengths are: (1) ACC's sales and marketing
organization and the customized service ACC offers to its customers; (2) ACC's
offering of competitive prices, which ACC believes generally are lower than
prices charged by the major carriers in each of its markets; (3) ACC's position
as an early entrant in the U.S., Canadian and U.K. markets as an alternative
carrier; (4) ACC's focus on more profitable international telecommunications
traffic between the U.S., Canada and the U.K.; and (5) ACC's switched-based
networking capabilities. ACC believes that its ownership of switches reduces its
reliance on other carriers and enables ACC to efficiently route
telecommunications traffic over multiple leased transmission lines and IRUs and
to control costs, call record data and customer information. The availability of
existing transmission capacity in its markets makes leasing of transmission
lines attractive to ACC and enables it to grow network usage without having to
incur the significant capital and operating costs associated with the
development and operation of a transmission line infrastructure.
ACC primarily targets business customers with approximately $500 to $15,000
of monthly usage, selected residential customers and colleges and universities.
ACC believes that, in addition to being price-driven, these customers tend to be
focused on customer service, more likely to rely on a single carrier for their
telecommunications needs and less likely to change carriers than larger
commercial customers. The diversity of ACC's targeted customer base enhances
network utilization by combining business-driven workday traffic with night and
weekend off-peak traffic from student and residential customers. ACC strives to
be more cost effective, flexible, innovative and responsive to the needs of its
customers than the major carriers, which principally focus their direct sales
efforts on large commercial accounts and residential customers.
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RECENT DEVELOPMENTS
ACC Management Changes. On December 5, 1997, ACC announced that its
Chairman and Chief Executive Officer, David K. Laniak, 62, had died unexpectedly
due to health-related complications. As a result, ACC's Board of Directors named
Robert M. Van Degna, Chairman of the Board of Directors. Mr. Van Degna has
served as an outside director of ACC since 1995. ACC's Board of Directors also
established an office of the Chief Executive to jointly perform the functions of
Chief Executive Officer, consisting of Christopher Bantoft, Executive Vice
President, Michael R. Daley, Executive Vice President and Chief Financial
Officer, and Steve M. Dubnik, Executive Vice President.
TCG Merger Agreement. On November 26, 1997, ACC entered into an Agreement
and Plan of Merger (the "TCG Merger Agreement"), pursuant to which a wholly-
owned subsidiary of Teleport Communications Group, Inc., a Delaware corporation
("TCG"), would be merged with and into ACC and ACC would survive the merger as a
wholly-owned subsidiary of TCG (the "TCG Merger"). If the TCG Merger is
consummated, following the TCG Merger, all of the capital stock of the surviving
corporation will be owned by TCG. Shares of ACC Common Stock will be exchanged
for merger consideration and then cancelled, with the result that ACC Common
Stock will no longer be listed on The Nasdaq National Market. Under the TCG
Merger Agreement, ACC shareholders will receive $50 in value of TCG Class A
Common Stock for each share of ACC stock, based upon the average closing price
of TCG stock for a ten trading day period preceding the date of merger. The
total value of the transaction would be approximately $1 billion. However, if
TCG's average closing price during the ten day trading period prior to closing
is below $45 or above $55, the exchange ratios will be fixed at 1.11111 shares
of TCG stock or 0.90909 shares of TCG stock, respectively, and ACC shareholders
will receive cash in lieu of any fractional shares. It is anticipated
that the merger will be treated as a tax-free exchange. Consummation of the TCG
Merger is subject to closing conditions and shareholder approval. No assurance
can be given that the TCG Merger will be consummated.
The Proposed Merger of TCG and AT&T. On January 8, 1998, AT&T Corp.
("AT&T") and TCG announced that they had entered into a definitive merger
agreement (the "AT&T Merger Agreement"), under which each share of TCG common
stock would be converted into the right to receive 0.943 of a share of common
stock, par value $1.00 per share, of AT&T. Under the AT&T Merger Agreement, a
wholly-owned subsidiary of AT&T would be merged with and into TCG and TCG would
survive the merger as a wholly-owned subsidiary of AT&T (the "TCG/AT&T Merger").
If the TCG/AT&T Merger is consummated, following the TCG/AT&T Merger, all of the
capital stock of the surviving corporation will be owned by AT&T. Shares of TCG
common stock will be exchanged for merger consideration in the form of AT&T
common stock, and cash in lieu of any fractional shares, and then cancelled. As
a result, shares of TCG common stock will no longer be listed on The Nasdaq
National Market. Consummation of the TCG/AT&T Merger is subject to closing
conditions and shareholder and regulatory approvals. It is unlikely that the
proposed TCG/AT&T Merger will close before the consummation of the TCG Merger,
due to the anticipated timing of receipt of regulatory approvals and other
closing conditions. No assurance can be given that the TCG/AT&T Merger will be
consummated.
Termination of U.S. WATS Merger. On October 28, 1997, ACC entered into an
Agreement and Plan of Merger (the "USW Merger Agreement") by and among ACC, ACC
Acquistion - Blue Corp., a Delaware corporation ("Acquisition Sub"), and US
WATS, Inc., a New York corporation ("USW"), pursuant to which Acquisition Sub
would have merged with and into USW (the "USW Merger"). On March 11, 1998, for
reasons beyond the control of both parties which made it impossible to conclude
the USW Merger prior to the March 31, 1998 termination date, ACC and USW agreed
to a mutual termination of the USW Merger Agreement.
INDUSTRY OVERVIEW
The global telecommunications industry has dramatically changed during the
past several years, beginning in the U.S. with AT&T's divestiture of its RBOCs
in 1984 and culminating with the 1996 amendments to the U.S. Communications Act
of 1934 (the "U.S. Communications Act"), and continuing in Canada, the U.K.
and other countries with various regulatory changes. Previously, the long
distance telecommunications industry in the U.S., Canada and the U.K. consisted
of one or a few large facilities-based carriers, such as AT&T, Bell Canada and
British Telecom. As a result of the AT&T divestiture and the recent legislative
changes in the U.S. and fundamental regulatory changes in Canada and the U.K.,
coupled with technological and network infrastructure developments which
increased significantly the voice and data telecommunications transmission
capacity of dominant carriers, the long distance industry has developed into a
highly competitive one consisting of numerous alternative long distance carriers
in each of these
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countries. In addition, since the AT&T divestiture in 1984, competition has
heightened in the local exchange market in the U.S. and Canada. ACC anticipates
that deregulatory and economic influences will promote the development of
competitive telecommunications markets in other countries.
Long Distance Market. The U.S. long distance market has grown to over $93
billion in annual revenues during 1996, according to FCC estimates. AT&T has
remained the largest long distance carrier in the U.S. market, retaining
approximately 48% of the market, with MCI and Sprint with respective market
shares of approximately 20% and 10% of the market during 1996. AT&T, MCI and
Sprint constitute what generally is regarded as the first tier in the U.S. long
distance market. Large regional long distance companies, some with national
capabilities, such as WorldCom, Inc. (which in 1996 merged with MFS
Communications, Inc.), CWI, Frontier Corp., Excel Telecommunications and LCI
International, constitute the second tier of the industry, although WorldCom
would become a first tier company upon consummation of its pending merger with
MCI. The remainder of the U.S. long distance market share is comprised of
several hundred smaller companies, including ACC U.S., known as third-tier
carriers. In addition, recent U.S. legislation, which removes certain long-
standing restrictions on the ability of the RBOCs to provide long distance
services, and the World Trade Organization ("WTO") accord on basic services,
will have a substantial impact on the long distance market.
Commencing in 1990, competition was introduced in the Canadian long
distance market. The Canadian long distance market is dominated by a consortium
of facilities-based local and long distance telephone companies (e.g., Bell
Canada, BC Tel, Maritime Tel) operating as the "Stentor" group of companies. A
second group of long distance providers, consisting principally of AT&T Canada
Long Distance Services Company ("AT&T Canada"), Sprint Canada (a subsidiary of
Call-Net Telecommunications Inc.) and fONOROLA Inc., own and operate
transmission lines through which they provide long distance voice and data
services in the Canadian markets. Other long distance providers, including ACC
Canada, generally lease transmission lines through which they resell long
distance services in the Canadian market.
The international, national and local markets for voice telephone services
in the U.K. and Northern Ireland accounted for approximately (Pounds) l.5
billion, (Pounds) 2.0 billion and (Pounds) 2.2 billion, respectively, in
revenues during the 12 months ended March 31, 1997, according to estimates from
The Office of Telecommunications ("Oftel"), the U.K. telecommunications
regulatory authority. In the U.K., British Telecom historically has dominated
the telecommunications market. British Telecom was the largest carrier during
such 12 month period, with approximately 58.2%, 78.4% and 88.7% of the revenues
from international, national and local voice telephone services, respectively.
Cable & Wireless ("CWC") which owns and operates interexchange and local loop
transmission facilities, is the second largest carrier of voice
telecommunications in the U.K. The remainder of the U.K. long distance market is
comprised of an emerging market of licensed public telephone operators, such as
Energis Communications Ltd. ("Energis"), WorldCom, ACC U.K. and various cable
companies, and switched-based resellers such as First Telecom and Esprit Telecom
of the U.K. Ltd. ("Esprit") and Sprint.
Long distance carriers in the U.S., Canada and the U.K. can be categorized
by several distinctions. One distinction is between transmission facilities-
based companies and non-transmission facilities-based companies, or resellers.
Transmission facilities-based carriers, such as AT&T, Bell Canada and British
Telecom, own their own long distance interexchange or transmission facilities
and originate and terminate calls through local exchange systems. Profitability
for transmission facilities-based carriers is dependent not only upon their
ability to generate revenues but also upon their ability to manage complex
networking and transmission costs. All of the first- and most of the second-tier
long distance companies in the U.S. markets are transmission facilities-based
carriers and generally offer service nationwide. Most transmission facilities-
based carriers in the third tier of the market offer their service only in a
limited geographic area. Some transmission facilities-based carriers contract
with other transmission facilities-based carriers to provide transmission where
they have geographic gaps in their facilities. Carriers that operate primarily
as switched-based resellers, such as ACC, carry their long distance traffic over
transmission lines leased from transmission facilities-based carriers, originate
and terminate calls through incumbent local exchange carriers or CLECs such as
TCG and contract with transmission facilities-based carriers to provide
transmission of long distance traffic either on a fixed rate lease basis or a
call volume basis. Profitability for non-transmission facilities-based carriers
is dependent largely on their
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ability to generate and retain sufficient revenue volume to negotiate attractive
pricing with one or more transmission facilities-based carriers.
A second distinction among long distance companies is that of switch-based
versus switchless resellers. Switch-based resellers, such as ACC, have one or
more switches, which are sophisticated computers that direct telecommunications
traffic to form a transmission path between a caller and the recipient of a
call. All transmission facilities-based carriers are switch-based carriers, as
are many non-transmission facilities-based carriers, including ACC. Switchless
resellers, in contrast, depend on one or more transmission facilities-based
carriers or switch-based resellers for transmission and switching facilities.
ACC believes that its ownership of switches reduces its reliance on other
carriers and enables ACC to efficiently route telecommunications traffic over
multiple leased transmission lines and to control costs, call record data and
customer information. The availability of existing transmission capacity in its
markets makes leasing of transmission lines attractive to ACC and enables it to
grow network usage without having to incur the significant capital and operating
costs associated with the development and operation of a transmission line
infrastructure.
Local Exchange Market. In the U.S., the existing structure of the
telecommunications industry principally resulted from the AT&T divestiture. As
part of the divestiture, seven RBOCs were created to offer services in specified
geographic areas called Local Access and Transport Areas ("LATAs"). The RBOCs
were separated from the long distance provider, AT&T, resulting in the creation
of distinct local exchange and long distance markets. Since the AT&T
divestiture, several factors have served to promote competition in the local
exchange market, including (i) the local exchange carriers' monopoly position,
which provided little incentive for the local exchange companies to reduce
prices, improve service or upgrade their networks, and related regulations which
required the local exchange carriers to, among other things, lease transmission
facilities to alternative carriers, such as ACC, (ii) customer desire for an
alternative to the local exchange carriers, which developed in part as a result
of competitive activities in the long distance market and increasing demand for
lower cost, high quality, reliable services, and (iii) the advancement of fiber
optic and digital electronic technology, which combined the ability to transmit
voice, data and video at high speeds with increased capacity and reliability.
In Canada, similar factors promoting competition in the local exchange
market developed in response to regulatory developments in the Canadian long
distance telecommunications market and to technological advances in the
telecommunications industry. The Canadian Radio-television and
Telecommunications Commission ("CRTC") has approved the introduction of
competition in local exchange services in Canada.
BUSINESS STRATEGY
ACC was an early entrant as an alternative carrier in the U.S., Canada and
the U.K. ACC's objective is to grow its telecommunications customer base in its
existing markets and to establish itself in other deregulating Western European
markets with high density telecommunications traffic. The key elements of ACC's
business strategy are to increase penetration of existing markets, enter new
markets, improve operating efficiency, and pursue acquisitions, investments and
strategic alliances.
Increase Penetration of Existing Markets. ACC's consolidated revenue has
grown from $126.4 million to $372.6 million over the three fiscal years ended
December 31, 1997, although ACC expects its growth to decrease over time. ACC
plans to further increase its revenue and customer base in the U.S., Canadian
and U.K. markets by expanding its service offerings and geographic reach. The
expansion of ACC's service offerings is designed to reduce the effects of price
per minute decreases for long distance service and to decrease the likelihood
that customers will change telecommunication carriers. Through this strategy,
ACC will seek to build a broad base of recurring revenues in the U.S., Canada
and the U.K. ACC also offers local telephone services in selected additional
U.S. and Canadian markets, including New York, Massachusetts, Quebec and
Ontario, as well as additional data communications services in the U.S. and
Canada. ACC believes that offering local services will enhance its ability to
attract and retain long distance customers and reduce ACC's access charges as a
percentage of revenues.
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Enter New Markets. ACC believes that its operating experience in
deregulating markets in the U.S., Canada and the U.K. and its experience as an
early entrant as an alternative carrier in those markets will assist ACC in
identifying opportunities in other deregulating countries with high density
telecommunications traffic. In particular, ACC believes that its position in the
U.S., Canadian and U.K. telecommunications markets and its experience in
providing international telecommunications service will assist it in
establishing a presence in Western European markets when ACC believes that
business and regulatory conditions warrant.
Improve Operating Efficiency. ACC strives to achieve economies of scale
and scope in the use of its network, which consists of leased transmission
facilities, ten international and domestic switches, six local exchange switches
and information systems. In order to enhance the efficiency of the fixed cost
elements of its network, ACC seeks to increase its traffic volume and balance
business-driven workday traffic with night and weekend off-peak traffic from
student and residential customers. ACC anticipates that competition among
transmission facilities-based providers of telecommunications services in the
U.S. and Canadian markets will afford ACC opportunities for reductions in the
cost of leased line facilities. ACC seeks to reduce its network cost per
billable minute by more than any reduction in revenue per billable minute. ACC
also intends to acquire additional switches and upgrade its existing switches to
enhance its network in anticipation of growth in ACC's customer base and provide
additional telecommunications services. ACC believes that its network switches
enable ACC to efficiently route telecommunications traffic over multiple
transmission facilities to reduce costs, control access to customer information
and grow network usage without a corresponding increase in support costs.
Pursue Acquisitions, Investments and Strategic Alliances. As ACC expands
its service offerings and its network, ACC anticipates that it will seek to
develop strategic alliances both domestically and internationally and to acquire
assets and businesses or make investments in companies that are complementary to
ACC's current operations. ACC believes that the pursuit of an active acquisition
strategy is an important means toward achieving growth and economies of scale
and scope in its targeted markets. Through acquisitions, ACC believes that it
can further increase its traffic volume to further improve the usage of the
fixed cost elements of its network.
SERVICES
Commercial Long Distance Services. ACC offers its commercial customers in
the U.S. and Canada an array of customized services and has developed a similar
range of service offerings for commercial customers in the U.K.
In the U.S., although ACC historically has originated long distance voice
services principally in New York and Massachusetts, ACC is currently authorized
to originate intrastate long distance voice and data services in 48 states and
international voice and data services in all states. ACC's U.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. ACC's U.S. business services also include
toll-free "800" or "888" services. In addition, ACC currently provides
intra-LATA service in certain areas for customers who make a large number of
intra-LATA calls. ACC installs automatic dialing equipment to enable customers
to place such calls over ACC's network without having to dial an access code.
However, various states, including New York, are moving to implement "equal
access" for intra-LATA toll calls such that ACC's customers in such
jurisdictions will be able to use ACC's network on a "1+" basis to complete
intra-LATA toll calls. ACC's ability to compete in the intra-LATA toll market
depends upon the margin which exists between the access charges it must pay to
the local exchange company for originating and terminating intra-LATA calls, and
the retail toll rates established by the local exchange carriers for the local
exchange carriers' own intra-LATA toll service. ACC's commercial services
generally are priced below the rates charged by the major carriers for similar
services and are competitive with those of other carriers.
In Canada, ACC currently originates long distance voice and data services
in the Montreal, Toronto and Vancouver metropolitan areas as well as throughout
Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario and
Quebec. ACC offers its Canadian commercial customers both voice and data
telecommunications services. ACC's long distance voice services are offered to
its business customers in a nine-level discount structure marketed under the
name "Edge." Discounts are based on calling volume and call destination and
typically result in savings
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ranging from 10% to 20% 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 the Stentor group.
ACC also offers toll-free "800" services within Canada, as well as to and from
the U.S., and offers an ACC Travel Card providing substantial savings off
Stentor member "Calling Card" rates. ACC Canada has introduced a frame relay
network, Internet access services (including Web design/hosting) and paging
services, and now provides these services in all provinces except Saskatchewan,
Manitoba, New Brunswick and Newfoundland.
ACC originates long distance voice services throughout the U.K. ACC
presently offers its U.K. customers voice telecommunications services. These
services include indirect access (known as "ACCess 1601") through the public
switched telephone network ("PSTN") and the use of direct access lines to
ACC's network (known as "ACCess Direct") for higher-volume business 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. ACCess
Direct is generally cost effective only for customers making at least (Pounds)
5,000 per month in calls.
ACC's U.S. and Canadian commercial customers are offered customized
services, such as comprehensive billing packages and its "Travel Service
Elite" domestic calling cards, which allow the customer to place long distance
calls at competitive rates from anywhere in the U.S. and Canada. ACC'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.
University Program. ACC's university program offers a variety of
telecommunications services to educational institutions ranging from long
distance service for administration and faculty, to integrated on-campus
services, including local and long distance service, voice mail, intercom
calling and operator services for students, administrators and faculty. ACC'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, ACC often installs telecommunications equipment which, depending
upon the circumstances, may include a switch or private branch exchange, voice
mail, cabling and, in the U.K., pay telephones. Pay phone usage in the U.K.,
particularly at universities, is more prevalent than in the U.S. and Canada. To
access this market directly, ACC has established a pay phone division in the
U.K., which supplies pay phones that will automatically route calls from
universities and other institutions over ACC U.K.'s network.
ACC's long distance rates in the U.S. for students generally are priced at
a 10% discount from those charged by the largest long distance carriers. ACC'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, faculty and
administration. Most of ACC's contracts in Canada also provide for exclusive
university support for marketing to alumni. These arrangements allow ACC to
market its services to these groups through its affinity programs.
ACC offers university customers in the U.S., Canada and the U.K. certain
customized services. ACC offers academic institutions 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, ACC provides
a billing format that indicates during each statement period the savings per
call (in terms of the discount from the largest long distance carrier's rates)
realized during the billing period, and for all university customers ACC
provides a call detail report recording every long distance call. In addition,
for university student customers, ACC provides individual bills for each user of
the same telephone in a dormitory room or suite so that each student in the
dormitory room or suite can be billed for the calls he or she made.
Many of ACC's university customers in the U.S. are offered operator
services, which are available 24 hours per day, seven days per week. ACC also
offers its U.S. university customers its "'Travel Service Elite"' domestic
calling card. In addition, ACC sells a prepaid calling card in the U.S., which
allows customers to prepay for a predetermined
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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.
ACC's sales group targets university customers in the U.S., Canada and in
the U.K. In the U.S. university market, ACC generally targets small to medium
size universities and colleges with full time enrollments in the range of 1,000
to 5,000 students. In Canada, ACC has been able to establish relationships with
several large universities. ACC believes that, while its marketing approach in
Canada is similar to that in the U.S., its nationwide presence in Canada assists
it in marketing to larger academic institutions. In the U.K., ACC has been able
to establish long-term relationships with several large universities. ACC
believes that, while its marketing approach in the U.K. is similar to that in
the U.S., it is able to access larger educational institutions because of its
nationwide presence and because transmission facilities-based carriers have not
focused on this market. ACC believes that competition in the university market
is based on price, as well as the marketing of unique programs and customizing
of telecommunications services to the needs of the particular institution and
that its ability to adapt to customer needs has enhanced its development of
relationships with universities.
Residential Long Distance Services. ACC offers its residential customers
in the U.S. and Canada a variety of long distance service plans and is currently
offering and developing similar plans for its residential customers in the U.K.
In the U.S., ACC'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,
ACC's residential services are priced below AT&T's premium rates for similar
services. In Canada, ACC offers three different residential service programs.
The basic offering is a discount plan, with call pricing discounted from the
Stentor companies' tariffed rates for similar services depending on the time of
day and day of the week. ACC also offers its "Sunset Savings Plan," which
allows calling across Canada and to the continental U.S. at a flat rate per
minute. In the Toronto metropolitan area, ACC 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 are also offered
to ACC's U.S. and Canadian residential customers. In the U.K., all residential
customers use ACC's ACCess 1601 service, which provides savings off the standard
rates charged for residential service by British Telecom or CWC, but requires
the customer to dial a four digit access code before dialing the area code and
number.
International Long Distance Services. ACC offers international products
and services to both its existing customer base and to potential customers in
the U.S., Canada and the U.K. ACC's international authorizations
("International Licenses") allow ACC to resell international long distance
service on leased international circuits connected to the PSTN at both ends
between the U.S. and Canada, the U.S. and the U.K., Canada and the U.K., and,
subject to certain safeguards on non-competitive routes and destination country
regulations, the U.K. and all other countries and territories, and to own
interests in international submarine cable facilities for service between the
U.S. and the U.K. and other international points. ACC believes it can compete
effectively for international traffic because these international authorizations
allow it to offer end-to-end services on certain routes and route traffic
efficiently so as to price its services at cost-based rates that are lower than
the international settlement-based rates that would otherwise apply to such
traffic. However, numerous other carriers also have similar resale licenses.
Implementation of the WTO agreement is expected to increase opportunities for
alternative call routings but will also increase competition in the industry.
Moreover, a recent FCC decision, currently on appeal and subject to petitions
for reconsideration, is intended to accelerate reductions in international
calling rates and may reduce ACC's margin on international services.
Local Exchange Services. Building on its experience in providing local
telephone service to various university customers, ACC took advantage of
regulatory developments in New York State and in 1994 began offering local
telephone service to commercial customers in upstate New York. As a result of
its August 1995 acquisition of Metrowide Communications, ACC provides local
telephone service as a reseller in Ontario, Canada, and began providing such
service in Quebec in 1996. ACC believes that it can strengthen its relationships
with existing commercial, university and college and residential customers in
New York State and Canada and can attract new customers by offering them local
and long distance services, thereby providing a single source for comprehensive
telecommunications services. Providing local telephone service may enable ACC to
serve new local exchange customers
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even if they are already under contract with a different interexchange carrier
for long distance service. During 1997, ACC expanded its local telephone
operations by installing switches in New York City, Albany and Buffalo, New
York, and Boston and Springfield, Massachusetts.
ACC has limited experience in providing local telephone services, having
commenced providing such services in 1994. In order to attract local customers,
ACC must offer substantial discounts from the prices charged by local exchange
carriers and must compete with other alternative local companies that offer such
discounts. Larger, better capitalized alternative local providers, including
AT&T, among others, will be better able to sustain losses associated with
discount pricing and initial investments and expenses. The local telephone
service business requires significant initial investments and expenses in
capital equipment, as well as significant initial promotional and selling
expenses. There can be no assurance that ACC will be able to lease transmission
facilities from local exchange carriers at wholesale rates that will allow ACC
to compete effectively with the local exchange carriers or other alternative
providers or that ACC will generate positive operating margins or attain
profitability in its local telephone service business.
SALES AND MARKETING
ACC markets its services in the U.S., Canada, the U.K. and Germany through
a variety of channels, including ACC's internal sales forces, independent sales
agents, co-marketing arrangements and affinity programs, as described below. As
of December 31, 1997, ACC had a total of approximately 380 internal sales
personnel and approximately 580 independent sales agents serving its U.S.,
Canadian, U.K. and German markets. Although it has not experienced significant
turnover in recent periods, a loss of a significant number of independent sales
agents could have a material adverse effect on ACC's ability to generate
additional revenue. ACC maintains a number of sales offices in the Northeastern
U.S., Canada, and the U.K. In addition, with respect to its university and
student customers in each country, ACC has designated representatives to assist
in customer enrollment, dissemination of marketing information, complaint
resolution and, in some cases, collection of customer payments, with
representatives located on some campuses. ACC actively seeks new opportunities
for business alliances in the form of affinity programs and co-marketing
arrangements to provide access to alternative distribution channels.
During each of the last three years, no customer accounted for 10% or more
of ACC's total revenue.
United States. ACC markets its services in the U.S. through ACC's internal
sales personnel and independent sales agents as well as through attendance and
representation at significant trade association meetings and industry
conferences of target customer groups. ACC's sales and marketing efforts in the
U.S. are targeted primarily at business customers with $500 to $15,000 of
monthly usage, selected residential customers and universities and colleges. ACC
also markets its services to other resellers and rebillers. ACC plans to
leverage its market base in New York and Massachusetts into other New England
states and Pennsylvania and to eventually extend its marketing focus to other
states. ACC has obtained authorization to originate intrastate long distance
voice services in 48 states.
Canada. ACC markets its long distance services in Canada through internal
sales personnel and independent sales agents, co-marketing arrangements and
affinity programs. ACC focuses its direct selling efforts on medium-sized and
large business customers. ACC also markets its services to other resellers and
rebillers. ACC uses independent sales agents to target small to medium-sized
business and residential customers throughout Canada. These independent sales
agents market ACC'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 an independent agent network allows
ACC to expand into additional markets without incurring the significant initial
costs associated with a direct sales force.
In addition to marketing its residential services in Canada through
independent sales agents, ACC 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 ACC to
target groups with a nationwide presence without engaging in costly nationwide
advertising campaigns. For example, ACC Canada has established affinity programs
with such groups as the Home Service Club of Canada, the University of Toronto
and McGill and Western Universities. In addition, ACC has developed a co-
marketing arrangement with Hudson's Bay Company (a large
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Canadian retailer) through which ACC's telecommunications services are marketed
under the name "The Bay Long Distance Program" and "Zellers Long Distance."
United Kingdom. In the U.K., ACC markets its services to business and
residential customers, as well as other telecommunications resellers, through a
multichannel distribution plan including its internal sales force, independent
sales agents, co-marketing arrangements and affinity programs.
ACC generally utilizes its internal sales force in the U.K. to target
medium and large business customers, a number of which have enough volume to
warrant a direct access line to ACC's switch, thereby bypassing the PSTN. ACC
markets its services to small and medium-sized businesses through independent
sales agents. Telemarketers also are used to market services to small business
customers and residential customers and to generate leads for the other members
of ACC's internal sales force and independent sales agents. ACC U.K. has
established an internal marketing group that is focused on selling its service
to other telecommunications resellers in the U.K. and certain European countries
on a wholesale basis. ACC U.K. has entered into co-marketing arrangements with
utilities, university alumni groups and other organizations.
NETWORK
In the U.S., Canada and the U.K., ACC utilizes a network of lines leased
under volume discount contracts with transmission facilities-based carriers,
much of which is fiber optic cable. The selection of any particular circuit for
the transmission of a call is controlled by routing software, located in the
switches, that is designed to cause the most efficient use of ACC's network. ACC
evaluates opportunities to install switches in selected markets where the volume
of its customer traffic makes such an investment economically viable.
Utilization of ACC's switches allows ACC to route customer calls over multiple
networks to reduce costs.
Some of ACC's contracts with transmission facilities-based carriers contain
underutilization provisions. These provisions require ACC to pay fees to the
transmission facilities-based carriers if ACC does not meet minimum periodic
usage requirements. ACC has not been assessed any underutilization charges in
the past. However, there can be no assurance that such charges would not be
assessed in the future. Other resellers generally contract with ACC on a month-
to-month basis, select ACC almost exclusively on the basis of price and are
likely to terminate their arrangements with ACC if they can obtain better
pricing terms elsewhere. ACC uses projected sales to other resellers in
evaluating the trade-offs between volume discounts and the minimum utilization
rates it negotiates with transmission facilities-based carriers. If sales to
other resellers do not meet ACC's projected levels, ACC could incur
underutilization charges and be placed at a disadvantage in negotiating future
volume discounts.
ACC generally utilizes redundant, highly automated advanced
telecommunications equipment in its network and has diverse alternate routes
available in cases of component or facility failure. Automatic traffic re-
routing enables ACC to provide a high level of reliability for its customers.
Computerized automatic network monitoring equipment facilitates fast and
accurate analysis and resolution of network problems. ACC provides customer
service and support, 24-hour network monitoring, trouble reporting and response,
service implementation coordination, billing assistance and problem resolution.
In the U.S., ACC maintains three long distance switches and six local
exchange switches. These switches and additional points of presence ("POPs")
provide an interface with the PSTN to service ACC's customers. Lines leased from
transmission facilities-based carriers link ACC's U.S. points of presence to its
switches. ACC U.S. maintains a leased, direct trans-Atlantic link with ACC U.K.
that it established in 1994 following ACC's receipt of its U.K. International
Simple Resale License for U.K.-U.S. calls and international private line resale
authority in the U.S. ACC has purchased an IRU to supplement such trans-Atlantic
leased-lines to the U.K. and to enable ACC to reduce network costs.
In Canada, ACC maintains long distance switches in Toronto, Montreal and
Vancouver. ACC also maintains frame relay nodes for switched data in Toronto,
Montreal, Vancouver and Calgary. ACC uses transmission lines leased
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from transmission facilities-based carriers to link its Canadian POPs to its
switches. This network is also linked with ACC's switches in the U.S. and the
U.K. ACC Canada also maintains a leased, direct trans-Atlantic link with ACC
U.K. that it established following the grant to ACC U.K. of its ISR License.
This transmission line enables ACC Canada to send traffic to the U.K. at rates
below those charged by Teleglobe Canada, the exclusive Canadian transmission
facilities-based carrier for international calls, other than those to and from
the U.S. and Mexico.
In the U.K., ACC maintains long distance switches in London, Manchester and
Bristol, England. This network is also linked with ACC's switches in the U.S.
and Canada. Customers can access ACC's U.K. network through direct access lines
or by dial-up access using auto dialing equipment, indirect access code dialing
or least cost routing software integrated in the customer's telephone equipment.
In December 1996, ACC U.K. was awarded an International Facilities License, and
received a Public Telecommunications Operator license in April 1997, which
licenses have enabled ACC to build a microwave network in the U.K. and to begin
to use the U.K. as a regional hub for international telecommunications traffic.
In February 1998 ACC installed a long distance switch in Dusseldorf,
Germany and commenced offering switch-based long distance service to its
customers. In 1997, the Company received a Class 4 full voice telephony license
from the German Ministry of Post and Telecommunications, which became effective
January 1, 1998, and which is a requirement in order to provide switch-based
telecommunication services in Germany.
Network costs are the single largest expense incurred by ACC. ACC strives
to control its network costs and its dependence on other carriers by leasing
transmission lines on an economical basis. ACC is also considering ownership of
certain transmission facilities as a means of reducing its network costs. ACC
has purchased IRUs and negotiated leases of private line circuits with carriers
that operate fiber optic transmission systems at rates independent of usage,
particularly on routes over which ACC carries high volumes of calls such as
between the U.S. and Canada and the U.S. and the U.K. ACC attempts to maximize
the efficient utilization of its network in the U.S., Canada and the U.K. by
marketing to commercial and academic institution customers, who tend to use its
services most frequently on weekdays during normal business hours, and
residential and student customers, who use these services most often during
night and weekend off-peak hours.
INFORMATION SYSTEMS
ACC believes that maintaining sophisticated and reliable billing and
customer services information systems that integrate billing, accounts
receivable and customer support is a core capability necessary to record and
process the data generated by a telecommunications service provider. While ACC
believes its management information system is currently adequate, it has not
grown as quickly as ACC's business and substantial investments are needed. ACC
is developing and implementing new systems designed to (i) enhance ACC's ability
to monitor and respond to the evolving needs of its customers by developing new
and customized services, (ii) improve least-cost routing of traffic on ACC's
international network, (iii) provide sophisticated billing information that can
be tailored to meet the requirements of its customer base, (iv) provide high
quality customer service, (v) detect and minimize fraud, (vi) verify payables to
suppliers of telecommunications transmission facilities and (vii) integrate
additions to its customer base. A variety of problems are often encountered in
connection with the implementation of new information systems. There can be no
assurance that ACC will not suffer adverse consequences or cost overruns in the
implementation of the new information systems or that the new systems will be
appropriate for ACC.
COMPETITION
The telecommunications industry is highly competitive and is significantly
influenced by the marketing and pricing decisions of the larger industry
participants. In each of its markets, ACC competes primarily on the basis of
price and also on the basis of customer service and its ability to provide a
broad array of telecommunications services. The industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. Although many of ACC's customers are under multi-year
contracts, several of ACC's largest customers (primarily other long distance
carriers) are on month-to-month contracts and are particularly
<PAGE>
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price sensitive. Revenues from other resellers accounted for approximately 32%,
4% and 28% of the revenues of ACC U.S., ACC Canada and ACC U.K., respectively,
in 1997. With respect to these customers, ACC competes almost exclusively on
price and does not have long term contracts. The industry has experienced and
will continue to experience rapid regulatory and technological change. Many
competitors in each of ACC's markets are significantly larger than ACC, have
substantially greater resources than ACC, control transmission lines and larger
networks than ACC and have longstanding relationships with ACC's target
customers. There can be no assurance that ACC will remain competitive in this
environment. Regulatory trends have had, and may have in the future, significant
effects on competition in the industry. As ACC expands its geographic coverage,
it will encounter increased competition. Moreover, ACC believes that competition
in non-U.S. markets is likely to increase and become more like competition in
the U.S. markets over time as such non-U.S. markets continue to experience
deregulatory influences.
Competition in the long distance industry is based upon pricing, customer
service, network quality, value-added services and customer relationships. The
success of a non-transmission facilities-based carrier such as ACC depends
largely upon the amount of traffic that it can commit to the transmission
facilities-based carriers and the resulting volume discounts it can obtain.
Subject to contract restrictions and customer brand loyalty, resellers like ACC
may competitively bid their traffic among other national long distance carriers
to gain improvement in the cost of service. The relationship between resellers
and the larger transmission facilities-based carriers is twofold. First, a
reseller is a customer of the services provided by the transmission facilities-
based carriers, and that customer relationship is predicated primarily upon the
pricing strategies of the first tier companies. The reseller and the
transmission facilities-based carriers are also competitors. The reseller will
attract customers to the extent that its pricing for customers is generally more
favorable than the pricing offered the same size customers by larger
transmission facilities-based carriers. However, transmission facilities-based
carriers have been aggressive in developing discount plans which have had the
effect of reducing the rates they charge to customers whose business is sought
by the reseller. Thus, the business success of a reseller is significantly tied
to the pricing policies established by the larger transmission facilities-based
carriers. There can be no assurance that favorable pricing policies will be
continued by those larger transmission facilities-based carriers.
United States. In the U.S., ACC is authorized to originate interstate and
international long distance services nationwide and to originate intrastate long
distance service in 48 states (although it currently derives most of its U.S.
revenues principally from calls originated in New York and Massachusetts). ACC
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 ACC.
AT&T is the largest supplier of long distance services in the U.S. inter-LATA
market. ACC also competes within its U.S. call origination areas with other
national long distance telephone carriers, such as MCI, Sprint and regional
companies which resell transmission services. RBOCs from outside the NYNEX/Bell
Atlantic region, including SBC Communications, have, under the authority
contained in the 1996 Act, begun to offer long distance services in the
NYNEX/Bell Atlantic region. In the intra-LATA market, ACC also competes with the
local exchange carriers servicing those areas. In its local service areas in New
York State and Massachusetts, ACC presently competes or in the future will
compete with NYNEX/Bell Atlantic, Frontier Corp., AT&T, Citizens Telephone Co.
and WorldCom and with cellular and other wireless carriers. These local exchange
carriers all have long-standing relationships with their customers and have
financial, personnel and technical resources substantially greater than those of
ACC. Furthermore, joint ventures such as those between MCI and Microsoft
Corporation ("Microsoft"), under which Microsoft will promote MCI's services,
the joint venture among Sprint, Deutsche Telekom AG and France Telecom, called
Global One, the recently announced merger of WorldCom and MCI, and other
strategic alliances could increase competitive pressures upon ACC. The recent
merger between Nynex Corp. and Bell Atlantic is likely to strengthen the
financial resources of the new, combined company, and its integrated networks
may enhance its ability to offer long distance services in the combined
NYNEX/Bell Atlantic region.
In addition to these competitive factors, recent and pending deregulation
in each of ACC's markets may encourage new entrants. For example, as a result of
the 1996 Act, RBOCs are allowed to enter the long distance market immediately in
"out of region" states, and in the states where the RBOC is an incumbent LEC
upon a showing that certain conditions related to competition have been met.
AT&T, MCI and other long distance carriers, utilities and cable
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television companies are allowed to enter the local telecommunications market.
In addition, the FCC has, on several occasions since 1984, approved or required
price reductions by AT&T and, in 1995 and 1996, the FCC reclassified AT&T as a
"non-dominant" carrier for domestic and international long distance services,
which substantially reduces the regulatory constraints on AT&T. In the recently-
completed World Trade Organization talks, the U.S. committed to allowing foreign
carriers heretofore prohibited from competing in U.S. markets, to enter the U.S.
local, long distance, and international markets, and the FCC has amended its
rules, effective February 1998, to implement these commitments, allowing
virtually open entry to the U.S. market by all entities from WTO member
countries. The WTO accord will likely increase the level of competition in the
U.S. local, long distance, and international markets. ACC believes that the
principal competitive factors affecting its market share in the U.S. are
pricing, customer service and variety of services. 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, together with personalized customer service and
support, ACC believes that it competes effectively with other local and long
distance telephone carriers and resellers in its service areas. ACC'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.
Canada. In Canada, ACC competes with facilities-based carriers, other
resellers and rebillers. ACC's principal transmission facilities-based
competitors are the Stentor group of companies, in particular, Bell Canada, the
dominant suppliers of long distance services in Canada, AT&T Canada, which
provides certain facilities-based and long distance services to business and
residential customers, and Sprint Canada and fONOROLA Inc., which provide
certain transmission facilities-based services and also act as reseller of
telecommunications services. ACC also competes against London Telecom, a
reseller of telecommunications services. ACC believes that, for some of its
customers and potential customers, it has a competitive advantage over other
Canadian resellers as a result of 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 many other resellers.
United Kingdom. ACC U.K. currently holds a National PTO License and an
International Facilities License and competes with facilities-based carriers and
other resellers. ACC's principal competitors in the U.K. are British Telecom,
the dominant supplier of telecommunications services in the U.K., and CWC. ACC
also faces competition from other operators such as Energis and WorldCom, and
from resellers including Esprit and Sprint. ACC believes the services of ACC
U.K. are competitive, in terms of price and quality, with the service offerings
of its U.K. competitors primarily because of its advanced network-related
hardware and software systems and the network configuration and traffic
management expertise employed by it in the U.K.
REGULATION
United States
The services which the Company's U.S. operating subsidiaries provide are
subject to varying degrees of federal, state and local regulation. The FCC
exercises jurisdiction over all facilities of, and services offered by,
telecommunications common carriers to the extent that they involve the
provision, origination or termination of jurisdictionally interstate or
international communications. The state regulatory commissions retain
jurisdiction over the same facilities and services to the extent they involve
origination or termination of jurisdictionally intrastate communications. In
addition, many regulations may be subject to judicial review, the result of
which the Company is unable to predict.
Telecommunications Act of 1996 and the FCC's Interconnection Orders. The
1996 Act is intended to introduce increased competition in U.S.
telecommunications markets. It opens the local services market by requiring
incumbent LECs to permit interconnection to their networks and by establishing
incumbent LEC obligations with respect to unbundled access, resale, number
portability, dialing parity, access to rights-of-way, mutual compensation and
other matters. In addition, the 1996 Act codifies the local exchange carriers'
equal access and nondiscrimination obligations and preempts state regulation
that prohibits or may have the effect of prohibiting the ability of any entity
to provide any
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intra- or interstate telecommunications service. The legislation also contains
special provisions that eliminate the AT&T Divestiture Decree (the "AT&T
Divestiture Decree") (and similar antitrust restrictions on the GTE Operating
Companies) which restricts the RBOCs from providing long distances services.
These new provisions permit an RBOC to enter the "out-of-region" long distance
market immediately and the "in-region" long distance market if it satisfies
several procedural and substantive requirements, including showing that
facilities-based competition is present in its market and that it has entered
into interconnection agreements which satisfy a 14-point "checklist" of
competitive requirements. The Company is likely to face significant additional
competition from several companies, including from NYNEX/Bell Atlantic, the RBOC
in the Company's Northeastern U.S. service area, which may be among the first
RBOCs permitted to offer in-region long distance services. The NYSPSC is
currently reviewing an application by NYNEX/Bell Atlantic for such in-region
service. The 1996 Act provides for certain safeguards to protect against
anticompetitive abuse by the RBOCS, but whether these safeguards will provide
adequate protection to alternative carriers, such as the Company, and the impact
of anticompetitive conduct if such conduct occurs, is unknown.
As required by the 1996 Act, in August 1996 the FCC adopted new rules
implementing certain provisions of the 1996 Act (the "Interconnection Orders").
These rules are designed to implement the pro-competitive , deregulatory
national policy framework of the new statute by removing or minimizing the
regulatory, economic and operational impediments to competition for facilities-
based and resold local services, including switched local exchange service.
Although setting minimum, uniform, national rules, the Interconnection Orders
also rely heavily on states to apply these rules and to exercise their own
discretion in implementing a pro-competitive regime in their local telephone
markets.
Among other things, the Interconnection Orders establish rules requiring
incumbent LECs to interconnect with new entrants such as the Company at
specified network points; require incumbent LECs to provide carriers
nondiscriminatory access to network elements on an unbundled basis at any
technically feasible point at rates that are just, reasonable and
nondiscriminatory; establish rules requiring incumbent LECs to allow
interconnection via physical virtual collocation; require the states to set
prices for interconnection, unbundled elements, and termination of local calls
that are nondiscriminatory and cost-based; require incumbent LECs to offer for
resale any telecommunication service that the carrier provides at retail to end
users at prices to be established by the states but which generally are at
retail prices minus reasonably avoided costs; and require LECs and utilities to
provide new entrants with nondiscriminatory access to poles, ducts, conduit and
rights of way owned or controlled by LECs or utilities. Exemptions from some of
these rules are available to LECs which qualify as rural LECs under the 1996
Act. The Interconnection Orders also require that intra-LATA presubscription
(pursuant to which LEC's must allow customers to choose different carriers from
intra-LATA toll service without having to dial extra digits) be implemented no
later than February 1999; that incumbent LECs provide new entrants with
nondiscriminatory access to directory assistance services, directory listings,
telephone numbers, and operator services; and that incumbent LECs comply with
certain network disclosure rules designed to ensure interoperability of multiple
local switched networks.
Petitions seeking reconsideration of one or more aspects of the
Interconnection Orders have been filed with the FCC and are pending. Also, the
Interconnection Orders have been appealed to various circuits of the U.S. Court
of Appeals which appeals were consolidated into proceedings before the U.S.
Eighth Circuit Court of Appeals. Certain of the rules adopted in the
Interconnection Orders, including rules that concern the pricing of
interconnection, have been vacated by the Court. Both the FCC and various
competitive carriers have petitioned the U.S. Supreme Court to review the Eighth
Circuit's rulings on the Interconnection Orders.
The 1996 Act both provided the FCC with deregulatory authority and required
the FCC to adopt rules to implement specific provisions of the 1996 Act.
Specifically, the FCC was provided authority to forebear from regulating, in
whole or in part, carriers where the FCC determines to that such forbearance is
consistent with the public interest. The FCC has engaged in a number of
additional rulemakings designed to transition to the increasingly deregulated
local and long distance markets. Two of the most prominent proceedings involved
universal service and access charge reform. Others are anticipated. There can
be no assurance as to how the 1996 Act, the Interconnection Orders or other FCC
and PSC rulemakings will be implemented or enforced or as to what effect they
will have on competition within the telecommunications industry generally or on
the competitive position of the Company.
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Federal. The FCC has classified ACC U.S. as a non-dominant interexchange
carrier. Generally, the FCC has chosen not to exercise its statutory power to
closely regulate the charges or practices of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies. The FCC also has the power to impose more stringent regulatory
requirements on the Company and to change its regulatory classification. The
Company believes that, in the current regulatory environment, the FCC is
unlikely to do so.
Until October 1995, AT&T was classified as a dominant carrier but AT&T
successfully petitioned the FCC for non-dominant status in the domestic
interstate and interexchange market. Therefore, certain pricing restrictions
that once applied to AT&T have been eliminated, which could result in increased
prices for services the Company purchases from AT&T and more competitive retail
prices offered by AT&T to customers. 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 1996, AT&T was re-classified as a non-dominant carrier to international
services.
Carriers such as the Company have traditionally been required to file
tariffs with the FCC containing the rates, terms and conditions of interstate
service. However, the FCC recently ordered that following a transition period,
scheduled to have concluded in November 1997, non-dominant carrier will no
longer be able to file tariffs with the FCC concerning their long distance
services. Such carriers will, however, be required to maintain at their
offices, and to provide to customers or regulators upon request, information
concerning their long distance services. The FCC order eliminating tariffs has
been appealed to the U.S. Court of Appeals for the District of Columbia. That
appeal is pending. A motion requesting stay of the FCC's detariffing order has
been filed with the Court. It argued that tariffing establishes a legal binding
relationship between carriers and customers, and that detariffing eliminates
certainty with regard to those legal relationships. It also argued that
detariffing imposes costs upon carriers because carriers will need to enter into
alternative forms of legally binding relationships with customers. That motion
was granted in February 1997. Therefore, carriers such as the Company must
continue to tariff interstate services until the appeal is concluded or the stay
is lifted. There can be no assurance of whether the appeal will be successful,
or if successful, what effect it may have on the Company. However if
detariffing ultimately takes effect, the Company, like other long distance
companies, would likely incur some additional costs in establishing legally
binding relationships with customers.
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 operations. The Company's
U.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 or switched services 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 for switched services between the U.S. and Canada, and was the first
entity to file to obtain such authority between the U.S. and the United Kingdom,
which it received in September 1994. The Company has sought authority to resell
private lines on a switched service basis between the U.S. and other countries.
Under recently adopted FCC policies and under proposals to implement the WTO
agreement, it is expected to become easier, from a regulatory perspective, to
obtain such authority for additional markets. The Company is also authorized to
acquire interests in international facilities, enabling its recent acquisition
of IRUs.
Among domestic local carriers, only the incumbent local exchange carriers
are currently classified as dominant carriers. Thus, the FCC regulates many of
the local exchange carriers' rates, charges and services to a greater degree
than the Company's, although FCC regulation of the local exchange carriers is
expected to decrease over time, particularly in light of recent U.S.
legislation.
The 1996 Act mandated several important federal regulatory developments.
The first concerns universal services. On May 8, 1997, the FCC issued an order
to implement the provisions of the 1996 Act relating to the preservation and
advancement of universal telephone service (the "Universal Service Order"). The
Universal Service Order affirmed the policy principles for universal telephone
services set forth in the Telecommunications Act, including quality service,
affordable rates, access to advanced services, access in rural and high-cost
areas, equitable and non-discriminatory contributions, specific and predictable
support mechanisms, and access to advanced telecommunications
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services for schools, health care providers and libraries. The Universal Service
Order added "competitive neutrality" to the 1996 Act's universal service
principles by provided that universal service support mechanisms and rules
should not unfairly advantage or disadvantage one provider over another, nor
unfairly favor or disfavor one technology over another. The Universal Service
Order also requires all telecommunications carriers providing interstate
telecommunications services, including the Company, to contribute to universal
service support. However, because the contribution factors are likely to vary
quarterly, the annualized impact on ACC cannot be estimated at this time.
An issue that may affect the Company is access charge reform. Access
charges are charges imposed by the LECs on long distance providers for access to
the local exchange network, and were designed to compensate the LEC for its
investment in the local network. In addition to economic considerations, when
adopted in 1984 at the time AT&T was divested from the RBOCs, access charge
rates reflected public policy considerations related to universal service and
the desirability of low local rates. Interstate access charges are regulated by
the FCC and intrastate access charges are regulated by the state public service
commissions. Pursuant to the 1996 Act, on May 16, 1997, the FCC issued an order
to implement certain reforms to its access charge rules (the "Access Charge
Reform Order"). The Access Charge Reform Order will require incumbent LECs to
substantially decrease over time the prices they charge for switched access, and
change how access charges are calculated. These changes are intended to reduce
access charges paid by interexchange carriers to LECs and shift usage-based
charges to flat-rated, monthly per-line charges. To the extent that these rules
being to reduce charges to reflect the forward-looking cost of providing access,
the Company's competitive advantage in provided customers with access services
might decrease. In addition, the FCC has determined that it will give incumbent
LECs pricing flexibility with respect to access charges. To the extent such
pricing flexibility is granted before substantial facilities-based competition
develops, such flexibility could be misused to the detriment of new entrants,
including the Company. Until the FCC adopts and releases rules detailing the
extent and timing of such pricing flexibility, the impact of these rules on the
company cannot be determined. In its order, the FCC abolished the unitary rate
structure option for tandem-switched transport. This may have an adverse effect
on smaller interexchange carriers such as the Company because it may increase
the costs of transport which smaller interexchange carriers must purchase from
LECs to reach end user customers on the local exchange network.
Both the Universal Service and Access Charge Reform Orders are subject to
petitions seeking reconsideration by the FCC and direct appeals to U.S. Court of
Appeals. Until the time when any such petitions or appeals are decided, there
can be no assurance as to how the Universal Service and/or Access Charge Reform
Orders will be implemented or enforced, or what effect the orders will have on
competition within the telecommunications industry, generally, or on the
competitive position of the Company, specifically.
There can be no assurances as to how the 1996 Act will be implemented or
enforced or to what affect it or implementing regulations will have on
competition within the telecommunications industry generally or on the
competitive position of the Company.
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 and Massachusetts. Under the 1996 Act, as a local exchange
carrier, the Company is subject to many of the same obligations to which other
local exchange carriers, including the RBOCs, are subject in their provision of
local exchange services, such as resale, dialing parity and reciprocal
compensation.
State. The Company's intrastate long distance operations are subject to
various state laws and regulations including, in most jurisdictions,
certification and tariff filing requirements. The Company provides long
distance service in all or some portion of 40 states and has received the
necessary certificate and tariff approvals to provide intrastate long distance
service in 48 states. 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 the majority of those states that do permit
interexchange carriers to offer intra-LATA services, customers desiring to
access those services are generally required to dial special access codes, which
puts the company at a disadvantage relative to the local exchange carrier's
intrastate long distance service, which generally requires no such access code
dialing. Increasingly, states are reexamining this policy and some states, such
as
<PAGE>
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New York, have ordered that this disadvantage be removed. The 1996 Act requires
the incumbent local exchange carriers to adopt "intra-LATA equal access" as a
precondition of the local exchange carriers' entering into the inter-LATA long
distance business. The 1996 Act precludes states which have not already ordered
intra-LATA equal access from mandating such equal access until the earlier of
either (i) the date the incumbent local exchange carrier receives in-region
inter-LATA authority in that state, or (ii) February of 1999. Because the timing
of incumbent local exchange carrier entry into the long distance business, or
actions by state authorities which had not already ordered intra-LATA equal
access, cannot be determined with certainty, it is not possible to predict when
intra-LATA equal access will be available in each State.
With regard to New York, the Company's largest U.S. market, intra-LATA
equal access is currently being implemented for over 90% of its New York State
subscribers. Implementation in other states may take longer. Relevant state
public service commissions ("PSCs") also regulate access charges and other
pricing for telecommunications services within each state. The New York State
PSC ("NYPSC") has recently initiated a proceeding, to examine intrastate access
charges. The RBOCs 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. 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 RBOCs and other local
exchange carriers for intra-LATA long distance services, which may also be
increased by the removal of former restrictions on long distance service
offerings by the RBOCs as a result of recently enacted legislation.
New York State Regulation of Long Distance Service. Beginning in 1992, the
NYSPSC commenced several proceedings to investigate the manner in which local
exchange carriers should be regulated. In July 1995, the NYPSC ordered the
acceptance of a Performance Regulation Plan for New York Telephone. The terms
of the plan, as ordered, included: (i) a limitation on increases in basic local
rates for the 5-year term of the plan, (ii) implementation of intra-LATA equal
access by no later than March 1996, (iii) reductions in the intrastate inter-
LATA equal access charges which the Company and other interexchange carriers pay
over the next five years totaling 33%, (iv) reductions in the intra-LATA toll
rates charged to the end user customer over the next five years totaling 21%,
and (v) an intercarrier compensation plan that reduced the rates paid by the
competitive local exchange carriers (including the Company's subsidiaries) by
one-half. New York Telephone does have some increased ability to restructure
rates and to request rate reductions, but all rate changes are still subject to
NYPSC approval. New York Telephone is also required to meet various service
quality measurements, and will be subject to financial penalties for failure to
meet these objectives.
On March 17, 1998, staff of the NYPSC released a draft pre-filing agreement
it was considering entering into with New York Telephone. That agreement would
set forth certain commitments by New York Telephone relating to opening its
local market to competition and complying with the FCC's competitive checklist,
in return for which the NYPSC would endorse New York Telephone's FCC petition to
enter the inter-LATA toll market. If the agreement is finalized, it would
likely expedite New York Telephone's long distance entry, and could
significantly impact the Company's competitive standing in the long distance
market.
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 "collocation" for intrastate special access
and switched access transport services. In general, where CAPs 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 access 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 preexisting
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 that handle large
traffic volumes, such as AT&T, to negotiate flat rate direct transport charges
may result in the Company's paying more per unit of traffic than its competitors
for local transport service.
<PAGE>
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The NYPSC is currently reviewing the further restructuring of intra-State
access charges, and is considering whether to restructure State access charges
so that they mirror all of the rate elements set forth in recently revised
federal access charge structures. This includes possible removal of any
remaining "equal price per unit of traffic" applications, and the establishment
of an intrastate Primary Interexchange Carrier Charge ("PICC"), which would
shift certain usage sensitive access charges to a flat rate fee applicable to
carriers based upon their numbers of presubscribed intra-LATA and inter-LATA
customers. Establishment of such an intrastate PICC could have adverse effects
on carriers which serve low volume customers and customers located in rural or
remote areas. The NYPSC is also reviewing proposals to modify the mileage
formula utilized to calculate transport charges for carriers, such as the
Company, which use common transport rather than direct trucking transport. It
is not possible to determine the impact, if any, which such changes would have
on the Company's intra-state access costs.
New York State Regulation of Local Telephone Service. 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. The NYPSC has also authorized resale of local exchange services,
which may allow significant market entry by large toll carriers such as AT&T and
MCI.
The Company's ability to offer competing local services profitably 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 with
the network of 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 leased
lines, directory assistance and operator services on commercially acceptable
terms. The order issued in the New York Telephone Performance Regulation Plan
(described above) established prices for interconnection and required New York
Telephone to tariff this service, making it generally available to all
competitors, including the Company. The actual monies paid by the Company to
New York Telephone for terminating the Company's traffic, and the monies
received by the Company from New York Telephone for terminating New York
Telephone traffic, are subject to NYPSC regulation and will depend upon the
Company's compliance with certain service obligations imposed by the NYPSC,
including the obligation to serve residential customers. The rates will also
affect the Company's competitive position in the intra-LATA toll market relative
to the local exchange carrier and major interexchange carriers such as AT&T and
MCI, which may offer intra-LATA toll services. The NYPSC has also issued orders
assuring local telephone service competitors access to number resources, listing
in the local exchange carrier's directory and the right to reciprocal
intercarrier compensation arrangements with the local exchange carriers, and
also establishing interim rules under which 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 Company has obtained
number assignments in several New York markets.
Many competitive local exchange companies, including the Company, receive
significant revenues from incumbent local exchange carriers (such as New York
Telephone) through the reciprocal compensation mechanism for terminating traffic
which the Company delivers to Internet providers. In early 1997, New York
Telephone announced it would refuse to pay such terminating compensation for
Internet traffic, and the Company, as well as other competing local exchange
carriers, have filed complaints with the NYPSC. The NYPSC is now reviewing
whether Internet traffic should be treated as "local" traffic for purposes of
reciprocal compensation. A petition has also been filed at the FCC for a
declaration that Internet traffic is to be considered "local" traffic for
reciprocal compensation purposes. If either the FCC or the NYPSC issues an
adverse ruling, and determines that Internet traffic delivered to the Company
for termination will not be eligible for reciprocal compensation, there could be
a significant impact upon the Company's local service revenues.
The NYPSC has also 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
<PAGE>
-18-
requirements. As part of its "open network architecture" obligations, the
Company could be required to allow collocation with its local toll switch 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 subsidies
inherent in existing local exchange carrier rates.
Under the 1996 Act, incumbent local exchange companies such as New York
Telephone and Frontier must allow the resale of both bundled local exchange
services (known as "loops") as well as unbundled local exchange "elements"
(known as "links" and "ports"). The Company generally intends to provide local
service through the resale of unbundled links rather than through the sale of
bundled loops.
On April 1, 1997, the NYPSC adopted permanent rates for unbundled links and
certain other unbundled network elements for New York Telephone. The monthly
rate for unbundled links in designated areas of dense traffic (accounting for
approximately 70% of all loops in the state) is $12.49, plus a recurring $1.90
connection charge. The monthly rate in other areas of the state is $19.24, plus
a $1.90 recurring connection charge. Permanent unbundled link and unbundled
network element rates have not yet been established for Frontier Corp. The
permanent New York Telephone link rate is lower than the temporary rates for New
York Telephone's unbundled links; it is greater than the $10.10 rate for the
comparable service New York Telephone offers to its own residential customers,
but below the rate of approximately $22 for the comparable service New York
Telephone offers to its business customers. However, in order to utilize
unbundled links, the Company must arrange for collocation in New York
Telephone's central offices, which adds significant costs. As a result, the
Company's marketing efforts are primarily directed toward business customers
(and certain concentrated residential customers) which can be served through the
Company's own facilities, rather than through use of unbundled links obtained
from New York Telephone or Frontier Corp.
One of the unbundled elements required to be provided by incumbent local
exchange carriers under the 1996 Act is access to the carrier's Operational
Support systems ("OSS"), which are electronic systems used by competing
carriers, such as the Company, to order services, including unbundled network
elements and resold services, from the incumbent local exchange company. Rates
for use of such OSS are established by the PSCs. The NYPSC has been reviewing
charges proposed by New York Telephone of approximately $2,500 per month for the
right to order resold services, and approximately $5,000 per month for the right
to order unbundled network elements, including unbundled links. A carrier which
orders both unbundled network elements and resold services would pay
approximately $7,500 per month. In addition to those monthly service charges,
an ordering carrier would pay approximately $1 for each preordering, ordering
and maintenance transaction. The NYPSC has issued an interim decision denying
New York Telephone the ability to apply the monthly recurring charges, subject
to New York Telephone's ability to further substantiate its entitlement to such
charges. The final outcome of that proceeding, and the level of OSS charges
which the Company will have to pay to order resold services and unbundled
network elements from New York Telephone, is not known. The establishment of
excessive OSS charges could have a significant effect on the Company's ability
to order services and compete in the local exchange market.
Local Telephone Service in Massachusetts. The Massachusetts Department of
Public Utilities ("DPU") requires LECs to file a Statement of Business
Operations and a tariff before providing intrastate telecommunications service,
including local exchange service in Massachusetts. The Company has filed its
Statement and tariff and has received DPU approval of its interconnection
agreement with NYNEX/Bell Atlantic.
The Company's ability to construct and operate competitive local service
networks for both local private line and switched services will depend upon,
among other things, implementation of the structural market reforms discussed
above, favorable determinations with respect to obligations by the state and
federal regulators, and the satisfactory implementation of interconnection with
the local exchange carriers.
<PAGE>
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Canada
Long Distance Telephone Services. Long distance telecommunications
services in Canada generally are subject to regulation by the CRTC. As a 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. This has resulted in a significant increase in
competition in the Canadian long distance telecommunications industry.
Competition is also emerging in many other segments of the market. However,
despite the very impressive competitive in-roads that have been made in the long
distance market, the Stentor companies continue to have the vast share of the
local and calling card markets. In addition to the proceedings referred to
below, the CRTC continues to take steps toward increased competition, including
proceedings relating to the convergence between telecommunications and
broadcasting.
CRTC Decisions. In March 1990, the CRTC for the first time permitted non-
facilities-based carriers, such as ACC Canada, to aggregate the traffic 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,
for the purpose of allowing resellers, such as ACC Canada, to resell
international long distance MTS service. Prior to this decision, Bell Canada
and other members of Stentor were the exclusive long distance carriers
interconnected to Teleglobe Canada's MTS facilities.
In December 1991, the CRTC permitted the resale on a joint-use basis of the
international private line services of Teleglobe Canada to provide
interconnected voice services. Resellers 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. In September 1993,
the CRTC allowed Teleglobe Canada to restructure its overseas MTS to allow
domestic service providers (including resellers) who commit to a minimum level
of usage to interconnect with Teleglobe Canada's international network at its
gateways for the purpose of providing outbound direct-dial telephone service.
Overseas inbound traffic would be allocated to Stentor and other domestic
service providers (including resellers) in proportion to their outbound market
shares.
In a decision released in May 1997, the CRTC removed restrictions on
international simple resale by Canadian domestic transmission facilities-based
carriers. Prior to this decision, only non-facilities based carriers such as
ACC Canada were permitted to engage in international simple resale. The
decision also re-emphasized the restriction on "switched hubbing" (i.e. routing
Canada overseas traffic to or from a destination country over resold
international private lines supplied by Teleglobe between Canada and an
intermediary country), unless agreed to by all countries or operating
authorities involved, including Teleglobe. After subsequent proceedings in the
courts and the CRTC to vary or reverse these rulings, the CRTC determined in
December 1997 to permit switched hubbing.
In February 1996, the CRTC introduced a regime of price regulation for
Teleglobe Canada's services to be in effect from April 1996 to December 1999,
barring any exceptional changes to Teleglobe Canada's operating environment.
Under this regime, Teleglobe Canada must reduce prices on an annual basis for
its telephone and Globeaccess VPN Services, and must adhere to a price ceiling
for most of its regulated non-telephone services. These rate reductions will
have the effect of reducing the price the Company can charge its customers. In
February 1997, the Canadian government committed under the WTO negotiations to
terminate Teleglobe Canada's status as the monopoly transmission facilities-
based provider of Canada-overseas telecommunications services by October 1,
1998. The Canadian House of Commons has passed legislation to implement this
change in Teleglobe's status, to put in place a licensing regime for
telecommunications service providers providing international telecommunications
services within a class or classes specified by the CRTC, and to administer
numbering resources in Canada. In October 1997 the CRTC issued a public notice
asking for comments on, among other things, the licensing and regulatory regime
which should be used for Teleglobe and other international telecommunications
services providers after October 1, 1998. The CRTC suggested that international
services provided by resellers might be within such a regime.
<PAGE>
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In June 1992, the CRTC effectively removed the monopoly rights of certain
Stentor member companies with respect to the provision of transmission
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.
Competition has subsequently been introduced in Alberta and Manitoba, which are
subject to CRTC regulation, and Saskatchewan, which has not yet become subject
to CRTC regulation. Among other things, the CRTC also directed the telephone
companies that were subject to this decision to provide AT&T Canada (then named
Unitel Communications Inc.) with "equal ease of access," i.e., to allow it to
directly connect its network to the telephone companies' toll and end office
switches to allow its customers to make long distance calls without dialing
extra digits. In July 1993, the CRTC ordered the same telephone companies 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
transmission facilities-based carriers.
The CRTC required telephone company competitors to assume certain financial
obligations, 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. These charges are levied on resellers based on leased access
lines. The charges vary for each telephone company based on that company's
estimated loss on local services. Contribution charges were subject to a
discount which was initially 25%, and which declines over time to zero in 1998.
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.
The CRTC also established a mechanism under which contribution rates will be re-
examined on a yearly basis.
Transmission facilities-based competitors and resellers that obtained equal
ease of access also assumed approximately 30% of the estimated Cdn. $240 million
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 are spread over a period of 10 years. These charges and costs are
payable on the basis of a specified charge per minute. In April 1997 the CRTC
issued a decision unbundling these charges and costs. Previously, long distance
carriers paid the telephone companies a flat rate of $0.011 per minute.
Effective July 1, 1997, a separate rate of $0.007 per minute is payable for
local end office connections, and between $0.004 and $0.007 per minute for toll
or access tandem connections. In June 1997 AT&T Canada asked the CRTC to
reconsider and vary the flat $0.007 per minute rate for local end office
connections.
As contemplated in the CRTC's June 1992 decision, initial implementation of
single carrier 800 number portability occurred in Canada in January 1994 and 800
number multi-carrier selection capability was subsequently approved on an
interim basis.
In September 1994, the CRTC established substantial changes to Canadian
telecommunications regulation, including: (i) initiation of a program of rate
rebalancing, which would entail three annual increases of Cdn. $2 per month in
rates for local service, with corresponding decreases in rates for basic toll
service, and an indication from the CRTC that there would be no price changes
which would result in an overall pace increase for North American basic toll
schedules combined; (ii) the telephone companies' monopoly local and access
services, including charges for bottleneck services (i.e., essential services
which competitors are required to obtain from Stentor members) provided to
competitors (the Utility segment), would remain in the regulated rate base, and
the CRTC would replace earnings regulation for the Utility segment with price
caps effective January 1, 1998; (iii) other services (the Competitive segment)
would not be subject to earnings regulation after January 1, 1995, after which a
Carrier Access Tariff would become effective, which would include charges for
contribution, start-up cost recovery and bottleneck services and would be
applicable to the telephone companies' and competitors' traffic based on a per
minute calculation, rather than the per trunk basis previously used to calculate
contribution charges; (iv) while the CRTC considered it premature to forbear
from regulating interexchange services, it considered that the framework set
forth in the decision may allow forbearance in the future (such forbearance has
subsequently occurred in the case of certain non-dominant transmission
facilities-based carriers and certain telephone company services); (v) the CRTC
concluded that barriers to entry should be reduced for the local service market,
including basic local telephone service and switched network alternatives, and
subsequently
<PAGE>
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conducted proceedings to implement unbundled tariffs, co-location of facilities
and local number portability; and (vi) the intention to consider applying
contribution charges to other services using switched access, not only to long
distance voice services.
Changes to these matters that were announced in October 1995 were the
following: (i) rate rebalancing, with Cdn. $2 per month local rate increases
commencing in each of January 1996 and January 1997 and another unspecified
increase in 1998 (the contribution component of the Carrier Access Tariff was
reduced correspondingly, but a corresponding reduction of basic North American
long distance rates ordered by the CRTC was reversed by the Federal Cabinet in
December 1995); (ii) reductions in contribution charges effective January 1,
1995; (iii) changes to the costing methodology of the telephone companies
including (a) the establishment of strict rules governing telephone company
investments in competitive services involving broadband technology, (b) the
requirement that the Competitive segment pay its fair share of joint costs
incurred by both the Utility and Competitive segments, and (c) a directive
specifying that revenues for many unbundled items must be allocated to the
Utility segment thereby reducing the local shortfall and therefore contribution
charges; (iv) directory operations of the telephone companies will continue to
remain integral to the Utility segment, meaning that revenues from directory
operations will continue to be assigned to the Utility segment to help reduce
the local shortfall and therefore contribution payments; and (v) Stentor's
request to increase the allowed rate of return of the Utility segment was denied
and the CRTC restated its intention to retain the fifty basis point downward
adjustment to the total company rate of return used to derive the Utility
segment rates of return for the telephone companies.
In December 1995, the CRTC announced that the per trunk basis for
calculating contribution charges would be replaced by a per minute basis for
calculating contribution charges starting June 1, 1996. The off-peak
contribution rate is one-half the peak rate, with the peak rate applicable
between 8 a.m. and 5 p.m., Monday through Friday.
In October 1996 the CRTC ended the Stentor monopoly over access to swipe
readers found on the latest generation of pay telephones and ordered the
telephone companies to file a tariff that would provide competitors with swipe
access. The CRTC agreed that lack of swipe access for their calling cards is a
major disadvantage for the Company and other competitors. The new swipe access
tariff was approved on an interim basis in May, 1997.
In December 1996, in Telecom Decision CRTC 96-11, the CRTC established 1996
contribution rates retroactive to January 1, 1996. The contribution rates were
reduced by up to 42% from 1995 levels, depending on the province. The CRTC also
ruled in Telecom Decision CRTC 96-12, that effective July 1, 1997, contribution
on line-side connections would be changed from a per circuit to a per minute
basis. This is consistent with the ruling in 1995 which implemented per minute
contribution for trunk-side connections.
The CRTC began a public proceeding in 1996 to examine and establish the
preconditions for deregulation of the Stentor companies' long distance services.
The Company and the other members of the Competitive Telecommunications Alliance
have proposed a timetable for deregulating the long distance market. In
December 1997, the CRTC released a decision under which it will forbear from
regulation of Stentor toll and toll-free services. Among other things, the
Stentor companies will no longer be required to file tariffs for these services
or demonstrate that the rates for them are just and reasonable, and these
services will no longer be required to meet an imputation test (which prevented
pricing below cost). However, the CRTC will continue to apply a cap on overall
North American basic toll rates charged by the Stentor companies, and will
continue to exercise a number of its powers with respect to the prohibitions on
unjust discrimination and undue preference in respect of these services. The
CRTC also released a decision under which it will forbear from regulation of
certain Stentor high capacity interexchange private line services on specified
high traffic routes. Among other things, the Stentor companies will no longer
be required to file tariffs for these services or demonstrate that the rates for
them are just and reasonable, there will no longer be a prohibition on unjust
discrimination and undue preference in respect of these services, and these
services will no longer be required to meet an imputation test.
In June 1997 Stentor applied to the CRTC for: (i) the elimination of
contribution on international circuits, with offsetting adjustments to domestic
contribution rates; or (ii) the implementation of a per-minute contribution
mechanism
<PAGE>
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applicable to international long distance minutes, rather than the per-circuit
mechanism still used for international circuits.
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.
Local Telephone Services. On May 1, 1997 the CRTC released a number of
decisions which opened the Canadian local telecommunications market to
competition. The decisions apply in the territories of the Stentor telephone
companies, except SaskTel in Saskatchewan (which has subsequently announced
plans to open local telephone service in the province to competition). The
decision enables the systems operated by competitive local exchange carriers
("CLECs") to be interconnected with the systems operated by incumbent local
exchange carriers ("ILECs"). CLECs will not merely be customers of ILECs, but
will be carriers equal in status to ILECs in the local exchange market.
CLECs are not required to provide universal service in their serving areas,
or to file tariffs for services provided to their customers. However, the CRTC
imposed certain consumer protection and regulatory obligations on CLECs. Also,
CLECs must file tariffs to provide equal access to all inter-exchange ("IX")
service providers and wireless service providers. Such access must be on terms
and conditions equivalent to those contained in ILECs' tariffs, unless the CLEC
can justify any departure. ILECs cannot refuse to connect their IX networks
with a CLEC's network.
CLECs will have access to the following services of the ILECs found to be
essential by the CRTC: central office codes; subscriber listings; and local
loops situated in small urban and rural areas. These facilities are subject to
mandatory unbundling and mandated pricing. A number of other items, while not
found to be essential, were directed by the CRTC to be unbundled for a period of
five years, during which period those items are also to be provided to
competitors at mandated prices.
The May 1 decisions replaced the historical rate base rate of return
regulation of ILECs with price cap regulation for an initial period of four
years. In order to prevent ILECs from engaging in anti-competitive pricing,
ILECs will be required to demonstrate that services provided to their customers
are not priced below cost.
Contribution currently paid by IX carriers to ILECs will continue to be
collected, but will be treated as a "portable contribution", i.e. such amounts
will be pooled and distributed to ILECs and CLECs based on the number of
residential lines served by the respective local exchange carriers in each rate
band and the subsidy requirement associated with the rate band. Contrary to the
submissions of some parties, no explicit contribution will be payable from local
business exchange services or directory revenues.
Prior to these decisions, competitors could resell Centrex and other bulk
services, as well as individual business lines. Resale of residential lines was
not allowed. The decisions now allow competitors to resell all bundled local
services (including residential lines), and those services which are unbundled
pursuant to the decisions. However, contrary to the submissions of some
resellers, the CRTC did not order the ILECs to provide their services to
resellers at wholesale prices. Therefore, the scope for non-facilities-based
local competition is significantly restricted.
The ILECs will be permitted to raise basic residential local monthly rates
effective January 1, 1998. Toll contribution will be frozen for the price cap
period at the January 1, 1998 levels. These contribution levels will be reduced
to levels which take into account the effect of the basic residential local rate
increase. The CRTC also expanded somewhat the scope of contribution paying
services. While reduced interim contribution rates have been approved for 1997
and the price cap period, final contribution rates for 1997 and for the price
cap period have not yet been determined. On September 8, 1997, AT&T Canada
asked the CRTC to allow for the adjustment of the contribution charge payable by
IX carriers on a quarterly basis during the initial price cap term to account
for the growth in toll minutes.
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A subsequent decision of the CRTC in June 1997 allowed transmission
facilities-based local and long distance carriers (but not resellers such as ACC
Canada) to "co-locate" their equipment in the central offices of ILECs on terms
and conditions contained in tariffs or intercarrier agreements.
A number of issues relating to local competition remain to be resolved,
including the determination of final rates, finalization of arrangements
regarding local number portability, and certain other interconnection
arrangements.
Under the local competition decisions, only transmission facilities-based
carriers (which are required, among other things, to meet Canadian ownership
requirements) may become CLECs. In September 1997 ACC Canada asked the CRTC to
remove this requirement and to establish entry procedures and regulatory
obligations for telecommunications service providers that are not facilities-
based carriers but that wish to become CLECs.
Telecommunications Act. In October 1993, the Telecommunications Act
replaced the Railway Act (Canada) as the principal telecommunications regulatory
statute in Canada. This Act provides that all federally-regulated
telecommunications common carriers as defined therein (essentially all
transmission facilities-based carriers) are under the regulatory jurisdiction 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.
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 Communications Ltd. (now known as
"CWC") a license to run its own telecommunications system under the British
Telecommunications Act 1981. Both British Telecom and CWC are licensed under
the subsequent Telecommunications Act 1984 to run transmission facilities-based
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 CWC. Under the
multi-operator policy, the U.K Department of Trade and Industry (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).
Oftel has imposed further mandatory price reductions on British Telecom
from August 1997 which, although more limited in scope than those previously
set, may have, the effect of reducing the prices the Company can charge its
customers in order to remain competitive. Oftel is introducing a new access
charge control regime, which is expected to become effective in August 1997.
Under the new regime, British Telecom will have flexibility in setting access
charges, subject to certain safeguards. Oftel will set the starting charges
(which will be based on historical incremental costs) and the rates charged by
British Telecom to other carriers will be subject to certain price ceilings
established by Oftel for competitive and non-competitive services.
Germany
The German telecommunications market began deregulating in January 1998, as
a result of the European Union ("EU") mandate to open telecommunications markets
to competition. Most significantly, the German market opened for interconnection
in January 1998. ACC has established a subsidiary in Germany and signed a resale
agreement with Deutsche Telekom ("DT") on May 20, 1997. Further, ACC received a
Class 4 full voice telephony license from the German Ministry of Post and
Telecommunications which was effective January 1, 1998. This license is a
requirement for ACC to become a switch-based provider of telecommunications
services in Germany. In October 1997, ACC signed a network interconnect
agreement with DT, which permits utilization of DT's network to link ACC with
its customers. With this agreement in place, ACC has installed a switch which it
plans to have in service during the first quarter of 1998. ACC achieved a small
amount of revenue in the fourth quarter of 1997 as a switchless reseller, and
anticipates potentially more substantial revenue growth as a switch-based
reseller when the market is fully deregulated. Through December 31, 1997, the
German Ministry of Post and Telecommunications was responsible for acting as the
regulatory authority for telecommunications in Germany. After January 1, 1998, a
new body called the Regulatory Authority for Telecommunications and Post (the
"Reg TP") assumed responsibility for telecommunications-related regulatory
activities. Among other powers, the Reg TP will grant licenses, decide disputes
over special network access and interconnection, approve telecommunication
rates, discharge numbering functions, promote and safeguard competition, oversee
compliance with the German Telecommunications Act, oversee compliance with the
conditions imposed on licensees and prohibit providers of telecommunications
services without valid licenses from performing such activities.
ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
As ACC expands its service offerings, geographic focus and its network, ACC
anticipates that it will seek to acquire assets and businesses of, make
investments in or enter into strategic alliances with, companies providing
services
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complementary to ACC's existing business. ACC believes that, as the global
telecommunications marketplace becomes increasingly competitive, expands and
matures, such transactions will be important in maintaining a competitive
position in the industry.
ACC's ability to effect acquisitions and strategic alliances and make
investments may be dependent upon its ability to obtain additional financing
and, to the extent applicable, consents from the holders of debt and preferred
stock of ACC. If ACC were to proceed with one or more significant strategic
alliances, acquisitions or investments in which the consideration consists of
cash, a substantial portion of ACC's available cash could be used to consummate
the acquisitions or investments. If ACC were to consummate one or more
significant strategic alliances, acquisitions or investments in which the
consideration consists of stock, shareholders of ACC could suffer a significant
dilution of their interests in ACC.
Many business acquisitions must be accounted for as purchases. Most of the
businesses that might become attractive acquisition candidates for ACC are
likely to have significant goodwill and intangible assets, and the acquisitions
of these businesses, if accounted for as a purchase, would typically result in
substantial amortization charges to ACC. In the event ACC consummates additional
acquisitions in the future that must be accounted for as purchases, such
acquisitions would likely increase ACC's amortization expenses. In connection
with acquisitions, investments or strategic alliances, ACC could incur
substantial expenses, including the fees of financial advisors, attorneys and
accountants, the expenses of integrating the business of the acquired company or
the strategic alliance with ACC's business and any expenses associated with
registering shares of ACC's capital stock, if such shares are issued. The
financial impact of such acquisitions, investments or strategic alliances could
have a material adverse effect on ACC's business, financial condition and
results of operations and could cause substantial fluctuations in ACC's
quarterly and yearly operating results.
The Merger Agreement contains restrictions on the conduct of ACC's business
prior to the consummation of the Merger which are likely to affect ACC's pursuit
of its strategies.
EMPLOYEES
As of December 31, 1997, ACC had 1,268 full-time employees worldwide. Of
this total, 384 employees were in the U.S., 482 were in Canada, 369 were in the
U.K. and 33 were in Germany. ACC has never experienced a work stoppage and its
employees are not represented by a labor union or covered by a collective
bargaining agreement. ACC considers its employee relations to be good.
RISK FACTORS
CONSUMMATION OF TCG MERGER AND TCG/AT&T MERGER
Consummation of the proposed TCG Merger and TCG/AT&T Merger are subject to
certain closing conditions, including obtaining approval of stockholders,
certain required regulatory approvals and other related consents. Accordingly,
there can be no assurance that the TCG Merger or TCG/AT&T Merger will be
successfully consummated or, if successfully completed, when the mergers might
be completed. Substantial delay in consummating, or failure to consummate, the
TCG Merger or TCG/AT&T Merger could materially adversely affect the market price
of ACC's Class A Common Stock.
Recent Losses; Potential Fluctuations in Operating Results
Although the Company has experienced revenue growth on an annual basis
since 1990 and net income in fiscal 1996 and 1997, it has incurred net losses
and losses from continuing operations during 1994 and 1995. There can be no
assurance that revenue growth will continue or that the Company will be able to
maintain its profitability and positive cash flow from operations. If the
Company cannot continue its revenue growth and maintain profitability and
positive cash flow from operations, it may not be able to meet its debt service
or working capital requirements. The Company intends to focus in the near term
on the expansion of its service offerings, including its local telephone
business and Internet services, and expanding its geographic markets, including
deregulating Western European markets. Such expansion, particularly the
establishment of new operations or acquisition of existing operations in
deregulating Western European markets, may adversely affect cash flow and
operating performance and these effects may be material, as was the case with
the Company's U.K. operations in 1994 and 1995. As each of the
telecommunications markets in which the Company operates continues to mature,
growth in the Company's revenues and customer base is likely to decrease over
time.
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The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors, some
of which are outside of the Company's control, including general economic
conditions, specific economic conditions in the telecommunications industry, the
effects of governmental regulation and regulatory changes, user demand, capital
expenditures and other costs relating to the expansion of operations, the
introduction of new services by the Company or its competitors, the mix of
services sold and the mix of channels through which those services are sold,
pricing changes and new service introductions by the Company and its competitors
and prices charged by suppliers. As a strategic response to a changing
competitive environment, the Company may elect from time to time to make certain
pricing, service or marketing decisions or enter into strategic alliances,
acquisitions or investments that could have a material adverse effect on the
Company's business, results of operations and cash flow. Revenues from other
resellers accounted for approximately 12.7% of ACC's consolidated revenues in
1995, 25.2% of consolidated revenues in 1996 and 21.2% of consolidated revenues
in 1997. Because sales to other carriers are at margins that are lower than
those derived from most of the Company's other revenues, increases in carrier
revenue as a percentage of revenues have in the past, and may in the future,
reduce the Company's gross margins as a percentage of revenue. In addition,
certain of its long distance carrier customers may pose credit or collection
risks. See the Risk Factor discussion below of "Risks Associated With
Acquisitions, Investments and Strategic Alliances" in this Item 1 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 of this Report.
SUBSTANTIAL INDEBTEDNESS; NEED FOR ADDITIONAL CAPITAL
The Company will need to continue to enhance and expand its operations in
order to maintain its competitive position, expand its service offerings and
geographic markets and continue to meet the increasing demands for service
quality, availability and competitive pricing. As of the end of the previous
four fiscal years, the Company had experienced a working capital deficit. The
Company believes that, under its present business plan, cash from operations and
borrowings under its credit facility will be sufficient to meet its anticipated
capital and capital expenditure requirements for the foreseeable future. The
Company may need to raise additional capital from public or private equity or
debt sources in order to finance its anticipated growth, including local service
expansion and expansion into international markets, (both of which will be
capital intensive), working capital needs, debt service obligations, and,
contemplated capital expenditures. In addition, the Company may need to raise
additional funds in order to take advantage of unanticipated opportunities,
including more rapid international expansion or acquisitions of, investments in
or strategic alliances with companies that are complementary to the Company's
current operations, or to develop new products or otherwise respond to
unanticipated competitive pressures. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the Company's then
current shareholders would be reduced and, if such equity securities take the
form of Preferred Stock or Class B Common Stock, the holders of such Preferred
Stock or Class B Common Stock may have rights, preferences or privileges senior
to those of holders of Class A Common Stock. There can be no assurance that the
Company will be able to raise such capital on satisfactory terms or at all. If
the Company decides to raise additional funds through the incurrence of debt,
the Company would need to obtain the consent of its lenders under the Company's
credit facility and would likely become subject to additional or more
restrictive financial covenants. In the event that the Company is unable to
obtain such additional capital or is unable to obtain such additional capital on
acceptable terms, the Company may be required to reduce the scope of its
presently anticipated expansion, which could materially adversely affect the
Company's business, results of operations and financial condition and its
ability to compete. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" under
Item 7 of this Report.
DEPENDENCE ON TRANSMISSION FACILITIES-BASED CARRIERS
The Company does not own telecommunications transmission lines other than
indefeasible rights of use. Telephone calls made by the Company's customers are
connected through transmission lines that the Company leases under a variety of
arrangements with transmission facilities-based long distance carriers, some of
which are or may become competitors of the Company, including AT&T, Bell Canada
and British Telecom. Most inter-city transmission lines used by the Company are
leased on a monthly or longer-term basis at rates that currently are less than
the rates the Company charges its customers for connecting calls through these
lines. Accordingly, to the extent that the Company
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continues to lease transmission lines, it will remain vulnerable to changes in
its lease arrangements, such as price increases and service cancellations. ACC's
ability to maintain and expand its business is dependent upon whether the
Company continues to maintain favorable relationships with the transmission
facilities-based carriers from which the Company leases transmission lines,
particularly in the U.K., where British Telecom and Cable and Wireless
Communications Ltd. ("CWC") are the two principal, dominant carriers. The
Company's U.K. operations are highly dependent upon the transmission lines
leased from British Telecom. Although the Company believes that its
relationships with carriers generally are satisfactory, the deterioration or
termination of the Company's relationships with one or more of those carriers
could have a material adverse effect upon the Company's business, results of
operations and financial condition. Certain of the vendors from whom the Company
leases transmission lines, including the RBOCs and other local exchange
carriers, currently are subject to tariff controls and other price constraints
which in the future may be changed. Under the 1996 Act, constraints on the
operations of the RBOCs have been dramatically reduced, which will bring into
the long distance market additional competitors from whom the Company leases
transmission lines. In addition, regulatory proposals are pending that may
affect the prices charged by the RBOCs and other incumbent local exchange
carriers to the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See the Risk
Factor discussion of "Potential Adverse Effects of Regulation" below and the
discussion of "Regulation" above in this Item 1.
POTENTIAL ADVERSE EFFECTS OF REGULATION
The 1996 Act provides specific guidelines under which the RBOCs can provide
long distance services, which will permit the RBOCs to compete with the Company
in the provision of domestic and international long distance services. The
legislation also opens all local service markets, subject to limited exemptions
for rural telephone companies, to competition from any entity (including, for
example, long distance carriers, such as AT&T, cable television companies and
utilities). Because the legislation opens the Company's markets to additional
competition, particularly from the RBOCs, the Company may be subject to
additional competition. Moreover, as a result of and to implement the
legislation, certain federal and other governmental regulations will be adopted,
amended or modified, and any such adoption, amendment or modification could have
a material adverse effect on the Company's business, results of operations and
financial condition.
In the U.S., the FCC and relevant PSCs have the authority to regulate
interstate and intrastate rates, respectively, ownership of transmission
facilities, and the terms and conditions under which the Company's services are
provided. Federal and state regulations and regulatory trends have had, and in
the future are likely to have, both positive and negative effects on the Company
and its ability to compete. The recent trend in both Federal and state
regulation of telecommunications service providers has been in the direction of
lessened regulation. Incumbent LECs have been subjected to new regulations
designed to encourage competition in the provision of local exchange services,
but incumbent LECs are also being allowed increased freedom to enter new markets
and increased pricing flexibility. As a consequence, both AT&T and RBOCs will
have more freedom to maneuver when competing with smaller interexchange
carriers. In general, neither the FCC nor the relevant state PSCs currently
regulate the Company's long distance rates or profit levels, but either or both
may do so in the future. In addition, the commitments made by the U.S.
government in the WTO negotiations will allow foreign-affiliated carriers
theretofore prohibited from providing service in the U.S. market to compete with
the Company in the U.S. market. There can be no assurance that changes in
current or future Federal or state regulations or future judicial changes would
not have a material adverse effect on the Company's business, results of
operations and financial condition.
In order to provide their services, interexchange carriers, including the
Company, must generally purchase "access" from local exchange carriers to
originate calls from and terminate calls in the local exchange telephone
networks. Access charges presently represent a significant portion of the
Company's network costs in all areas in which it operates. In the U.S., the FCC
regulates interstate access and the states regulate intrastate access. Pursuant
to the 1996 Act, on May 16, 1997, the FCC issued an order to implement certain
reforms to its access charge rules (the "Access Charge Reform Order"). The
Access Charge Reform Order will require incumbent LECs to substantially decrease
over time the prices they charge for switched access, and change how access
charges are calculated. These changes are intended to reduce access charges
paid by interexchange carriers to LECs and shift certain usage-based charges to
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flat-rated, monthly per-line charges. To the extent that these rules begin to
reduce charges to reflect the forward-looking cost of providing access, the
Company's competitive advantage in providing customers with access services
might decrease. In addition, the FCC has determined that it will give incumbent
LECs pricing flexibility with respect to access charges. To the extent such
pricing flexibility is granted before substantial facilities-based competition
develops, such flexibility could be misused to the detriment of new entrants,
including the Company. Until the FCC adopts and releases rules detailing the
extent and timing of such pricing flexibility, the impact of these rules on the
Company cannot be determined. In its order, the FCC abolished the unitary rate
structure option for tandem-switched transport. This may have an adverse effect
on smaller interexchange carriers such as the Company because it may increase
the costs of transport which smaller interexchange carriers must purchase from
LECs to reach end user customers on the local exchange market.
On May 8, 1997, the FCC issued an order to implement the provisions of the
1996 Act relating to the preservation and advancement of universal telephone
service (the "Universal Service Order"). The Universal Service Order affirmed
the policy principles for universal telephone services set forth in the
Telecommunications Act, including quality service, affordable rates, access to
advanced services, access in rural and high-cost areas, equitable and non-
discriminatory contributions, specific and predictable support mechanisms, and
access to advanced telecommunications services for schools, health care
providers and libraries. The Universal Service Order added "competitive
neutrality" to the 1996 Act's universal service principles by providing that
universal service support mechanisms and rules should not unfairly advantage or
disadvantage one provider over another, nor unfairly favor or disfavor one
technology over another. The Universal Service Order also requires all
telecommunications carriers providing interstate telecommunications services,
including the Company, to contribute to universal service support. Such
contributions will be assessed based on intrastate, interstate and international
end-user telecommunications revenues. However, because the contribution factors
are likely to vary quarterly, the annualized impact on ACC cannot be estimated
at this time.
Both the Universal Service and Access Charge Reform Orders are subject to
petitions seeking reconsideration by the FCC and direct appeals to U.S. Courts
of Appeals. Until the time when any such petitions or appeals are decided,
there can be no assurance of how the Universal Service and/or Access Charge
Reform Orders will be implemented or enforced, or what effect the Orders will
have on competition within the telecommunications industry, generally, or on the
competitive position of the Company, specifically.
The Company currently competes with the RBOCs and other local exchange
carriers such as the GTE Operating Companies ("GTOCs") in the provision of
"short haul" toll calls completed within a Local Access and Transport Area
("LATA"). Subject to a number of conditions, the 1996 Act established
conditions that would allow for the eventual elimination of many of the
restrictions which prohibited the RBOCs from providing long-haul or inter-LATA,
toll service, and thus the Company will face additional competition in this
market. To complete long-haul and short-haul toll calls, the Company must
purchase "access" from the local exchange carriers. The Company must generally
price its toll services at levels equal to or below the retail rates established
by the local exchange carriers for their own short-haul or long-haul toll rates.
To the extent that the local exchange carriers are able to reduce the margin
between the access costs to the Company and the retail toll prices charged by
local exchange carriers, either by increasing access costs or lowering retail
toll rates, or both, the Company will encounter adverse pricing and cost
pressures in competing against local exchange carriers in both the short-haul
and long-haul toll markets.
Under the 1996 Act, local exchange carriers must permit resale of their
bundled local services and all incumbent LECs must permit resale of their
bundled local services and unbundled network elements. Pricing principles for
those services were set forth in the 1996 Act, with states directed to approve
specific cost-based rates based on these principles. At the end of 1996, the
New York State PSC ("NYSPSC") replaced temporary wholesale discounts with
permanent wholesale discounts of 19.1% for New York Telephone (business and
residential) and 17% for Frontier Corp. (business and residential). Discounts
were made applicable to virtually all services provided to the public.
On April 1, 1997, the NYPSC adopted permanent rates for unbundled links and
certain other unbundled network elements for New York Telephone. The monthly
rate for unbundled links in designated areas of dense traffic
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(accounting for approximately 70% of all loops in the state) is $12.49, plus a
recurring $1.90 connection charge. The monthly rate in other areas of the state
is $19.24, plus a $1.90 recurring connection charge. Permanent unbundled link
and unbundled network element rates have not yet been established for Frontier
Corp. The permanent New York Telephone link rate is lower than the temporary
rates for New York Telephone's unbundled links; it is greater than the $10.10
rate for the comparable service New York Telephone offers to its own residential
customers, but below the rate of approximately $22 for the comparable service
New York Telephone offers to its business customers. However, in order to
utilize unbundled links, the Company must arrange for physical or virtual
collocation in New York Telephone's central offices, which adds significant
costs. As a result, the Company's marketing efforts are primarily directed
toward business customers (and certain concentrated residential customers) which
can be served through the Company's own facilities, rather than through use of
unbundled links obtained from New York Telephone or Frontier Corp.
In Canada, the Canadian Radio-television and Telecommunications Commission
("CRTC") annually reviews the "contribution charges" (the equivalent of access
charges in the U.S.) assessed by the dominant carriers for the access lines
leased by Canadian long distance resellers, including the Company, from the
local telephone companies in Canada. Changes in these contribution charges
could have a material adverse effect on the Company's business, results of
operations and financial condition. On May 1, 1997, the CRTC issued several
rules intended to encourage increased competition in the telecommunications and
broadcast distribution (cable) industries. Generally, the rules describe how
new service providers can enter the local exchange market, how and when
telephone companies can apply for broadcasting licenses, and the details of a
new methodology that will be used to regulate local telephone rates. The rules
governing entry in the local exchange market cover issues of inter-connection,
resale, subscriber listings, number portability, rate rebalancing, local service
subsidies, rate regulation, service obligations and cable competition. While
certain of the rules appear favorable to the Company, the rules will likely
increase competition in Canadian local exchange service through new entrants.
The Company is unable to predict the extent to which the full implementation of
the rules will have a material adverse effect on the Company's business, results
of operations or financial condition. The Canadian long distance
telecommunications industry is the subject of ongoing regulatory change. These
regulations and regulatory decisions have a direct and material effect on the
ability of the Company to conduct its business. The recent trend of such
regulatory changes has been to open the market to commercial competition. There
can be no assurance, however, that any future changes in or additions to laws,
regulations, government policy or administrative rulings will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
The telecommunications services provided by ACC U.K. are subject to and
affected by regulations introduced by the U.K. telecommunications regulatory
authority, The Office of Telecommunications ("Oftel"). Since the break up of
the U.K. telecommunications duopoly consisting of British Telecom and Mercury
Communications Ltd. (now known as "CWC") in 1991, it has been the stated goal of
Oftel to create a competitive marketplace from which detailed regulation could
eventually be withdrawn. The regulatory regime currently presided over by Oftel
has a direct and material effect on the ability of the Company to conduct its
business. From the middle of 1997, Oftel has imposed a new price cap on British
Telecom's retail charges which, while only applying to four out of five
residential customers and to small (but not large) business customers, may have
the effect of reducing the prices the Company can charge its customers. In
addition, the new network charge control regime implemented in October 1997
gives British Telecom much more freedom to set its own prices (although subject
to certain charge caps and other safeguards), and as such increases the
uncertainty with regard to the Company's network costs in the U.K. market.
Although the Company is optimistic about its ability to continue to compete
effectively in the U.K. market, there can be no assurance that future changes in
regulation and government will not have a material adverse effect on the
Company's business, results of operations and financial condition.
EXPANSION OF LOCAL EXCHANGE BUSINESS
The Company anticipates that a significant portion of its growth in its
U.S. operations in the future will come from local exchange operations and
incurred approximately $21.6 million in capital expenditures during 1997 related
to the installation of additional local exchange switches in the northeastern
United States. The Company has only limited experience in providing local
telephone services, having commenced providing such services in 1994. The
Company's revenues from local telephone services in the United States in 1995,
1996 and 1997 were $.6 million, $5.8 million and
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$20.4 million respectively. In order to attract local customers, the Company
must offer substantial discounts from the prices charged by local exchange
carriers and must compete with other alternative local service companies that
offer such discounts. The local service business requires significant initial
investments in capital equipment as well as significant initial promotional and
selling expenses. Larger, better capitalized local service providers, including
AT&T, among others, will be better able to sustain losses associated with
discount pricing and initial investments and expenses. Although the Company's
local service business generated operating profits in 1996 and 1997, it incurred
operating losses in 1994 and 1995 and many companies that compete with the
Company's local service business are not profitable. There can be no assurance
that the Company will continue to achieve positive cash flow or profitability in
its local telephone service business. In addition, the FCC and PSCs are
considering regulatory changes in rate structures and access charges which would
materially adversely affect the ability of small interexchange carriers, such as
the Company, to compete in the provision of local service. The Company's success
in the local exchange market also requires the negotiation and implementation of
interconnection agreements with incumbent local exchange carriers in the areas
that the Company seeks to serve, and there can be no assurance that these
agreements will be concluded in a timely manner.
INCREASING DOMESTIC AND INTERNATIONAL COMPETITION
The long distance telecommunications industry is highly competitive and is
significantly influenced by the marketing and pricing decisions of the larger
industry participants. The industry has relatively insignificant barriers to
entry, numerous entities competing for the same customers and high churn rates
(customer turnover), as customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors. In each of its markets, the Company competes primarily on the
basis of price and also on the basis of customer service and its ability to
provide a variety of telecommunications services, including the ability to
provide both intra- and inter-LATA toll service. The Company expects
competition on the basis of price and service offerings to increase. Although
many of the Company's university customers are under multi-year contracts,
several of the Company's largest customers (primarily other long distance
carriers) are on month-to-month contracts and are particularly price sensitive.
With respect to these customers, the Company competes almost exclusively on
price.
Many of the Company's competitors are significantly larger, have
substantially greater financial, technical and marketing resources and larger
networks than the Company, control transmission lines and have long-standing
relationships with the Company's target customers. These competitors include,
among others, AT&T, MCI and Sprint in the U.S.; Bell Canada, BC Telecom, Inc.,
AT&T Canada and Sprint Canada (a subsidiary of Call-Net Telecommunications Inc.)
in Canada; and British Telecom, CWC, AT&T and WorldCom in the U.K. Other U.S.
carriers also have entered and/or are also expected to enter the U.K. market.
The Company also competes with numerous other long distance providers, some of
which focus their efforts on the same business customers targeted by the Company
and selected residential customers and colleges and universities, the Company's
other target customers. In addition, through its local telephone service
business in upstate New York and Massachusetts, the Company competes with New
York Telephone, Frontier Corp., Citizens Telephone Co., WorldCom and Time Warner
and others, including cellular and other wireless providers. Furthermore,
corporate transactions such as the merger of Bell Atlantic Corp. and Nynex
Corp., the proposed merger of MCI and WorldCom, the joint venture between MCI
and Microsoft under which Microsoft will promote MCI's services, the joint
venture among Sprint, Deutsche Telekom AG and France Telecom called Global One,
and additional mergers, acquisitions and strategic alliances which are likely to
occur, could also increase competitive pressures upon the Company and have a
material adverse effect on the Company's business, results of operations and
financial condition.
In addition to these competitive factors, recent and pending deregulation
in each of the Company's markets may encourage new entrants. For example, as a
result of the 1996 Act, an RBOC is allowed to originate long distance calls
outside of its region immediately and may enter the long distance markets in
states in which it is an incumbent LEC once it has received FCC approval to do
so. AT&T, MCI and other long distance carriers are allowed to enter the local
telephone services market, and any other entity (including cable television
companies and utilities) is allowed to enter both the local service and long
distance telecommunications markets. In addition, the FCC has, on several
occasions since 1984, approved or required price reductions by AT&T and, in 1995
and 1996, the FCC reclassified AT&T as a "non-dominant" carrier, which
substantially reduces the regulatory constraints on AT&T. As the Company
expands its
<PAGE>
-30-
geographic coverage, it will encounter increased competition. Moreover, the
Company believes that competition in non-U.S. markets is likely to increase and
become more similar to competition in the U.S. markets over time as such non-
U.S. markets continue to experience deregulatory influences. Implementation of
the WTO accord reached in February 1997 is likely to accelerate this trend in
some markets. Prices in the long distance industry have declined from time to
time in recent years and, as competition increases in Canada and the U.K.,
prices are likely to continue to decrease. For example, Bell Canada
substantially reduced its rates during the first quarter of 1994 and British
Telecom substantially reduced its rates in 1996. The Company's competitors may
reduce rates or offer incentives to existing and potential customers of the
Company. To maintain its competitive position, the Company believes that it must
be able to reduce its prices in order to meet reductions in rates, if any, by
others. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under Item 7 of this Report and the discussion "Business
- --Competition" above in this Item 1.
RISKS OF GROWTH AND EXPANSION
The Company plans to expand its service offerings and principal geographic
markets in the United States, Canada and the United Kingdom. In addition, the
Company may establish a presence in deregulating Western European markets that
have high density telecommunications traffic, when the Company believes that
business and regulatory conditions warrant. The Company has entered the German
market as a switchless reseller in anticipation of deregulation in 1998, and has
established a German subsidiary, ACC Telekommunikation GmbH. The German
subsidiary signed an interconnect agreement with Deutsche Telekom ("DT") in
October 1997 with a view to establishing a German switch in 1998, although the
interconnect rates set by the German Regulatory Authority are subject to
retrospective change following a challenge by DT in the national courts.
There can be no assurance that the Company will be able to add service or
expand its markets at the rate presently planned by the Company or that the
existing regulatory barriers will be reduced or eliminated. The Company's rapid
growth has placed, and in the future may continue to place, a significant strain
on the Company's administrative, operational and financial resources and
increased demands on its systems and controls. As the Company increases its
service offerings and expands its targeted markets, there will be additional
demands on the Company's customer support, sales and marketing and
administrative resources and network infrastructure. There can be no assurance
that the Company's operating and financial control systems and infrastructure
will be adequate to maintain and effectively monitor future growth. The failure
to continue to upgrade the administrative, operating and financial control
systems or the emergence of unexpected expansion difficulties could materially
adversely affect the Company's business, results of operations and financial
condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A key component of the Company's strategy is its planned expansion in
international markets. In the WTO accord reached in February 1997, a number of
countries agreed to accelerate or initiate liberalization of their
telecommunications markets by allowing increased competition and foreign
ownership of telecommunications providers and by adopting measures to ensure
reasonable nondiscriminatory interconnection, effective competitive safeguards,
and an effective independent regulation. This agreement may, therefore, expand
the international opportunity available to the Company. To date, the Company
has no significant experience in providing telecommunications service outside
the United States, Canada and the U.K. There can be no assurance that the
Company will be able to obtain the capital it requires to finance its expansion
in international markets on satisfactory terms or at all. In many international
markets, protective regulations and long-standing relationships between
potential customers of the Company and their local providers create barriers to
entry. Where protective regulations are being eliminated, the pro-competitive
effect of this action could substantially increase the number of entities
competing with the Company. Pursuit of international growth opportunities may
require significant investments for an extended period before returns, if any,
on such investments are realized. The Company intends to focus in the near term
on the expansion of its service offerings, including its local telephone
business and Internet services, and expanding its geographic markets to more
locations in its existing markets,
<PAGE>
-31-
and when conditions warrant, to deregulating Western European markets. Such
expansion, particularly the establishment of new operations or acquisition of
existing operations in deregulating international markets, may adversely affect
cash flow and operating performance and these effects may be material, as was
the case with the Company's U.K. operations in 1994 and 1995. In addition, there
can be no assurance that the Company will be able to obtain the permits and
operating licenses required for it to operate, to hire and train employees or to
market, sell and deliver high quality services in these international markets.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent to doing business on an
international level, such as unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political risks, fluctuations in currency exchange rates,
foreign exchange controls which restrict or prohibit repatriation of funds,
technology export and import restrictions or prohibitions, delays from customs
brokers or government agencies, seasonal reductions in business activity during
the summer months in Europe and certain other parts of the world and potentially
adverse tax consequences resulting from operating in multiple jurisdictions with
different tax laws, which could materially adversely impact the success of the
Company's international operations. In many countries, the Company may need to
enter into a joint venture or other strategic relationship with one or more
third parties in order to successfully conduct its operations. As its revenues
from its Canadian and U.K. operations increase, an increasing portion of the
Company's revenues and expenses will be denominated in currencies other than
U.S. dollars, and changes in exchange rates may have a greater effect on the
Company's results of operations. There can be no assurance that such factors
will not have a material adverse effect on the Company's future operations and,
consequently, on the Company's business, results of operations and financial
condition. In addition, there can be no assurance that laws or administrative
practices relating to taxation, foreign exchange or other matters of countries
within which the Company operates will not change. Any such change could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
As part of its business strategy, the Company expects to seek to develop
strategic alliances both domestically and internationally and to acquire assets
and businesses or make investments in companies that are complementary to its
current operations. The Company has no present commitments or agreements with
respect to any such strategic alliance, investment or acquisition. Any such
future strategic alliances, investments or acquisitions would be accompanied by
the risks commonly encountered in strategic alliances with or acquisitions of or
investments in companies. Such risks include, among other things, the
difficulty of assimilating the operations and personnel of the companies, the
potential disruption of the Company's ongoing business, the inability of
management to maximize the financial and strategic position of the Company by
the successful incorporation of licensed or acquired technology and rights into
the Company's service offerings, the maintenance of uniform standards, controls,
procedures and policies and the impairment of relationships with employees and
customers as a result of changes in management. In addition, the Company has
experienced higher attrition rates with respect to customers obtained through
acquisitions, and may continue to experience higher attrition rates with respect
to any customers resulting from future acquisitions. Moreover, to the extent
that any such acquisition, investment or alliance involved a business located
outside the United States, the transaction would involve the risks associated
with international expansion discussed above under "Risks Associated with
International Expansion." There can be no assurance that the Company would be
successful in overcoming these risks or any other problems encountered with such
strategic alliances, investments or acquisitions.
In addition, if the Company were to proceed with one or more significant
strategic alliances, acquisitions or investments in which the consideration
consists of cash, a substantial portion of the Company's available cash could be
used to consummate the strategic alliances, acquisitions or investments. If the
Company were to consummate one or more significant strategic alliances,
acquisitions or investments in which the consideration consists of stock,
shareholders of the Company could suffer a significant dilution of their
interests in the Company. Many of the businesses that might become attractive
acquisition candidates for the Company may have significant goodwill and
intangible assets, and acquisitions of these businesses, if accounted for as a
purchase, would typically result in substantial amortization charges to the
Company. The financial impact of acquisitions, investments and strategic
alliances could have a material adverse effect on the Company's business,
financial condition and results of operations
<PAGE>
-32-
and could cause substantial fluctuations in the Company's quarterly and yearly
operating results. See the discussion "Business --Acquisitions, Investments and
Strategic Alliances" above in this Item 1.
TECHNOLOGICAL CHANGES MAY ADVERSELY AFFECT COMPETITIVENESS AND FINANCIAL RESULTS
The telecommunications industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. There can be no assurance that the Company will
maintain competitive services or that the Company will obtain appropriate new
technologies on a timely basis or on satisfactory terms.
RISKS ASSOCIATED WITH RAPIDLY CHANGING INDUSTRY
The international telecommunications industry is changing rapidly due to,
among other things, deregulation, privatization of dominant telecommunications
providers, technological improvements, expansion of telecommunications
infrastructure and the globalization of the world's economies and free trade.
There can be no assurance that one or more of these factors will not vary
unpredictably, which could have a material adverse effect on the Company. There
can also be no assurance, even if these factors turn out as anticipated, that
the Company will be able to implement its strategy or that its strategy will be
successful in this rapidly evolving market. There can be no assurance that the
Company will be able to compete effectively or adjust its contemplated plan of
development to meet changing market conditions.
Much of the Company's planned growth is predicated upon the deregulation of
telecommunications markets. There can be no assurance that such deregulation
will occur when or as anticipated, if at all, or that the Company will be able
to grow in the manner or at the rates currently contemplated.
As a result of existing excess international transmission capacity, the
marginal cost of carrying an additional international call is often very low for
carriers that own transmission lines. Industry observers have predicated that
these low marginal costs may result in significant pricing pressures and that,
within a few years after the end of this century, there may be little difference
in charges based on the distance a call is carried. A number of the Company's
competitors have introduced calling plans that provide for flat rates on calls
within the U.S. and Canada, regardless of time of day or distance of the call.
If this type of pricing were to become prevalent, it could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its management team and technical, marketing and sales
personnel. The Company's employees may voluntarily terminate their employment
with the Company at any time. Competition for qualified employees and personnel
in the telecommunications industry is intense and, from time to time, there are
a limited number of persons with knowledge of and experience in particular
sectors of the telecommunications industry. The Company's success also will
depend on its ability to attract and retain qualified management, marketing,
technical and sales executives and personnel. The process of locating such
personnel with the combination of skills and attributes required to carry out
the Company's strategies is often lengthy. The loss of the services of key
personnel, or the inability to attract additional qualified personnel, could
have a material adverse effect on the Company's results of operations,
development efforts and ability to expand. There can be no assurance that the
Company will be successful in attracting and retaining such executives and
personnel. Any such event could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISK ASSOCIATED WITH FINANCING ARRANGEMENTS; DIVIDEND RESTRICTIONS
The Company's financing arrangements are secured by substantially all of
the Company's assets and require the Company to maintain certain financial
ratios and restrict the payment of dividends, and the Company anticipates that
it will not pay any dividends on Class A Common Stock in the foreseeable future.
The Company's secured lenders
<PAGE>
-33-
would be entitled to foreclose upon those assets in the event of a default under
the financing arrangements and to be repaid from the proceeds of the liquidation
of those assets before the assets would be available for distribution to the
Company's other creditors and shareholders in the event that the Company is
liquidated. In addition, the collateral security arrangements under the
Company's existing financing arrangements may adversely affect the Company's
ability to obtain additional borrowings or other capital. The Company may need
to raise additional capital from equity or debt sources to finance its projected
growth and capital expenditures contemplated for periods after 1997. See the
Risk Factor discussion above under "Substantial Indebtedness; Need for
Additional Capital" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" under
Item 7 of this Report.
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DIVIDENDS
ACC Corp. is a holding company, the principal assets of which are its
operating subsidiaries in the U.S., Canada and the U.K. ACC U.S., ACC Canada,
ACC U.K., ACC Germany, and other operating subsidiaries of the Company are
subject to corporate law restrictions on their ability to pay dividends to ACC
Corp. There can be no assurance that ACC Corp. will be able to cause its
operating subsidiaries to declare and pay dividends or make other payments to
ACC Corp. when requested by ACC Corp. The failure to pay any such dividends or
make any such other payments could have a material adverse effect upon the
Company's business, financial condition and results of operations.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Class A Common Stock has been, and may continue to
be, highly volatile. Factors such as variations in the Company's revenue,
earnings and cash flow, the difference between the Company's actual results and
the results expected by investors and analysts, "buy," "hold" and "sell" ratings
by securities analysts and announcements of new service offerings, marketing
plans or price reductions by the Company or its competitors could cause the
market price of the Class A Common Stock to fluctuate substantially. In
addition, in view of the proposed TCG Merger and TCG/AT&T Merger, the market
price of ACC Common Stock may be affected by changes in the stock prices of TCG
and AT&T. In addition, the stock markets have also recently experienced
significant price and volume fluctuations that particularly have affected
telecommunications companies and resulted in changes in the market prices of the
stocks of many companies that have not been directly related to the operating
performance of those companies. Such market fluctuations may materially
adversely affect the market price of the Class A Common Stock.
RISKS ASSOCIATED WITH DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses various financial
instruments, including derivative financial instruments, to hedge its foreign
exchange and interest rate risks. The Company does not use derivative financial
instruments for speculative purposes. By their nature, all such instruments
involve risk, including the risk of nonperformance by counterparties, and the
Company's maximum potential loss may exceed the amount recognized on the
Company's balance sheet. Accordingly, losses relating to derivative financial
instruments could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" under Item 7 of this Report.
ANTI-TAKEOVER PROVISIONS
ACC's Board of Directors has the authority to issue up to 1,990,000 shares
of Preferred Stock and 25,000,000 shares of Class B Common Stock, and to
determine the price, rights, preferences and privileges of those shares without
any further vote or action by the shareholders. The rights of the holders of
any ACC Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock or Class B Common Stock that may be
issued in the future. While the Company has no present intention to issue any
additional shares of Preferred Stock or Class B Common Stock, any such issuance
or the perception that such issuances may occur could
<PAGE>
-34-
have the effect of making it more difficult for a third party to acquire control
of the Company. The issuance of Preferred Stock or Class B Common Stock could
also decrease the amount of earnings and assets available for distribution to
holders of ACC Common Stock or could adversely affect the rights and powers,
including voting rights, of holders of ACC Common Stock. In addition, the
Company is and, subject to certain conditions, will continue to be, subject to
the anti-takeover provisions of the DGCL, which could have the effect of
delaying or preventing a change of control of the Company. Furthermore, upon a
change of control, the Company's indebtedness under its credit facility is
required to be repaid and the salary continuation and employment agreements with
executive officers and directors of the Company require certain payments to be
made by the Company and provide for vesting of stock options and stock incentive
rights. In addition, ACC has adopted a rights plan ("ACC Shareholder Rights
Plan"), which will cause substantial dilution to a person or group that attempts
to acquire ACC on terms not approved by the ACC Board of Directors. All of these
provisions and the ACC Shareholder Rights Plan could have the effect of delaying
or preventing changes in control or management of the Company. The TCG Merger
Agreement also contains provisions which restrict the ability of ACC to solicit
or participate in discussions concerning acquisition proposals with respect to
ACC and require ACC to pay to TCG a termination fee and expense reimbursements
under certain circumstances. These provisions could discourage or increase the
cost of an acquisition proposal with respect to ACC from a person other than
TCG.
THE YEAR 2000
The Year 2000 problem arises from the fact that due to early limitations on
memory and disk storage many computer programs indicate the year by only two
digits, rather than four. This limitation can cause programs (both system and
application) that perform arithmetic operations, comparisons, or sorting of data
fields to yield incorrect results when working outside the year range of 1990 -
1999. The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to be
Year 2000 compliant will be material to its financial condition or results of
operations. ACC is working closely with its vendors to effectuate their Year
2000 correction plans on a timely basis. There can be no assurance that such
procedures will be successfully implemented within the required time frames or
that additional procedures will not be necessary. A failure of ACC's or of its
significant vendors' computer systems could have a material adverse effect on
ACC's business and financial position and results of operation.
ITEM 2. PROPERTIES.
ACC's principal executive offices are located at 400 West Avenue,
Rochester, New York in corporate office space leased through June 2004. It also
leases office space for its Canadian headquarters in Toronto, Canada, as well as
office space at various other locations. For additional information regarding
these leases, see Notes 7 and 9 to ACC's Consolidated Financial Statements
included herein.
ACC U.K.'s headquarters are located at Adelaide House in Chiswick, London.
ACC U.K. entered into an Agreement for Lease for such location in October 1997.
The term is for approximately six years through March 2004. The lease for the
current headquarters will also continue until September 1998.
ACC has sixteen switching centers worldwide. ACC's switching equipment for
the Rochester call origination area is located at its headquarters at 400 West
Avenue, Rochester, New York with additional switching equipment located in the
U.S. in Albany, Buffalo, New York City and Syracuse, New York and in Boston and
Springfield, Massachusetts; in Canada in Toronto, Ontario, Montreal, Quebec, and
Vancouver, British Columbia; and in London, Bristol and Manchester, England, and
in Dusseldorf, Germany all of which sites are leased. Branch sales offices are
leased by ACC at various locations in the northeastern U.S., Canada and the U.K.
ACC also leases equipment and space located at various sites in its service
areas.
ACC's financing arrangements are secured by substantially all of ACC's
assets. ACC's secured lenders would be entitled to foreclose upon those assets
and to be repaid from the proceeds of the liquidation of those assets in the
event of a default under ACC's financing arrangements.
<PAGE>
-35-
ITEM 3. LEGAL PROCEEDINGS.
There were no material legal proceedings pending at December 31, 1997
involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 4-A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following sets forth information concerning the executive officers of
the Company and its principal operating subsidiaries as of March 1, 1998:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Christopher Bantoft 50 President of European Operations
Michael R. Daley 36 Executive Vice President and Chief Financial Officer
Steve M. Dubnik 35 President and Chief Operating Officer of North American Operations
Arunas A. Chesonis 35 President and Director
Mae H. Squier-Dow 36 President of ACC TeleCom
Kevin S. Dickens 34 President and Chief Executive Officer of ACC TelEnterprises Ltd.
Frank C. Szabo 45 Vice President and Controller
John J. Zimmer 39 Vice President and Treasurer
</TABLE>
Christopher Bantoft was elected President of European Operations of the
Company in November 1996, and has served as Managing Director of ACC Long
Distance UK Ltd. since 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. Since December 1997, following the death of David K. Laniak, he
has also jointly performed the functions of Chief Executive Officer of the
Company.
Michael R. Daley was elected the Company's Executive Vice President and
Chief Financial Officer in February 1994. He previously served as the Company's
Treasurer from March 1991 through February 1997, 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
various other positions with the Company from July 1985 through January 1989.
Mr. Daley has served as a Director of ACC TelEnterprises Ltd. from October 1994
through January 1997. Since December 1997, following the death of David K.
Laniak, he has also jointly performed the functions of Chief Executive Officer
of the Company.
Steve M. Dubnik was elected President and Chief Operating Officer of North
American Operations of the Company in November 1996, and has served as the
Chairman of the Board of Directors of ACC TelEnterprises Ltd. since July 1994.
Previously, he served from 1992 through June 1994 as President, Mid-Atlantic
Region, of RCI Long Distance. For more than five years prior thereto, he served
in progressively senior positions with Rochester Telephone Corporation (now
Frontier Corp.) including assignments in engineering, operations, information
technology and sales. Since December 1997, following the death of David K.
Laniak, he has also jointly performed the functions of Chief Executive Officer
of the Company.
Arunas A. Chesonis was elected President of the Company in April 1994. He
previously served as President of ACC Long Distance Corp. from January 1989
through April 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.
<PAGE>
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Mae H. Squier-Dow was elected President of ACC Telecom in June 1996, and
served as Commercial Director of ACC Long Distance U.K. Ltd. from April 1995 to
June 1996. She previously held a number of positions at ACC Long Distance U.K.
Ltd. from October 1993 to April 1995, including Director of Customer Relations
and Marketing, Vice President of International Planning and Operations Director.
She previously served as Vice President of Customer Relations at ACC Long
Distance Corp. from March 1992 to October 1993 and as its Director of Customer
Relations from January 1991 to March 1992.
Kevin S. Dickens was elected President and Chief Executive Officer of ACC
TelEnterprises Ltd. in April 1997. Prior to joining the Company, Mr. Dickens
spent eight years with Frontier Corp., where he most recently served as Vice
President, Network Planning and Optimization.
Frank C. Szabo, a certified public accountant, was elected the Company's
Vice President and Controller in February 1997. Prior to joining the Company,
Mr. Szabo was the Vice President and Controller of First Federal Savings and
Loan, Rochester, New York, for more than 10 years.
John J. Zimmer, a certified public accountant, was elected the Company's
Treasurer in February 1997 and has served as a Vice President since 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 Arthur Andersen LLP.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Class A Common Stock is quoted on The Nasdaq Stock Market's
National Market System under the symbol "ACCC." The following table sets forth,
for the periods indicated, the high and low sale prices of the Class A Common
Stock, as reported by The Nasdaq Stock Market, and the cash dividends declared
per share of Class A Common Stock. The prices do not include retail mark ups,
mark downs or commissions. Information presented below has been adjusted to
reflect a three-for-two stock split that was distributed on August 8, 1996.
Cash
Common Stock Price Dividends
-------------------- Declared
High Low Per Share
--------- --------- ---------
1996: First Quarter $20 11/64 $14 53/64 ---
Second Quarter 32 27/64 18 37/64 ---
Third Quarter 54 3/4 29 1/2 ---
Fourth Quarter 47 3/4 24 3/4 ---
1997: First Quarter 36 1/4 20 1/2 ---
Second Quarter 31 5/8 14 1/4 ---
Third Quarter 37 28 1/2 ---
Fourth Quarter 52 7/8 25 ---
On March 18, 1998, the closing price for the Company's Class A Common Stock
in trading on The Nasdaq Stock Market was $52 7/16 per share, as published in
The Wall Street Journal. As of March 18, 1998, the Company had approximately
3,800 holders of record of its Class A Common Stock.
<PAGE>
-37-
The Company ceased paying quarterly cash dividends on its Class A Common
Stock in 1995 to use its cash to invest in the growth of its business. The
Company anticipates that future earnings, if any, generated from operations will
be retained by the Company to develop and expand its business. Any future
determination with respect to the payment of dividends on the Class A Common
Stock will be at the discretion of the Board of Directors and will depend upon,
among other things, the Company's operating results, financial condition and
capital requirements, the terms of then-existing indebtedness and Preferred
Stock, general business conditions, Delaware corporate law limitations and such
other factors as the Board of Directors deems relevant. The terms of the
Company's Credit Facility prohibit the payment of dividends without the lender's
consent. The Company's holding company structure may adversely affect the
Company's ability to obtain payments when needed from ACC Corp.'s operating
subsidiaries. See the Risk Factor discussion of "Holding Company Structure;
Reliance on Subsidiaries for Dividends" in Item 1 of this Report and Note 3 of
the Notes to the Company's Consolidated Financial Statements included elsewhere
in this Report.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical consolidated financial data for each of
the years presented have been derived from ACC's audited consolidated financial
statements. The consolidated financial statements of ACC as of December 31, 1996
and 1997, and for each of the three years in the period ended December 31, 1997,
together with the notes thereto and related report of Arthur Andersen LLP,
independent public accountants, are included elsewhere herein. The following
data should be read in conjunction with, and is qualified by, the consolidated
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of ACC," which are
included elsewhere herein.
<PAGE>
-38-
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1993 1994 1995 1996 1997(4)
------------ ---------- ----------- ----------- -----------
Consolidated Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenue:
Toll revenue..................................... $ 100,646 $ 118,331 $ 175,269 $ 282,497 $ 327,490
Local exchange and other......................... 5,300 8,113 13,597 26,270 45,123
----------- ----------- --------- ----------- -----------
Total revenue................................. 105,946 126,444 188,866 308,767 372,613
Network costs..................................... 70,286 79,438 114,841 193,599 218,361
----------- ----------- --------- ----------- -----------
Gross Profit...................................... 35,660 47,006 74,025 115,168 154,252
Other operating expenses:
Depreciation and amortization.................... 5,832 8,932 11,614 16,433 23,712
Selling, general and administrative.............. 28,807 44,228 60,865 84,511 111,027
Management restructuring......................... - _ 1,328 _ -
Equal access charges............................. _ 2,160 _ _ -
Assets write-down................................ 12,807 _ _ _ -
----------- ----------- --------- ----------- -----------
Total other operating expenses................ 47,446 55,320 73,807 100,944 134,739
----------- ----------- --------- ----------- -----------
Income (loss) from operations(1).................. (11,786) (8,314) 218 14,224 19,513
Other income (expense):
Interest income.................................. 205 124 198 1,151 215
Interest expense................................. (420) (2,023) (5,131) (5,025) (3,729)
Merger costs..................................... _ (200) _ _ (4,970)
Gain on sale of subsidiary stock................. 9,344 _ _ _ -
Foreign exchange gain (loss)..................... (1,094) 169 (110) 509 (162)
----------- ----------- --------- ----------- -----------
Total other income (expense).................. 8,035 (1,930) (5,043) (3,365) (8,646)
----------- ----------- --------- ----------- -----------
Income (loss) from continuing operations
before provision for (benefit from)
income taxes and minority interest............... (3,751) (10,244) (4,825) 10,859 10,867
Provision for (benefit from) income taxes......... (3,743) 3,456 396 2,185 476
Minority interest in loss (earnings) of
consolidated subsidiary.......................... 1,661 2,371 (133) (909) -
----------- ----------- --------- ----------- -----------
Income (loss) from continuing operations.......... 1,653 (11,329) (5,354) 7,765 10,391
Loss from discontinued operations (net
of income tax benefit of $667 in 1993)
(1,309) _ _ _ -
Gain on disposal of discontinued operations
(net of income tax provision of $8,350 in 1993).. 11,531 _ _ _ -
----------- ----------- --------- ----------- -----------
Net income (loss)................................. $ 11,875 (11,329) (5,354) $ 7,765 $ 10,391
Less Series A Preferred Stock dividend............ _ _ (401) (972) -
Less Series A Preferred Stock accretion........... _ _ (139) (1,509) -
----------- ----------- --------- ----------- -----------
Income (loss) applicable to Common Stock.......... $ 11,875 $ (11,329) $ (5,894) $ 5,284 $ 10,391
=========== =========== ========= =========== ===========
Net income (loss) per share - basic: (2)
continuing operations........................... $ 0.16 $(1.09) $(0.52) $0.37 $ 0.62
discontinued operations......................... (0.13) _ _ _ -
Gain on disposal of discontinued operations..... 1.13 _ _ _ -
----------- ----------- --------- ----------- -----------
Net income (loss) per share - basic............. $ 1.16 $(1.09) $(0.52) $0.37 $ 0.62
=========== =========== ========= =========== ===========
Net income (loss) per share - diluted: (2)
continuing operations........................... $ 0.16 $(1.09) $(0.52) $0.34 $ 0.59
discontinued operations......................... (0.12) _ _ _ -
Gain on disposal of discontinued operations..... 1.09 _ _ _ -
----------- ----------- --------- ----------- -----------
Net income (loss) per share - diluted........... $ 1.13 $(1.09) $(0.52) $0.34 $ 0.59
=========== =========== ========= =========== ===========
Weighted average number of shares outstanding:(2)
Basic.......................................... 10,206,833 10,366,778 11,358,693 14,463,728 16,839,039
=========== =========== ========= =========== ===========
Diluted......................................... 10,537,388 10,366,778 11,358,693 15,540,115 17,690,223
=========== =========== ========= =========== ===========
</TABLE>
<PAGE>
-39-
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1993 1994 1995(6) 1996 1997 (4)
---------- -------- ----------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data(5):
Cash and cash equivalents.................................. $ 1,467 $ 1,021 $ 518 $ 2,035 $ 3,988
Current assets............................................. 22,476 28,045 45,726 61,933 92,347
Current liabilities........................................ 23,191 32,016 56,074 77,394 89,793
Net working capital (deficit).............................. (715) (3,971) (10,348) (15,461) 2,554
Property, plant and equipment, net......................... 27,077 44,081 56,691 80,452 135,726
Total assets............................................... 61,718 84,448 123,984 204,031 319,618
Short-term debt, including current maturities of
long- term debt........................................... 2,424 1,613 4,885 4,251 3,853
Long-term debt, excluding current maturities............... 1,795 29,914 28,050 6,007 90,221
Redeemable preferred stock................................. -- -- 9,448 --
--
Shareholders' equity....................................... 31,506 19,086 26,407 117,863 137,716
Other Financial and Operations Data:
Net cash provided by (used in) operating
Activities................................................ $(11,828) $ 1,093 $ 3,967 $ 24,248 $ 3,691
Class A Common Stock cash dividends
Declared(3)............................................... $ 4,233 $ 831 $ 243 $ --
--
Cash dividends declared per share of Class A
Common Stock(2) (3)....................................... $0.40 $0.08 $0.02 $ --
--
Book Value per common share (2)............................ $3.03 $1.84 $2.23 $7.10 $8.00
</TABLE>
(1) Includes impact of $2,160 of charges incurred in 1994 in connection with
enhancement of the ACC network to prepare for equal access for its Canadian
customers. Also includes an asset write-down of $12,807 in 1993.
(2) On June 14, 1996, the ACC Board of Directors authorized a three-for-two
stock split in the form of a stock dividend issued on August 8, 1996 of the
ACC Class A Common Stock to shareholders of record as of July 3, 1996. Share
and per share amounts for all prior periods have been adjusted for the stock
split.
(3) The ACC financing arrangements restrict the payment of dividends on the ACC
Common Stock. ACC anticipates that it will not pay dividends in the
forseeable future.
(4) Includes the results of operations of companies acquired by ACC during 1997:
Transphone International Ltd. from June 1, 1997, United Telecom Ltd. from
July 1, 1997, VISTA International Communications Inc. from August 1, 1997,
and Telenational Communications Deutschland Limited Partnership from July 1,
1997.
(5) Balance sheet data from discontinued operations is excluded.
(6) Includes the results of operations of Metrowide Communications from August
1, 1995, the date of acquisition.
<PAGE>
-40-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
The Company's revenue is comprised of toll revenue (per minute charges for
long distance services) and local service and other revenue. Toll revenue
consists of revenue derived from ACC's long distance and operator-assisted
services. Local service and other revenue consists of revenue derived from the
provision of local exchange services, including local dial tone, direct access
lines, Internet fees and monthly subscription fees, and data services. Network
costs consist of expenses associated with the leasing of transmission lines,
access charges, and certain variable costs associated with the Company's
network. The following table shows the total revenue (net of intercompany
revenue) and billable minutes of use attributable to the Company's North
American and European operations during each of 1997, 1996, and 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent
---------- -------- ---------- -------- ---------- --------
(Amounts in 000s)
<S> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE:
North America:
United States........................ $ 120,627 32.4% $ 99,461 32.2% $ 65,975 34.9%
Canada............................... 116,638 31.3 117,168 38.0 84,421 44.7
---------- ----- ---------- ----- ---------- -----
Total North America..................... 237,265 63.7 216,629 70.2 150,396 79.6
---------- ----- ---------- ----- ---------- -----
Europe:
United Kingdom....................... 132,151 35.4 92,138 29.8 38,470 20.4
Germany.............................. 3,197 .9 - - - -
---------- ----- ---------- ----- ---------- ----
Total Europe............................ 135,348 36.3 92,138 29.8 38,470 20.4
---------- ----- ---------- ----- ---------- -----
Total.............................. $ 372,613 100.0% $ 308,767 100.0% $ 188,866 100.0%
========== ===== ========== ===== ========== =====
BILLABLE LONG DISTANCE MINUTES OF USE:
North America:
United States........................ 780,232 33.2% 590,341 32.8% 486,618 41.2%
Canada............................... 798,458 33.9 681,200 37.9 522,764 44.2
---------- ----- ---------- ----- ---------- -----
Total North America..................... 1,578,690 67.1 1,271,541 70.7 1,009,382 85.4
---------- ----- ---------- ----- ---------- -----
Europe:
United Kingdom....................... 770,151 32.7 527,905 29.3 172,281 14.6
Germany.............................. 4,343 .2 - - - -
---------- ----- ---------- ----- ---------- -----
Total Europe............................ 774,494 32.9 527,905 29.3 172,281 14.6
---------- ----- ---------- ----- ---------- -----
Total................................... 2,353,184 100.0% 1,799,446 100.0% 1,181,663 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
The following table presents certain information concerning long distance toll
revenue (net of intercompany revenue) per billable minute and network cost per
billable minute attributable to the Company's North American and European
operations during each of 1997, 1996, and 1995:
1997 1996 1995
----- ----- -----
TOLL REVENUE PER BILLABLE LONG DISTANCE MINUTE:
North America:
United States................................. $.122 $.150 $.126
Canada........................................ .122 .150 .146
Total North America.............................. .122 .150 .137
Europe:
<PAGE>
-41-
United Kingdom................................ .171 .174 .220
Germany....................................... .736 - -
Total Europe..................................... .174 .174 .220
NETWORK COST PER BILLABLE MINUTE:
Total North America.............................. $.084 $.105 $.089
Total Europe..................................... .110 .114 .149
The Company believes that its historic revenue growth as well as its
historic network costs and results of operations for its Canadian and UK
operations generally reflect the state of development of the Company's
operations, the Company's customer mix, and the competitive and regulatory
environment in those markets. The Company entered the US, Canadian, and UK
telecommunications markets in 1982, 1985, and 1993, respectively. In 1997, the
Company established a subsidiary in Germany, and commenced offering long
distance service as a switchless reseller during the third quarter of 1997. For
US operations, 1996 revenue and network cost per minute include the effect of
$9.0 million of non-recurring, higher rate per minute and lower margin
international carrier sales in the second quarter. The Company believes that
toll revenue per billable minute and network cost per billable minute may be
lower in future periods, and heavily influenced by competitive pressures and
regulatory actions.
Deregulatory influences have affected the telecommunications industry in
the US since 1984, and the US market has experienced considerable competition
for a number of years. The competitive influences on the pricing of ACC US's
services and network costs have been stabilizing during the past few years.
This may change in the future as a result of the 1996 Amendment to the US
Communications Act (the "Act") that further opened the market to competition,
particularly from the regional operating companies ("BOCs"). The Company has
actively pursued growth opportunities in the US market. During the third
quarter of 1997, the Company acquired VISTA International Communications Inc.,
("VISTA"). VISTA, headquartered in Mount Arlington, New Jersey, provides long
distance and other services to small and medium-sized commercial customers in
the Northeastern US with concentrations primarily in New Jersey and
Pennsylvania. The VISTA acquisition represents expansion into a contiguous
geographic area, with a similar targeted customer segment which is viewed as
consistent with the Company's expansion strategy.
The deregulatory trend in Canada, which commenced in 1989, has increased
competition. ACC Canada experienced significant downward pressure on the
pricing of its services during 1994 and 1995. Although revenue per minute
increased from 1995 to 1996 due to changes in customer and product mix, revenue
per minute fell during 1997, and the Company expects downward pressure to
continue. The impact of this pricing pressure on revenues of ACC Canada is
being offset by an increase in the Canadian commercial and student billable
minutes of usage as a percentage of total Canadian billable minutes of usage,
and introduction of new products and services including 800 service, local
exchange resale, Internet services, and, since February 1997, paging services.
The Company believes that, because deregulatory influences have only fairly
recently begun to impact the UK telecommunications industry, the Company will
continue to experience a significant increase in revenue from that market, but
the rate of growth is expected to decline. The foregoing belief is based upon
expectations of actions that may be taken by UK regulatory authorities and the
Company's competitors; if such third parties do not act as expected, the
Company's opportunities for revenue growth experience increased revenues, the
Company believes it should be able to enhance its economies of scale and scope
in the use of the fixed cost elements of its network. Nevertheless, the
deregulatory trend in that market is expected to result in competitive pricing
pressure on the Company's UK operations, which could adversely affect revenues
and margins. Since the UK market for transmission facilities is dominated by
British Telecom and Cable & Wireless, the downward pressure on prices for
services offered by ACC UK may not be accompanied by a corresponding reduction
in ACC UK's network costs in the short term and, consequently, could adversely
affect the Company's business, results of operations and financial condition,
particularly in the event revenue derived from the Company's UK operations
accounts for an increasing percentage of the Company's total revenue. Moreover,
the Company's UK operations are highly dependent upon the transmission lines
leased from British Telecom. As each of the telecommunications markets in which
it operates continues to mature, the rate of growth in its revenue and customer
base in each such market is likely to decrease over
<PAGE>
-42-
time. The Company has actively pursued growth opportunities and alternate
network solutions in the UK market. During the second quarter of 1997, the
Company acquired Transphone International Ltd. ("Transphone"). Transphone
provides domestic and international long distance service as a reseller, and is
based in London, UK In acquiring Transphone, the Company obtained what it
believes is a strong base of commercial customers in a desirable geographic
area. During the third quarter of 1997, the Company also acquired United Telecom
Ltd. ("UT"). UT provides domestic and international long distance services
through a pre-paid calling card platform in retail telephone shops. UT is based
in London, UK In acquiring UT, the Company obtained what it believes is a new
delivery channel in a growing niche market. The acquisition is also expected to
create network cost efficiencies, as UT's customers have peak calling activity
at night and on weekends. This calling pattern will enable the Company to
facilitate routing of off-peak traffic over the Company's switch based network,
thereby adding to economies of scale. The Transphone and UT acquisitions are
expected to be accretive to earnings commencing in 1998. During the first
quarter of 1998, the Company anticipates putting into operations its own
microwave facility, linking its three UK switching centers. This microwave
facility will provide the Company with its own domestic redundant network
alternative access to the Company's network for its customers and a lower cost
network platform. The foregoing forward looking statements are based upon
expectations with respect to customer behavior, market trends and the Company's
ability to successfully integrate and develop the businesses acquired. If such
expectations are not realized, actual results may differ materially from the
foregoing discussion.
The German telecommunications market substantially deregulated in January
1998, as a result of the European Union ("EU") mandate to open
telecommunications markets to competition. Most significantly, the German
market opened for interconnection in January 1998. The Company has established
a subsidiary in Germany, and signed a resale agreement with Deutsche Telekom
("DT") on May 20, 1997. Further, the Company received a Class 4 full voice
telephony license from the Germany Ministry of Post and Telecommunications which
became effective January 1, 1998. This license is a requirement for the Company
to become a switch-based provider of telecommunications services in Germany. In
October 1997, the Company signed a network interconnect agreement with DT, which
permits utilization of DT's network to link the Company with its customers.
With this agreement in place, the Company has installed a switch which it placed
in service in February 1998. The Company achieved a small amount of revenue in
the fourth quarter of 1997 as a switchless reseller and anticipates potentially
more substantial revenue growth in 1998 as a switch-based reseller. The
foregoing forward looking statement is based upon expectations with respect to
regulatory actions and cooperation from DT which the Company is unable to
control. If such expectations are not realized, the expected revenue growth from
the German market may not materialize. In addition to the core growth expected
from switch-based resale, the Company has actively pursued other growth
opportunities in Germany. During the third quarter of 1997, the Company acquired
Telenational Communications Deutschland Limited Partnership ("TNC"), a privately
held telecommunications service provider headquartered in Hamburg, Germany. TNC
provides prepaid calling cards through affinity programs with large commercial
customers including Lufthansa, Citibank and Diners Club. The TNC acquisition
provides the Company an existing customer base, proven management team and
facilitates the start-up efforts in Germany.
Since the commencement of the Company's operations, the Company has
undertaken a program of developing and expanding its service offerings,
geographic focus, and network. In connection with this development and
expansion, the Company has made significant investments in telecommunications
circuits, switches, equipment, and software. These investments generally are
made significantly in advance of anticipated customer growth and resulting
revenue. The Company also has increased its sales and marketing, customer
support, network operations, and field services commitments in anticipation of
the expansion of its customer base and targeted geographic markets. The Company
expects to continue to expand the breadth and scale of its network and related
sales and marketing, customer support, and operating activities. These
expansion efforts are likely to cause the Company to incur significant increases
in expenses from time to time, in anticipation of potential future growth in the
Company's customer base and targeted geographic markets.
In 1997, the Company announced the creation of two continental operating
divisions in North America and Europe. In conjunction with this new structure,
the Company plans to further expand its European operations as business activity
more fully develops in the deregulating German market and by entering other
telecommunications
<PAGE>
-43-
marketplaces when regulatory and market conditions warrant. While the Company
has had a successful history of entering into newly deregulated markets, there
can be no assurances that the same successes will be experienced in the future.
The Company has also expanded operations in the US local exchange business
and anticipates that a significant portion of its future growth will come from
this business. The local exchange business is highly competitive and includes
several larger, better capitalized local service providers, including AT&T,
among others, who can sustain losses associated with discount pricing, and the
high initial investment and expenses typically incurred to attract local
customers. The Company's US local service commenced operations in 1994 and
generated an operating profit for 1997 and 1996. However, there can be no
assurances that the Company will continue to achieve positive operating cash
flow or profitability in this business in the future.
The Company's operating results have fluctuated in the past and they may
continue to fluctuate significantly in the future as a result of a variety of
factors, some of which are beyond the Company's control. The Company expects to
focus in the near term on building and increasing its customer base, service
offerings, and targeted geographic markets, which will require it to increase
significantly its expenses for marketing and development of its network and new
services, and may adversely impact operating results from time to time. The
Company's sales to other long distance carriers have been increasing due to the
Company's marketing efforts to promote its lower international network costs.
Revenue from other resellers accounted for approximately 18% and 27% of the
revenues of ACC North America and ACC Europe, respectively, in 1997. Included
in 1996 was $9 million of US non recurring carrier revenue, or 3% of
consolidated revenue. Additionally, in 1997 the Company realized significantly
reduced revenue from two Canadian carriers of $10.8 million compared to 1996.
With respect to these customers, the Company competes almost exclusively on
price, does not have long term contracts, and generates lower gross margins as a
percentage of revenue. The Company's primary interest in carrier revenue is to
utilize excess capacity on its network. Carrier revenue in 1997 was 21% of
consolidated total revenue compared to 24% in 1996. Management believes that
carrier revenue will continue to average 20% to 25% of consolidated total
revenue as the core businesses continue to grow. The foregoing forward-looking
statement is based upon expectations with respect to growth in the Company's
customer base and total revenues. If such expectations are not realized, the
Company's actual results may differ materially from the foregoing discussion.
RESULTS OF OPERATIONS
The following table presents, for the three years ended December 31, 1997,
certain statement of operations data expressed as a percentage of total revenue:
Year Ended December 31,
-----------------------
1997(1) 1996 1995(2)
------- ----- -------
Revenue:
Toll revenue................................ 87.9% 91.5% 92.8%
Local service and other..................... 12.1 8.5 7.2
------- ----- -------
Total revenue........................... 100.0 100.0 100.0
Network costs.................................. 58.6 62.7 60.8
------- ----- -------
Gross profit................................... 41.4 37.3 39.2
Other operating expenses:
Depreciation and amortization............... 6.4 5.3 6.1
Selling expenses............................ 13.7 11.0 11.4
General and administrative.................. 16.1 16.4 20.8
Management restructuring.................... --- --- 0.7
------- ----- -------
Total other operating expenses.......... 36.2 32.7 39.0
------- ----- -------
Income from operations......................... 5.2 4.6 0.2
Total other expense............................ (2.3) (1.1) (2.7)
Loss from operations before provision
<PAGE>
-44-
for (benefit from) income taxes and
minority interest........................... 2.9 3.5 (2.5)
Provision for income taxes..................... 0.1 0.7 0.2
Minority interest in earnings of consolidated
subsidiary.................................. --- (0.3) (0.1)
----- ----- -----
Income (loss) from operations.................. 2.8% 2.5% (2.8)%
===== ===== =====
(1) Includes the results of operations of companies acquired during 1997:
Transphone International Ltd. from June 1, 1997, United Telecom Ltd. from
July 1, 1997, VISTA International from August 1, 1997 and Telenational
Communications Deutschland Limited Partnership from July 1, 1997.
(2) Includes the results of operations of Metrowide Communications from August
1, 1995, the date of acquisition.
1997 Compared with 1996
Revenue. Total revenue for 1997 increased $63.8 million, or 21% to $372.6
million from $308.8 million in 1996. Long distance toll revenue increased $45.0
million, or 16%, to $327.5 million from $282.5 million in 1996. The growth in
long distance toll revenue was fueled by a 31% increase in billable minutes.
Revenue from wholesale carriers in 1997 increased to $78.9 million (21% of total
revenue) from $73.4 million (24% of total revenue) in 1996. Significantly
reduced revenue from two Canadian carriers were realized in 1997, accounting for
a $10.8 million reduction in carrier revenue from the same period in 1996.
Additionally, the 1996 period reflects $9 million of US non-recurring carrier
revenue. Excluding total wholesale carrier revenue, long distance toll revenue
for 1997 increased 19% from 1996. Long distance toll revenue per billable
minute for the current period decreased 11%, from $.157 to $.139, largely a
result of competitive pricing pressures and change in customer mix. The growth
in other revenue is largely attributable to growth in market share in the
competitive local exchange business in the US and a full year of revenues from
Internet Canada compared to seven months in 1996.
Total revenue (unaffiliated) in North America for 1997 increased 10% from
1996. Long distance toll revenue (unaffiliated) increased 1% from 1996.
However, 1996 included $9 million of non-recurring carrier revenue, and 1997
reflects reduced revenue from two carriers of $10.8 million. Excluding total
carrier revenue, long distance toll revenue in 1997 increased 11% from 1996, and
is attributable to core growth in minutes and customer accounts and from
acquisitions. Long distance toll revenue per minute for 1997 decreased 19% from
$.150 to $.122, largely a result of competitive pricing pressures in both the US
and Canada. Retail price pressures in each market are expected to continue
which may impact the Company's margin. Local service and other revenue for 1997
increased $18.9 million or 72% from 1996, a result of growth in US local
exchange revenue and increased Internet related revenue in Canada. The Company
continues to invest in the local exchange business, having installed switches
during 1997 in Buffalo, Albany, New York City, Boston and Springfield
Massachusetts. Continued expansion and growth in non-toll revenue, including
local exchange service, Internet and other services is expected to become a
larger component of total revenue in future periods. As a percent of total
revenue, non-toll revenue for 1997 was 12% compared to 8% for 1996.
Total revenue (unaffiliated) in Europe (substantially all long distance toll
revenue) for 1997 increased 47% from 1996. Excluding carrier revenue, long
distance toll revenue for 1997 increased 33% from 1996, and is attributable to
core growth in minutes and commercial and student customer accounts, and from
acquisitions. Long distance toll revenue per billable minute for 1997 of $.174
remained unchanged from 1996, as the impact of higher revenue from carriers
partially offset retail price reductions implemented during the period for
international and domestic long distance rates. The German operating unit
contributed a modest amount of revenue from the acquired TNC customer base as
well as from switchless resale activity. Revenue per minute in Germany of
$.736 in 1997 reflects a high concentration of higher rate international
traffic.
Network Costs. Network costs for 1997 increased $24.8 million or 13% to
$218.4 million from $193.6 million in 1996. As a percent of revenue, network
costs for 1997 was 59% compared to 63% in 1996. Network costs per billable
minute for 1997 decreased 14%, from $.108 to $.093. The reduction in network
costs as a percent of revenue, and per
<PAGE>
-45-
billable minute, is largely attributable to reduced contribution charges enacted
during 1997 in Canada, a favorable shift in business/customer mix as higher
margin local exchange revenue constitute a higher percent of revenue in 1997 as
compared to 1996, declining access rates for origination and termination, and
internal network efficiencies.
Network costs in North America for 1997 as a percent of unaffiliated revenue
decreased to 57% from 62% for 1996, and per billable minute also decreased from
$.105 to $.084. These improvements resulted from the aforementioned reduction
in Canadian contribution charges, increased amount of higher margin local
exchange revenue in the US, and internal network efficiencies. Network costs in
Europe for 1997 as a percent of unaffiliated revenue decreased to 62% from 65%
in 1996, and per billable minute decreased from $.114 to $.110. Recent
investments in switches, a UK microwave network and IRU are expected to more
significantly lower network costs in the near term, as ownership of these
facilities will enable the Company to reduce reliance on leased lines and
increase network capacity. This forward looking statement is based on
expectations regarding customer demand and the relative cost and availability of
leased lines and alternative transmission facilities in the Company's markets,
and could be adversely impacted by competitive pricing pressures. If such
expectations are not realized, the Company's actual results may differ
materially from the foregoing discussion.
Other Operating Expenses - Selling, General and Administrative Expenses.
Total Selling, General and Administrative expenses ("SG&A") for 1997 increased
$26.5 million, or 31%, to $111.0 million from $84.5 million in 1996. As a
percent of revenue, SG&A increased to 30% from 27%. This increase is largely
attributable to higher selling expenses (i.e., agents, salesperson and customer
commissions) associated with growth in local exchange revenue, added overhead
from acquired entities and infrastructure costs to support expansion in Germany.
Other Income (Expense). Net interest expense for 1997 decreased by $.4
million from 1996. Merger costs in 1997 of $5.0 million were incurred in
connection with the then pending mergers with US WATS Inc., and Teleport
Communications Group Inc., and includes costs for investment advisory, legal,
accounting and other professional services. Foreign exchange gains/losses
reflect changes in the value of amounts borrowed by the foreign subsidiaries
from ACC Corp., and ACC US, net of gains/losses on associated hedging contracts.
The Company continues to hedge substantially all intercompany loans to foreign
subsidiaries in an attempt to reduce the impact of transaction gains or losses.
The Company does not engage in speculative foreign currency transactions. In
1997, the Company recognized losses on foreign currency transactions of $.2
million compared to gains of $.5 million in 1996.
Provision for Income Taxes. Provision for income taxes for 1997 of $.5
million represented an effective tax rate of 4% compared to $2.2 million or an
effective tax rate of 20% in 1996. Income taxes are provided on all taxable
income in excess of available net operating loss carryforwards ("NOL's") at the
statutory rate applicable for each country. The Company continues to utilize
NOL's to offset taxable income generated in Canada and the UK The increase in
operating earnings in both of these subsidiaries, which is not subject to tax
due to utilization of NOL's, reduces the effective tax rate for the consolidated
company. The Company anticipates that its effective tax rate will increase
significantly in the future as taxable income in each country increases.
Minority Interest in Earnings of Consolidated Subsidiary. Minority interest
for 1996 reflects the portion of the Company's Canadian subsidiary's income
attributable to the approximately 30% of that subsidiary's common stock that was
publicly traded in Canada. Prior to December 31, 1996, the Company repurchased
approximately 24% of the outstanding shares, and the remaining 6% was
repurchased in January 1997. As a result, the Canadian subsidiary is currently
100% owned, with no remaining minority interest.
The Company's income from operations for 1997 was $19.5 million compared to
$14.2 million in 1996, and was comprised of the following: North American
operations $13.2 million as compared to $12.0 million in 1996, and European
operations $6.3 million as compared to $2.2 million in 1996.
1996 COMPARED WITH 1995
Revenue. Total revenue for 1996 increased by 63% to $308.8 million from
$188.9 million in 1995, reflecting growth in both toll revenue and local service
and other revenue. Toll revenue for 1996 increased by 61% to $282.5 million
<PAGE>
-46-
from $175.2 million in 1995. In the United States, toll revenue increased 45%
as a result of a 21% increase in billable minutes of use, primarily due to
increased international sales to carriers. These international sales have a
higher rate per minute, also contributing to the revenue increase. The 1996
results include $9.0 million in non-recurring carrier revenue. Excluding this
non-recurring revenue, US toll revenue increased 30% over 1995. In Canada, toll
revenue increased 34%, as a result of a 30% increase in billable minutes, and an
increase in prices due to additional residential customers which typically have
a higher revenue per minute. In the United Kingdom, toll revenue increased
142%, due to significant volume increases offset by lower prices that resulted
from entering the commercial and residential markets and from competitive
pricing pressure. Since the end of 1994, ACC's revenues per minute on a
consolidated basis have been increasing slightly as a result of the increasing
percentage of UK revenues and the Company's successful introduction of higher
price per minute products, including international carrier revenue. Exchange
rates did not have a material impact on the Company's consolidated revenue.
For 1996, local service and other revenue increased by 93% to $26.3 million
from $13.6 million in 1995. This increase was primarily due to the Metrowide
Communications acquisition as of August 1, 1995 (approximately $5.2 million),
local service revenue generated through the university program in the US
(approximately $0.4 million), and the competitive local exchange company
("CLEC") operations in upstate New York (approximately $5.6 million). The
Company is anticipating that a significant portion of its growth in the US
operations in the future will come from CLEC operations.
Gross Profit. Gross profit (defined as revenue less network costs) for
1996 increased to $115.2 million from $74.0 million in 1995, primarily due to
the increases in revenue discussed above. Expressed as a percentage of revenue,
gross profit decreased to 37% for 1996 from 39% for 1995, due to an increase in
lower margin carrier traffic in the US, offset partially by improved margins in
Canada and the UK due to network efficiencies and reductions in fixed charges
from suppliers.
Other Operating Expenses. Depreciation and amortization expense increased
to $16.4 million for 1996 from $11.6 million in 1995. Expressed as a percentage
of revenue, these costs decreased to 5% in 1996 from 6% in 1995, reflecting the
increases in revenue realized during 1996. The $4.8 million increase in
depreciation and amortization expense was primarily attributable to assets
placed in service throughout 1996. Amortization of approximately $1.1 million
associated with the customer base and goodwill recorded in the Metrowide
Communications and Internet Canada asset acquisitions also contributed to the
increase.
Selling expenses for 1996 increased by 58% to $34.1 million compared with
$21.6 million in 1995. Expressed as a percentage of revenue, selling expenses
were 11% for 1996 compared to 11% for 1995. The $12.5 million increase in
selling expenses was primarily attributable to increased marketing costs and
sales commissions associated with supporting the Company's 63% growth in revenue
for 1996, particularly in the UK. General and administrative expenses for 1996
were $50.4 million compared with $39.2 million in 1995. Expressed as a
percentage of revenue, general and administrative expenses were 16% for 1996,
compared to 21% in 1995. The increase in general and administrative expenses
was primarily attributable to the Canadian ($4.3 million increase) and the UK
($4.4 million increase) subsidiaries. In the UK, costs were incurred to develop
an infrastructure to support the sizable revenue growth experienced in 1996,
with headcount increasing 56% over previous year levels. In Canada, headcount
increased approximately 52%, partially as a result of the acquisition of
Internet Canada, and partially to develop an infrastructure to support the
increasing product lines and services being offered. Also included in general
and administrative expenses for 1996 was approximately $4.4 million related to
the Company's local service market sector in New York State, compared to $1.8
million in 1995.
Other Income (Expense). Interest expense remained fairly constant at $5.0
million for 1996 compared to $5.1 million in 1995. The 1996 expense includes
the accrual of a $2.1 million contingent interest payment due to the lenders
under the Company's credit facility. The 1995 amount includes expense
associated with the subordinated debt which was converted to Series A Preferred
Stock in September 1995, as well as expense associated with line of credit
borrowings to finance working capital and capital expenditure needs. Interest
income increased to $1.2 million in 1996 from $0.2 million in 1995, due to the
invested proceeds from the ACC Class A Common Stock offering in May 1996.
<PAGE>
-47-
Foreign exchange gains and losses reflect changes in the value of the
Canadian dollar and the British pound sterling relative to the US dollar for
amounts lent to foreign subsidiaries. Foreign exchange rate changes resulted in
a net gain of $0.5 million for 1996, compared to a $0.1 million loss in 1995,
which was primarily due to a one-time gain related to a transaction which
occurred on October 21, 1996 and was hedged 28 days later. The Canadian dollar
moved favorably relative to the US dollar during that period. The Company
continues to hedge all foreign currency transactions in an attempt to minimize
the impact of transaction gains and losses on the income statement. The
Company's policy is to not engage in speculative foreign currency transactions.
Provision for Income Taxes. Provision for income taxes reflects the
anticipated income tax liability of the Company's US operations based on its
pretax income for the year. The provision for income taxes increased in 1996
due to increased profitability in the US business. The Company does not provide
for income taxes nor recognize a benefit related to income in foreign
subsidiaries due to net operating loss carryforwards generated by those
subsidiaries in prior years.
Minority Interest in Earnings of Consolidated Subsidiary. Minority
interest in earnings of consolidated subsidiary reflects the portion of the
Company's Canadian subsidiary's income or loss attributable to the percentage of
that subsidiary's common stock that was publicly traded in Canada. Prior to
October 1996, approximately 30% of ACC Canada's stock was publicly traded.
Prior to December 31, 1996, the Company repurchased approximately 24% of the
outstanding shares, and the remaining 6% was repurchased subsequent to December
31, 1996. The purchase of the remaining shares was approved prior to December
31, 1996. For 1996, minority interest in earnings of the consolidated
subsidiary was a loss of $0.9 million compared to a loss of $0.1 million in
1995.
The Company's net income for 1996 was $7.8 million, compared to a net loss
of $5.4 million in 1995. The 1996 net income resulted from the Company's
operations in Canada (approximately $2.6 million); in the United Kingdom
(approximately $0.7 million); and in the United States (approximately $4.5
million). The 1995 net loss resulted primarily from the expansion of operations
in the UK (approximately $6.8 million); increased net interest expense
associated with additional borrowings (approximately $4.9 million); increased
depreciation and amortization from the addition of equipment and costs
associated with the expansion of local service in New York State (approximately
$1.6 million); and management restructuring costs (approximately $1.3 million),
offset by positive operating income from the US and Canadian long distance
subsidiaries of approximately $9.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operations in 1997 were $3.7 million compared to
$24.2 million for 1996. The decrease of $20.5 million primarily resulted from
reductions in other accrued expenses of $9.5 million in 1997 versus increases of
$9.0 million in 1996. The reduction of other accrued expenses in 1997 includes
the impact of payments of approximately $16 million of non-recurring expenses
accrued as of December 31, 1996. Cash provided from net income before
depreciation and amortization in 1997 increased $10 million over 1996, but this
was offset by increases in accounts receivable (which increased in tandem with
revenue growth) and changes in other working capital accounts.
Net cash flows used in investing activities in 1997 were $91.3 million
compared to $67.7 million for 1996. The increase of $23.6 million primarily
resulted from greater investments in capital expenditures (largely switch
equipment) of $68.5 million in 1997 compared to $33.0 million in 1996, and from
the purchase in 1997 of Transphone, United Telecom, TNC and VISTA with an
aggregate payment (net of cash acquired) of $22.0 million. In 1996, the Company
repurchased the minority interest of ACC Canada, and that investment totaled
$32.1 million.
Net cash provided by financing activities for 1997 was $86.1 million
compared to $46.2 million in 1996. The increase of $39.9 million reflects
greater utilization of the Credit Facility in 1997 to fund expansion (net
increase in 1997 of $89 million versus a net decrease of $22 million in 1996),
partially offset by lower proceeds in 1997 from issuance of common stock ($9.8
million in 1997 versus $72.7 million in 1996).
The Company's principal need for working capital is to meet its selling,
general, and administrative expenses, network costs and capital expenditures as
its business expands. In addition, the Company's capital resources have been
<PAGE>
-48-
used for acquisitions, (i.e., Metrowide Communications, Internet Canada,
Transphone, United Telecom, VISTA and TNC), capital expenditures, and the
repurchase of the minority interest in ACC Canada. The Company has historically
reflected working capital deficits at the end of the last several years, but at
December 31, 1997, reflected a working capital surplus of approximately $2.6
million, due primarily to utilization of its credit facility to satisfy current
liabilities.
Approximately $68.5 million in capital expenditures were recorded in 1997.
The Company expects that it will continue to make significant capital
expenditures during future periods, particularly for switching equipment for the
UK and Germany, and for local exchange switches in the US markets and related
costs, and billing systems. The Company's actual capital expenditures and cash
requirements will depend on numerous factors, including the nature of future
expansion (including the extent of local exchange services, which is
particularly capital intensive), and acquisition opportunities, economic
conditions, competition, regulatory developments, the availability of capital
and the ability to incur debt and make capital expenditures under the terms of
the Company's financing arrangements.
As of December 31, 1997, the Company had approximately $4.0 million of cash
and cash equivalents and maintained a $150 million credit facility, subject to
availability under a borrowing base formula and certain other conditions
(including borrowing limits based on the Company's operating cash flow), under
which $87.8 million was outstanding.
As of December 31, 1997, the Company had $5.3 million of capital lease
obligations which mature at various times from 1998 through 2002. During 1997,
the Company prepaid a $4.0 million capitalized lease obligation using funds from
its credit facility. The Company's financing arrangements, which are secured by
substantially all of the Company's assets including stock of certain
subsidiaries, require the Company to maintain certain financial ratios.
In the normal course of business, the Company uses various financial
instruments, including derivative financial instruments, for purposes other than
trading. These instruments include letters of credit, guarantees of debt,
interest rate swap agreements, and foreign currency exchange contracts relating
to intercompany payables of foreign subsidiaries. The Company does not use
derivative financial instruments for speculative purposes. Foreign currency
exchange contracts are used to mitigate foreign currency exposure and are
intended to protect the US dollar value of certain currency positions and future
foreign currency transactions. The aggregate fair value, based on published
market exchange rates, of the Company's foreign currency forward contracts at
December 31, 1997 was $61.8 million. When applicable, interest rate swap
agreements are used to reduce the Company's exposure to risks associated with
interest rate fluctuations. As is customary for these types of instruments,
collateral is generally not required to support these financial instruments.
By their nature, all such instruments involve risk, including the risk of
nonperformance by counterparties, and the Company's maximum potential loss may
exceed the amount recognized on the Company's balance sheet. However, at
December 31, 1997, in management's opinion there was no significant risk of loss
in the event of nonperformance of the counterparties to these financial
instruments. The Company controls its exposure to counterparty credit risk
through monitoring procedures and by entering into multiple contracts, and
management believes that no reserves for losses are required. Based upon the
Company's knowledge of the financial position of the counterparties to its
existing derivative instruments, the Company believes that it does not have any
significant exposure to any individual counterparty or any major concentration
of credit risk related to any such financial instruments.
On December 19, 1997, the Company amended and restated its credit facility
increasing the amount available to $150 million (the "Amended Credit Facility").
The Amended Credit Facility is syndicated among six financial institutions.
Borrowings can be made in US dollars, Canadian dollars, British pounds sterling
and German Deutsche Marks, and are limited individually to $30.0 million for ACC
Canada, $50.0 million for ACC UK, and $20.0 million for ACC Germany, with any
unused capacity available for ACC Corp. and its US subsidiaries. The Amended
Credit Facility will be used to finance capital expenditures and provide working
capital. The Amended Credit Facility limits the amount that may be borrowed
against this facility based on the Company's operating cash flow. The Amended
Credit Facility also contains certain covenants including restrictions on the
payment of dividends, maintenance of a maximum leverage ratio, minimum debt
service coverage ratio, maximum fixed charge coverage ratio, and minimum net
<PAGE>
-49-
worth, all as defined under the Amended Credit Facility and subjective
covenants. At December 31, 1997, the Company had available $59.0 million under
the Amended Credit Facility. Borrowings under the Amended Credit Facility are
secured by certain of the Company's assets and will bear interest at either the
LIBOR rate or the base rate (representing the greater of the prime interest rate
or the federal funds rate plus 1/2%), with additional percentage points added
based on a ratio of debt to operating cash flow, as defined in the Amended
Credit Facility. The maximum aggregate commitment and the sublimits of the
Amended Credit Facility are required to be reduced by 8.0% per quarter
commencing on March 31, 2000 until December 31, 2001, and by 9.0% per quarter
commencing on March 31, 2002 until maturity of the loan in December 2002. All
amounts outstanding under the Amended Credit Facility may become due and
payable, at the discretion of the financial institutions, upon the closing of
the Merger. The Company is currently negotiating with its lenders to obtain a
waiver of this requirement. There can be no assurance that such a waiver will
be obtained.
The Company believes that, under its present business plan, access to cash
through the Amended Credit Facility, and cash from operations, will be
sufficient to meet anticipated working capital needs, capital expenditure
requirements and expansion plans for the forseeable future. The forward-looking
information contained in the previous sentence may be affected by a number of
factors, including the matters described in this paragraph and "Risk Factors".
The Company may need to raise additional capital from public or private equity
or debt sources in order to finance its operations, capital expenditures, and
growth for future periods. In addition, the Company may have to refinance a
substantial amount of indebtedness and obtain additional funds prior to 2002,
when the Amended Credit Facility matures. Moreover, the Company believes that
continued growth and expansion through acquisitions, investments, and strategic
alliances is important to maintain a competitive position in the market and,
consequently, a principal element of the Company's business strategy is to
develop relationships with strategic partners and to acquire assets or make
investments in businesses that are complementary to its current operations. The
Company may need to raise additional funds in order to take advantage of
opportunities for acquisitions, investments, and strategic alliances or more
rapid international expansion, to develop new products, or to respond to
competitive pressures. There can be no assurance that the Company will be able
to raise such capital on acceptable terms or at all. The Company's ability to
obtain additional sources of capital will depend upon, among other things, its
financial condition at the time, the restrictions and the instruments governing
its indebtedness and other factors, including market conditions, beyond the
control of the Company. Additional sources of capital may include public and
private equity and debt financings, sale of assets, capitalized leases and other
financing arrangements. In the event that the Company is unable to obtain
additional capital or is unable to obtain additional capital on acceptable
terms, the Company may be required to reduce the scope of its presently
anticipated expansion opportunities and capital expenditures, which could have a
material adverse effect on its business, results of operations and financial
condition and could adversely impact its ability to compete.
The Company may seek to develop relationships with strategic partners both
domestically and internationally and to acquire assets or make investments in
businesses that are complementary to its current operations. Such acquisitions,
strategic alliances, or investments may require that the Company obtain
additional financing and, in some cases, the approval of the Company's
creditors. The Company's ability to effect acquisitions, strategic alliances,
or investments may depend upon its ability to obtain such financing and, to the
extent applicable, consents from creditors.
The TCG Merger Agreement contains certain restrictions on the conduct of
ACC's business prior to the consummation of the Merger.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement is effective for
financial statements issued for periods beginning after December 15, 1997.
Management believes that the adoption of this statement will not have a material
effect on the Company's consolidated results of operations or financial
position.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 requires the reporting of
profit and loss, certain specific revenue and expense items, and assets for
reportable segments. It also requires the reconciliation of total segment
revenues, total segment profit or loss, total
<PAGE>
-50-
segment assets, and other amounts disclosed for segments to the corresponding
amounts in the general purpose financial statements. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997. Management believes that the
adoption of this statement will not have a material effect on the Company's
consolidated results of operations or financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data are included under Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K relating to directors who
are nominees for election as directors at the Company's Annual Meeting of
Shareholders, if an Annual Meeting is held during 1998, will be set forth under
the heading "Election of Directors" in the Company's Definitive Proxy Statement
for such Annual Meeting, which is incorporated by reference herein.
The information required by Item 10 of Form 10-K with respect to executive
officers is, pursuant to Instruction 3 of Paragraph (b) of Item 401 of
Regulation S-K, set forth in Part I as Item 4-A of this Form 10-K under the
heading "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K will be set forth under
the heading "Compensation of Executive Officers and Directors" in the Company's
Definitive Proxy Statement for its Annual Meeting of Shareholders, if an Annual
Meeting is held during 1998, which is incorporated by reference herein.
<PAGE>
-51-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 31, 1997, the number and
percentage of outstanding shares of ACC Stock beneficially owned by: (i) each
director of ACC; (ii) each of the persons comprising the office of the Chief
Executive Officer of ACC and the other four most highly compensated executive
officers of ACC; (iii) each person or group known to ACC to be the beneficial
owner of more than 5% of the outstanding shares of ACC Stock; and (iv) all
directors and executives officers of ACC as a group. ACC believes that each
individual in this group has sole investment and voting power with respect to
his or her shares subject to community property laws where applicable and except
as otherwise noted:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER Shares Beneficially Owned
------------------------------------------
or Identity of Group NUMBER PERCENTAGE
-------------------- ------ ----------
<S> <C> <C>
Christopher Bantoft.................................................................. 46,100(1) *
Michael R. Daley..................................................................... 141,241(2) *
Steve M. Dubnik...................................................................... 109,475(3) *
Richard T. Aab....................................................................... 1,085,872(4) 6.3
Hugh F. Bennett...................................................................... 18,300(5) *
Arunas A. Chesonis................................................................... 238,234(6) 1.3
Willard Z. Estey..................................................................... 15,000(7) *
Leslie D. Shroyer.................................................................... 2,000(8) *
Daniel D. Tessoni.................................................................... 30,000(9) *
Robert M. Van Degna.................................................................. 18,000(10) *
Mae H. Squier-Dow.................................................................... 79,490(11) *
Kevin S. Dickens..................................................................... 0(12) *
John J. Zimmer....................................................................... 38,130(13) *
All directors and executive officers as a group (14 persons, including those persons
named above other than Richard T. Aab and the Equitable Companies)................... 743,470(1)(2) 4.4
(3)(4)
(5)(6)
(7)(8)
(9)(10)
(11)(12)
(13)(14)
</TABLE>
________________
* Indicates less than 1% of ACC's issued and outstanding shares.
(1) Includes options to purchase 46,100 shares that are or will become
exercisable by Mr. Bantoft within the next 60 days. Does not include 31,175
shares issuable upon the exercise of options that are not deemed to be
presently exercisable, nor stock incentive rights with respect to 15,000
shares granted pursuant to ACC's Long-Term Incentive Plan.
(2) Includes options to purchase 13,662 shares that are or will become
exercisable by Mr. Daley within the next 60 days. Does not include 27,238
shares issuable upon the exercise of options that are not deemed to be
presently exercisable.
(3) Includes options to purchase 45,897 shares that are or will become
exercisable by Mr. Dubnik within the next 60 days. Does not include 35,225
shares issuable upon the exercise of options that are not deemed to be
presently exercisable, nor stock incentive rights with respect to 15,000
shares granted pursuant to ACC's Long-Term Incentive Plan.
<PAGE>
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(4) Includes 100,000 shares that are owned by Melrich Associates, L.P., a
family partnership of which Mr. Aab is a general partner and therefore
shares investment and voting power with respect to such shares. Mr. Aab's
address is 29 Woodstone Rise, Pittsford, New York 14534. The foregoing
information was reported in a Schedule 13G (Amendment No. 9) that was filed
with the Commission in January 1998, a copy of which was received by ACC.
(5) Mr. Bennett and his spouse share voting and investment power with respect
to 400 of the shares. Includes options to purchase 15,000 shares under the
Non-Employee Directors' Stock Option Plan that are presently exercisable.
Does not include an option to purchase 7,500 shares granted under such Plan
that is not deemed to be presently exercisable.
(6) Includes 13,730 shares owned by Mr. Chesonis's spouse and options to
purchase 129,709 shares that are or will become exercisable by Mr. Chesonis
or his spouse within the next 60 days. Does not include 32,477 shares
issuable upon the exercise of options that are not deemed to be presently
exercisable by Mr. Chesonis or his spouse.
(7) Includes options to purchase 15,000 shares under the Non-Employee
Directors' Stock Option Plan that are presently exercisable. Does not
include an option to purchase 7,500 shares granted under such Plan that is
not deemed to be presently exercisable.
(8) Does not include an option to purchase 7,500 shares under the Non-Employee
Directors' Stock Option Plan that is not deemed to be presently
exercisable.
(9) Mr. Tessoni and his spouse share investment and voting power with respect
to all shares which he beneficially owns. Includes options to purchase
15,000 shares under the Non-Employee Directors' Stock Option Plan that are
presently exercisable. Does not include an option to purchase 7,500 shares
granted under such Plan that is not deemed to be presently exercisable.
(10) Includes options to purchase 15,000 shares under the Non-Employee
Directors' Stock Option Plan that are presently exercisable. Does not
include an option to purchase 7,500 shares granted under such Plan that is
not deemed to be presently exercisable.
(11) Includes options to purchase 61,813 shares that are or will become
exercisable by Ms. Squier-Dow within the next 60 days. Does not include
38,225 shares issuable upon the exercise of options that are not deemed to
be presently exercisable, nor stock incentive rights with respect to 10,000
shares granted pursuant to ACC's Long-Term Incentive Plan.
(12) Does not include 45,000 shares issuable upon the exercise of options that
are not deemed to be presently exercisable.
(13) Includes options to purchase 28,199 shares that are or will become
exercisable by Mr. Zimmer within the next 60 days. Does not include 8,551
shares issuable upon the exercise of options that are not deemed to be
presently exercisable.
(14) Includes options to purchase a total of 7,500 shares that are or will
become exercisable by two executive officers of ACC, in addition to those
named above, within the next 60 days. Does not include a total of 7,500
shares issuable upon the exercise of options that are not deemed to be
presently exercisable by such executive officers.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
<PAGE>
-53-
The information required by Item 13 of Form 10-K will be set forth under
the heading "Certain Transactions" in the Company's Definitive Proxy Statement
for its Annual Meeting of Shareholders, if an Annual Meeting is held during
1998, which is incorporated by reference herein.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
(1) FINANCIAL STATEMENTS. (a) The following Financial Statements of
--------------------
the Company are included herewith as follows:
Report of Independent Public Accountants
Consolidated Balance Sheets, December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
<PAGE>
-54-
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, 1997 and 1996, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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 evaluating 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, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Rochester, New York,
February 3, 1998, except for
the matter described in the second
paragraph of Note 10, as to which
the date is March 11, 1998.
<PAGE>
ACC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000s, except share and per share data)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
--------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $3,988 $2,035
Accounts receivable, net of allowance
for doubtful accounts of $5,291 in
1997 and $3,795 in 1996 76,909 51,474
Other receivables 3,732 3,792
Prepaid expenses and other assets 7,718 4,632
--------------- --------------
TOTAL CURRENT ASSETS 92,347 61,933
--------------- --------------
PROPERTY, PLANT, AND EQUIPMENT:
At cost 189,249 119,398
Less-accumulated depreciation and
amortization (53,523) (38,946)
--------------- --------------
TOTAL PROPERTY, PLANT, AND EQUIPMENT 135,726 80,452
--------------- --------------
OTHER ASSETS:
Goodwill and customer base, net 73,607 50,629
Deferred installation costs, net 5,668 4,312
Other 12,270 6,705
--------------- --------------
TOTAL OTHER ASSETS 91,545 61,646
--------------- --------------
TOTAL ASSETS $319,618 $204,031
=============== ==============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES: $1,000 $730
Notes payable
Current maturities of 2,853 3,521
long-term debt 23,374 15,351
Accounts payable 35,973 22,908
Accrued network costs 26,593 34,884
Other accrued expenses
--------------- ---------------
89,793 77,394
TOTAL CURRENT LIABILITIES --------------- ---------------
1,888 2,767
Deferred income taxes --------------- ---------------
90,221 6,007
Long-term debt --------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred Stock, $1.00 par value, Authorized -
1,990,000 shares; Issued - no shares
Class A Common Stock, $.015 par value
Authorized - 50,000,000 shares - -
Issued - 18,297,145 in 1997 and
17,684,361 in 1996 275 265
Class B Common Stock, $.015 par value,
Authorized - 25,000,000 shares;
Issued - no shares - -
Capital in excess of par value 126,707 116,878
Cumulative translation adjustment (1,739) (1,362)
Retained earnings 14,083 3,692
--------------- ---------------
139,326 119,473
Less-
Treasury stock, at cost (1,089,884
shares) (1,610) (1,610)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 137,716 117,863
--------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $319,618 $204,031
=============== ===============
</TABLE>
<PAGE>
ACC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except share and per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Toll revenue $327,490 $282,497 $175,269
Local service and other 45,123 26,270 13,597
----------------- ----------------- -----------------
Total revenue 372,613 308,767 188,866
Network costs 218,361 193,599 114,841
----------------- ----------------- -----------------
Gross profit 154,252 115,168 74,025
OTHER OPERATING EXPENSES:
Depreciation and amortization 23,712 16,433 11,614
Selling expenses 50,958 34,072 21,617
General and administrative 60,069 50,439 39,248
Management restructuring - - 1,328
----------------- ----------------- -----------------
Total other operating expenses 134,739 100,944 73,807
----------------- ----------------- -----------------
Income from operations 19,513 14,224 218
OTHER INCOME (EXPENSE):
Interest income 215 1,151 198
Interest expense (3,729) (5,025) (5,131)
Merger costs (4,970) - -
Foreign exchange gain (loss) (162) 509 (110)
----------------- ----------------- -----------------
Total other income (expense) (8,646) (3,365) (5,043)
----------------- ----------------- -----------------
Income (loss) from operations before provision
for income taxes
and minority interest 10,867 10,859 (4,825)
Provision for income taxes 476 2,185 396
Minority interest in earnings of
consolidated subsidiary - (909) (133)
----------------- ----------------- -----------------
NET INCOME (LOSS) 10,391 7,765 (5,354)
Less Series A Preferred Stock dividend - (972) (401)
Less Series A Preferred Stock accretion - (1,509) (139)
----------------- ----------------- -----------------
Net income (loss) applicable to Common Stock $10,391 $5,284 ($5,894)
================= ================= =================
Net income (loss) per common share:
Basic $0.62 $0.37 ($0.52)
================= ================= =================
Diluted $0.59 $0.34 ($0.52)
================= ================= =================
Weighted average shares outstanding:
Basic 16,839,039 14,463,728 11,358,693
================= ================= =================
Diluted 17,690,223 15,540,115 11,358,693
================= ================= =================
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
ACC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Amounts in 000s, except share and per share data)
<TABLE>
<CAPTION>
Class A
Common Stock Capital in Cumulative Retained
--------------------- Excess of Translation Earnings Treasury
Shares Amount Par Value Adjustment (Deficit) Stock Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 11,478,902 $172 $20,013 ($1,013) $1,524 ($1,610) $19,086
Stock options exercised 50,287 1 479 - - - 480
Sale of stock 1,237,500 18 11,078 - - - 11,096
Employee stock purchase plan shares issued 35,450 1 296 - - - 297
Stock warrants exercised 123,750 2 1,186 - - - 1,188
Stock warrants issued - - 200 - - - 200
Accretion of Series A Preferred Stock - - (139) - - - (139)
Series A Preferred Stock dividends - - (401) - - - (401)
Acceleration of stock option vesting due to termination - - 134 - - - 134
Dividends ($.02 per common share) - - - - (243) - (243)
Cumulative translation adjustment - - - 63 - - 63
Net loss - - - - (5,354) - (5,354)
-------------------------------------------------------------------------
Balance, December 31, 1995 12,925,889 $194 $32,846 ($950) ($4,073) ($1,610) $26,407
Stock options exercised 587,881 9 4,712 - - - 4,721
Class A Common Stock offerings 3,018,750 45 62,849 - - - 62,894
Conversion of Series A Preferred Stock 937,500 14 11,915 - - - 11,929
Employee stock purchase plan shares issued 19,341 - 343 - - - 343
Stock warrants exercised 195,000 3 2,077 - - - 2,080
Increase in investment in Canadian subsidiary - - 1,254 - - - 1,254
Disqualifying dispositions - - 3,000 - - - 3,000
Accretion of Series A Preferred Stock - - (1,509) - - - (1,509)
Series A Preferred Stock dividends - - (972) - - - (972)
Acceleration of stock option vesting due to termination - - 206 - - - 206
Stock incentive rights issued - - 157 - - - 157
Cumulative translation adjustment - - - (412) - - (412)
Net income - - - - 7,765 - 7,765
------------------------------------------------------------------------
Balance, December 31, 1996 17,684,361 $265 $116,878 ($1,362) $3,692 ($1,610) $117,863
Stock options exercised 573,195 9 7,241 - - - 7,250
Employee stock purchase plan shares issued 28,339 1 686 - - - 687
Stock warrants exercised 11,250 - 140 - - - 140
Disqualifying dispositions - - 1,200 - - - 1,200
Stock incentive rights issued - - 562 - - - 562
Cumulative translation adjustment - - - (377) - - (377)
Net income - - - - 10,391 - 10,391
-----------------------------------------------------------------------
Balance, December 31, 1997 18,297,145 $275 $126,707 ($1,739) $14,083 ($1,610) $137,716
=======================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
ACC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000s)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $10,391 $7,765 ($5,354)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 23,712 16,433 11,614
Deferred income taxes (930) 3,110 609
Minority interest in earnings (loss) of consolidated subsidiary - 909 133
Unrealized foreign exchange (gain) loss (121) (758) 180
Amortization of deferred financing costs 629 425 263
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, net (22,442) (11,212) (17,437)
Other receivables 87 1,955 1,782
Prepaid expenses and other assets (8,289) (2,282) (1,057)
Deferred installation costs (3,884) (2,631) (2,983)
Other (148) 846
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable 4,417 7,511 (7,013)
Accrued network costs 9,627 (5,837) 17,824
Other accrued expenses (9,506) 9,008 4,560
---------- ----------- ----------
Net cash provided by operating activities 3,691 24,248 3,967
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (68,479) (33,030) (12,424)
Repurchase of minority interest - (32,092) -
Payment for purchase of subsidiaries, net of cash acquired (21,958) - (2,313)
Acquisition of customer base (840) (2,620) (557)
---------- ----------- ----------
Net cash used in investing activities (91,277) (67,742) (15,294)
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit and notes payable 211,673 26,375 113,602
Repayments under lines of credit and notes payable (123,145) (48,676) (119,204)
Repayment of long-term debt, other than lines of credit (10,414) (3,704) (3,078)
Proceeds from issuance of common stock 9,839 72,669 13,261
Proceeds from issuance of convertible debt - - 10,000
Financing costs (1,805) (495) (2,876)
Dividends paid - - (451)
---------- ----------- ----------
Net cash provided by financing activities 86,148 46,169 11,254
---------- ----------- ----------
Effect of exchange rate changes on cash 3,391 (1,158) (430)
---------- ----------- ----------
Net increase (decrease) in cash 1,953 1,517 (503)
Cash and cash equivalents at beginning of year 2,035 518 1,021
---------- ----------- ----------
Cash and cash equivalents at end of year $3,988 $2,035 $518
========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $4,122 $2,840 $4,146
========== =========== ==========
Income taxes, net of refunds $884 $1,808 $203
========== =========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased through capital leases $2,333 - $7,389
========== =========== ==========
Fair value of assets acquired $36,061 $5,136 $10,800
Less - cash paid at acquisition date, net of cash acquired (21,958) (3,001) (1,500)
Less - short term notes payable - - (2,966)
---------- ----------- ----------
Liabilities assumed $14,103 $2,135 $6,334
========== =========== ==========
Other assets purchased with long-term debt - $2,775 -
========== =========== ==========
Conversion of convertible debt to Series A Preferred Stock - - $10,000
========== =========== ==========
Conversion of Series A Preferred Stock to Class A Common
Stock, including cumulative dividends and accretion - $11,929 -
========== =========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
ACC. CORP AND SUBSIDIARIES
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. (a
Delaware corporation) and its direct and indirect subsidiaries ("the Company" or
"ACC"). Principal operating subsidiaries include: ACC TeleCom ("ACC US"), ACC
TelEnterprises Ltd. ("ACC Canada"), ACC Long Distance UK Ltd. ("ACC UK"), and
ACC Telekommunikation GmbH ("ACC Germany"). All operating subsidiaries are
wholly-owned. 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. MINORITY INTEREST:
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 Cdn. $11.00 per share. The Company received net proceeds of
approximately Cdn. $20.7 million after underwriters' fees and before other
direct costs of the offering of Cdn. $1.3 million. As a result of the offering,
ACC Corp.'s ownership was reduced to approximately 70%.
Minority interest represents the non-Company owned shareholder interest in
ACC TelEnterprises Ltd.'s equity primarily resulting from the 1993 public
offering. In the third quarter of 1996, the Company made a cash tender offer of
Cdn. $21.50 per share for the repurchase of the minority-held shares. In
September 1996, the tender offer was approved by the Boards of Directors of both
companies and, in the fourth quarter of 1996, approximately 1.9 million of the
outstanding shares, representing approximately 81.5% of the minority interest,
were tendered and purchased by the Company for Cdn. $40.4 million (US $29.5
million), increasing the Company's ownership in ACC Canada to 93.9% as of
December 31, 1996. As fewer than 90% of the publicly held shares were deposited
under the tender offer, the Company formed a subsidiary for the purpose of
acquiring the remaining minority interest of ACC Canada. Prior to December 31,
1996, the shareholders of ACC Canada approved the amalgamation of ACC Canada and
the new subsidiary. The amalgamation was effective January 1, 1997 and the
remaining minority interest shares of ACC Canada were replaced with shares of
the new subsidiary. These shares were purchased by the new subsidiary at a
price of Cdn. $21.50 per share (see Note 1 G).
C. REVENUE:
The Company records as long distance toll revenue the amount of
communications services rendered, as measured by the related minutes of toll
traffic processed or flat-rate services billed, after deducting an estimate of
the traffic or services which will neither be billed nor collected. Local
service and other revenue represents revenue derived from the provision of local
exchange services, including local dial tone, direct access lines, and monthly
subscription fees, as well as data services, and is recorded as the services are
provided and billed. Revenue from prepaid calling cards is recognized when
received.
D. OTHER RECEIVABLES:
Other receivables at December 31, 1997 consist of receivables primarily
related to taxes receivable (approximately $1.7 million), amounts due from
counterparties under cross-currency rate swap agreements (approximately $1.5
million), and other individually nominal, miscellaneous receivables
(approximately $0.5 million). Other receivables at December 31, 1996 consist of
receivables primarily related to taxes receivable (approximately $1.8 million),
the financing of university projects (approximately $0.5 million), officer notes
receivable (approximately $0.4 million), and other individually nominal,
miscellaneous receivables (approximately $1.1 million).
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. PROPERTY, PLANT, AND EQUIPMENT:
The Company's property, plant, and equipment consisted of the following at
December 31, 1997 and 1996 (amounts in 000s):
1997 1996
-------- --------
Equipment................................ $126,661 $ 90,257
Computer software and software licenses.. 16,064 12,682
Other.................................... 46,524 16,459
-------- --------
Total.................................... $189,249 $119,398
======== ========
Other property, plant and equipment includes accumulated costs for
uncompleted projects in progress of approximately $36.7 million as of December
31, 1997, and $9.5 million as of December 31, 1996. These costs primarily
relate to projects to acquire, install and make operational switch and
transmission equipment, and major software systems. Projects in progress at
December 31, 1997 are expected to be completed in the first half of 1998.
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 and software licenses............. 5 to 7 years
Office equipment and fixtures....................... 3 to 10 years
Vehicles............................................ 3 years
Equipment and computer software include assets financed under capital lease
obligations. A summary of these assets at December 31, 1997 and 1996 is as
follows (amounts in 000s):
1997 1996
-------- --------
Cost..................................... $10,566 $14,336
Less -- accumulated amortization......... (6,032) (6,194)
------- -------
Total, net............................... $ 4,534 $ 8,142
======= =======
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 is recognized in income.
The Company reviews long-lived assets to be held and used, including
related goodwill, for possible impairment when events or changes in
circumstances indicate that their carrying amounts may not be recoverable. If
an impairment exists, a loss is recognized to the extent the carrying value of
the asset exceeds its fair value.
F. DEFERRED COSTS:
Costs incurred for the installation of direct access lines are amortized on
a straight-line basis over the estimated useful life of three to ten years.
Accumulated amortization of deferred installation costs totaled approximately
$8.6 million and $6.4 million at December 31, 1997 and 1996, respectively.
G. GOODWILL AND CUSTOMER BASE:
Each 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.
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of August 1, 1995, ACC TelEnterprises Ltd. acquired Metrowide
Communications ("Metrowide"). Metrowide, based in Toronto, Canada, provides
local and long distance services to customers based in Ontario and Quebec,
Canada. The results of operations of Metrowide are included in the accompanying
financial statements since the date of acquisition. The total cost of the
acquisition was Cdn. $15.1 million (US $11.0 million) including Cdn. $9.1
million (US $6.6 million) of liabilities assumed. All payments related to the
purchase price of the acquisition were made as of December 31, 1996.
In May 1996, ACC Canada purchased certain assets and assumed certain
liabilities of Internet Canada Corp., a company based in Toronto, Canada, which
is engaged in the business of providing Internet access and website design and
development. The purchase price was Cdn. $5.2 million. All payments related to
the purchase price of the acquisition were made as of December 31, 1996.
Goodwill of Cdn. $11.1 million (US $8.1 million) associated with the ACC
TelEnterprises Ltd. asset purchases is being amortized over 20 years.
Also in 1996, as described above, the Company repurchased a significant
portion of the minority interest in ACC TelEnterprises Ltd. The minority-held
shares were purchased for Cdn. $21.50 per share, which represented a premium
over the book value of the shares. The total amount paid in 1996 for this
acquisition was Cdn. $43.7 million (US $32.0 million). In 1997, the remaining
6.1% interest was acquired for Cdn. $9.0 million (US $6.6 million). The
resulting goodwill, approximately Cdn. $48.0 million (US $35.0 million), will be
amortized over a 40 year life.
The following unaudited pro forma summary gives effect to the acquisition
of Internet Canada Corp. and the acquisition of the minority interest of ACC
Canada as if they had occurred at the beginning of 1995, after giving effect to
certain pro forma adjustments, including elimination of the minority interest in
earnings of ACC Canada, amortization of the goodwill and customer base acquired
in the acquisitions, interest expense on the acquisition financing, and related
income tax effects. This unaudited pro forma financial information is presented
for informational purposes only and may not be indicative of the results of
operations as they would have been if the acquisitions had occurred at the
beginning of 1995, nor is it necessarily indicative of the results of operations
which may occur in the future. Anticipated efficiencies from the combination of
Internet Canada and ACC Canada are not fully determinable and therefore have
been excluded from the amounts included in the pro forma summary below (amounts
in 000s, except share and per share data).
(Unaudited)
-------------
Years ended December 31,
1996 1995
---------- -------------
Total revenue $308,767 $188,866
Income (loss) from operations 13,175 (1,066)
Net income (loss) 5,372 (8,659)
Share data:
Net income (loss) $ 0.34 $ (0.74)
Net income (loss) applicable to common stock $ 0.18 $ (0.79)
Weighted average shares outstanding 15,641 11,685
During 1997, the Company consummated several business combinations, all
accounted for as purchases, as follows:
ACC UK acquired Transphone International Ltd. ("Transphone"), a long
distance reseller based in London, UK The results of operations of Transphone
are reflected in the 1997 consolidated results of operations effective June 1,
1997. Transphone reported 1.5 million pounds sterling (US $2.4 million) in
annual revenues for the calendar year ended December 31, 1996.
ACC UK acquired United Telecom Ltd. ("UT"), a pre-paid calling card and
long distance services provider based in London, UK The results of operations
of UT are reflected in 1997 consolidated results of operations effective July 1,
1997. UT reported 2.8 million pounds sterling (US $4.5 million) in annual
revenue for the fiscal year ended April 30, 1997.
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ACC US acquired VISTA International Communications Inc. ("VISTA"), a
privately held switch-based long distance provider based in Mount Arlington, New
Jersey. VISTA provides services to small-to-medium sized commercial customers
in the Northeastern US, with concentrations primarily in New Jersey and
Pennsylvania. The results of operations of VISTA are reflected in the 1997
consolidated results of operations effective August 1, 1997. VISTA reported
$10 million in annual revenue for the calendar year ended December 31, 1996.
ACC Germany acquired all the interests of Telenational Communications
Deutschland Limited Partnership ("TNC"), a privately held telecommunications
services provider based in Hamburg, Germany. TNC was a supplier of prepaid
calling cards, and developed affinity programs with large commercial customers.
The results of operations of TNC are reflected in the 1997 consolidated results
of operations effective July 1, 1997. TNC reported annualized revenue of German
Deutsche Marks (DM) 7.8 million (US $4.3 million).
The aggregate amount paid for these acquisitions was US $22.9 million. The
estimated fair value of assets acquired (including intangibles) was US $37.0
million, and liabilities assumed was US $14.1 million. Goodwill associated with
these acquisitions was US $21.6 million, and is being amortized from 20 to 40
years. Customer base intangibles associated with these acquisitions was US
$7.1 million, and is being amortized from 5 to 7 years.
Accumulated amortization of all goodwill approximated US $2.3 million and
$0.5 million at December 31, 1997 and 1996, respectively. The Company amortizes
acquired customer bases on a straight-line basis over five to seven years.
Accumulated amortization of customer base totaled approximately $8.3 million and
$5.5 million at December 31, 1997 and 1996, respectively.
H. EARNINGS PER SHARE:
During 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share". Adoption of this Statement did
not have a material effect on the reported earnings per share of the Company.
All prior-period earnings per share data have been restated to conform to the
provisions of the Statement.
The following table reconciles the numerators and denominators of basic and
diluted earnings per share (amounts in 000s, except share and per share data):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
BASIC EPS
Net income applicable to common stock $10,391 16,839,039 $0.62
---------- -----
EFFECT OF DILUTIVE SECURITIES
Stock options and warrants - 851,184
----------- ----------
DILUTED EPS
Net income applicable to common stock $10,391 17,690,223 $0.59
------- ---------- -----
</TABLE>
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net income $ 7,765
Less: Series A Preferred Stock dividend (972)
Series A Preferred Stock accretion (1,509)
-------
BASIC EPS
Net income applicable to common stock 5,284 14,463,728 $0.37
-----
EFFECT OF DILUTIVE SECURITIES
Stock options and warrants - 1,076,387
------- ----------
DILUTED EPS
Net income applicable to common stock 5,284 15,540,115 $0.34
------- ---------- -----
</TABLE>
No reconciliation is provided for 1995 as the effect would be anti-
dilutive. All share information noted above represents the weighted-average
number of shares during the period. All references to common shares have been
retroactively restated to reflect an August 8, 1996 three-for-two stock
dividend.
I. FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of ACC Canada, ACC UK and ACC Germany, operating in
Canada, the United Kingdom and Germany, respectively, are translated into US
dollars using the exchange rates in effect at the balance sheet date. Results
of operations are translated using the exchange rate at the date of the
transaction. The effects of exchange rate fluctuations on translating foreign
currency assets and liabilities into US 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.
J. INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." 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.
K. CASH EQUIVALENTS:
The Company considers investments with a maturity of less than three months
to be cash equivalents.
L. DERIVATIVE FINANCIAL INSTRUMENTS:
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. The
Company does not hold or issue financial instruments for speculative trading
purposes. The derivative instruments used are currency forward contracts and
interest rate swap agreements. These derivatives are non-leveraged and involve
little complexity.
The Company monitors and controls its risk in the derivative transactions
referred to above by periodically assessing the cost of replacing, at market
rates, those contracts in the event of default by the counterparty. The Company
believes such risk to be remote. In addition, before entering into derivative
contracts, and periodically during the life of the contracts, the Company
reviews the counterparty's financial condition.
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company enters into contracts to buy and sell foreign currencies in the
future in order to protect the value of the US dollar denominated net
liabilities of its foreign subsidiaries. The fair value method is used to
account for these instruments. Under the fair value method, changes in fair
value are recognized in the consolidated balance sheets as a component of other
accrued expenses, and in the consolidated statements of operations as foreign
currency gain or loss. For reporting purposes, the contractual assets or
liabilities of the foreign currency agreements are offset because the agreements
provide for a right of offset. Any premiums or discounts related to foreign
currency contracts are amortized over the life of the contracts.
At December 31, 1997, the Company had net foreign currency contracts
outstanding to buy forward the US dollar equivalent of Cdn. $45.4 million, 15.9
million pounds sterling and DM 6.4 million. These contracts mature through May
1998.
At December 31, 1996, the Company had net foreign currency contracts
outstanding to buy forward the US dollar equivalent of Cdn. $38.4 million and
14.5 million pounds sterling.
The Company has entered into a cross-currency rate swap transaction with a
financial institution which hedges the foreign currency risk associated with a
portion of intercompany debt due from the Canadian subsidiary to ACC Corp. and
also converts the variable rate of interest to a fixed rate. The agreement,
which commenced on December 31, 1996, has a two-year term. Under the agreement,
the Company pays a fixed rate of interest on a notional amount of Cdn. $33.5
million at a rate of 6.98% and receives a variable rate of interest at the US
prime rate on a notional amount of $25.0 million. Interest is paid quarterly.
The net of the notional amounts based on the exchange rate at December 31, 1997
is reflected on the balance sheet at December 31, 1997.
The Company uses interest rate swaps to effectively convert variable rate
obligations to a fixed rate basis. The differentials to be received or paid
under these agreements are recognized as an adjustment to interest expense
related to the debt. Gains and losses on terminations of interest rate swaps
are recognized when terminated in conjunction with the retirement of the
associated debt. The fair value of interest rate swap agreements is estimated
based on quotes from the market makers of these instruments and represents the
estimated amounts that the Company would expect to receive or pay to terminate
these agreements. The Company's exposure related to these interest rate swap
agreements is limited to fluctuations in the interest rate. At December 31,
1997, the Company has entered into two interest rate swap agreements. The first
agreement is for a notional amount of Cdn. $19.3 million, expires March 26,
1999, and ACC Canada pays interest at a fixed rate of 4.82% and receives
interest at the floating rate based on three month LIBOR. The second agreement
is for a notional amount of 7.2 million pounds sterling, expires January 7,
2000, and ACC UK pays interest at a fixed rate of 7.41% and receives interest at
the floating rate based on three month LIBOR. These swaps are settled every
three months and the related LIBOR rates are determined at each settlement date.
At December 31, 1996, the Company was not a party to any interest rate swap
agreements.
M. FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, trade receivables, other
current assets, accounts payable, and amounts included in accruals meeting the
definition of a financial instrument approximate fair value because of the
short-term maturity of these instruments. The carrying value and related
estimated fair values for the Company's remaining financial instruments are as
follows:
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(amounts in 000s)
<S> <C> <C> <C> <C>
Off balance sheet financial instruments:
Foreign exchange forward contracts $ - $61,751 $ - $52,800
Foreign currency swap agreement receivable 25,000 25,000 25,000 25,000
Foreign currency swap agreement payable 23,448 23,448 24,516 24,516
Senior credit facility and lines of credit 88,824 88,824 730 730
Capitalized lease obligation,including current portion 5,250 5,250 9,528 9,528
Interest Rate Swaps - 12 - -
</TABLE>
Based on borrowing rates currently available to the Company for loans and
lease agreements with similar terms and average maturities, the fair value of
its debt approximates its recorded value. Foreign currency contract obligations
are estimated by obtaining quotes from brokers. Interest rate swaps are
estimated by obtaining quotes from the financial institution. Letters of credit
and line of credit amounts are based on fees currently charged for similar
arrangements.
N. STOCK-BASED COMPENSATION:
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits either recording the
estimated value of stock-based compensation over the applicable vesting period
or disclosing the unrecorded cost and the related effect on earnings per share
in the notes to the financial statements. The Company has elected to comply
with the disclosure provisions of the statement. The effects of SFAS No. 123 in
the pro forma disclosures are not indicative of future amounts. The statement
does not apply to awards prior to 1995, and additional awards are anticipated.
O. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
P. RECLASSIFICATIONS:
Certain reclassifications have been made to previously reported balances
for 1995 and 1996 to conform to the 1997 presentation.
2. OPERATING INFORMATION
Description of Business
ACC is a switch-based provider of telecommunications services in the United
States, Canada, the United Kingdom and Germany. The Company primarily provides
long distance telecommunications services to a diversified customer base of
businesses, residential customers, and educational institutions. ACC also
provides local telephone service as a switch-based local exchange reseller in
upstate New York and Massachusetts and as a reseller of local exchange services
in Ontario and Quebec, Canada. ACC entered the German market during 1997 as a
switchless reseller of long distance telecommunications services and became a
switch-based provider in Germany in February 1998. ACC operates an advanced
telecommunications network, consisting of ten long distance international and
domestic switches located in the US, Canada, the UK and Germany, six local
exchange switches located in the US, leased transmission lines, IRU's and
network management systems designed to optimize traffic routing.
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ACC primarily targets business customers with both local service and long
distance needs, selected residential customers, and colleges and universities.
For the year ended December 31, 1997, long distance revenues accounted for
approximately 88% of total Company revenues, while local exchange and other
revenues were 12% of total Company revenues.
At December 31, 1997, approximately $21.8 million of the Company's
telecommunications equipment was located on 65 university, college, and
preparatory school campuses in the northeastern United States and in the United
Kingdom. Each of these institutions has signed agreements, with original terms
ranging from three to eleven years, for the provision of a variety of services
by the Company.
In the United States, the Federal Communications Commission ("FCC") and
relevant state Public Service Commissions ("PSCs") have the authority to
regulate interstate and intrastate rates, respectively, ownership of
transmission facilities, and the terms and conditions under which the Company's
services are provided. Legislation that substantially revises the US
Communications Act of 1934 (the "US Communications Act") was signed into law on
February 8, 1996. The legislation provides specific guidelines under which the
regional operating companies ("RBOCs") can provide long distance services, which
will permit the RBOCs to compete with the Company in the provision of domestic
and international long distance services. Further, the legislation, among other
things, opens local service markets to competition from any entity (including
long distance carriers such as AT&T, cable television companies, and utilities).
Because the legislation opens the Company's US markets to additional
competition, particularly from the RBOCs, the Company's ability to compete could
be adversely affected. Moreover, as a result of and to implement the
legislation, certain federal and other governmental regulations will be amended
or modified, and any such amendment or modification could have a material
adverse effect on the Company's business, results of operations, and financial
condition.
In Canada, services provided by ACC TelEnterprises Ltd. are subject to or
affected by certain regulations of the Canadian Radio-television and
Telecommunications Commission (the "CRTC"). During 1997, the CRTC issued rules
that open the local telephone market to competition. It is expected that these
rules will enable ACC Canada to bundle services and provide customers with local
as well as long distance services in areas that are not presently open to
competition.
The telecommunications services provided by ACC Long Distance UK Ltd. are
subject to and affected by regulations introduced by The Office of
Telecommunications, the UK telecommunications regulatory authority ("Oftel").
The German telecommunications market is expected to deregulate in January
1998, as a result of the European Union mandate to open telecommunications
markets to competition. Most significantly, the Germany market is scheduled to
be open for interconnection in January 1998. The telecommunications services
provided by ACC Telekommunikation GmbH will be subject to and affected by
regulations introduced by the German Ministry of Post and Telecommunications.
During 1997, the Company received a Class 4 full voice telephony license which
is a requirement for the Company to become a switch-based provider of
telecommunications services in Germany.
In addition to regulation, the Company is subject to other various risks in
connection with the operation of its business. These risks include, among
others, dependence on transmission facilities-based carriers and suppliers,
price competition, and competition from larger industry participants.
Concentrations with respect to trade receivables are limited, except with
respect to resellers, due to the large number of customers comprising the
Company's customer base and their dispersion across many different industries
and geographic regions. At December 31, 1997, approximately 26% of the
Company's billed accounts receivable balance was due from resellers.
3. DEBT, LINES OF CREDIT, AND FINANCING ARRANGEMENTS
A. DEBT:
The Company had the following debt outstanding as of December 31, 1997 and
1996 (amounts in 000s):
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Senior credit facility.................................... $87,824 $ -
Working capital lines of credit........................... 1,000 730
Capitalized lease obligations payable in total monthly
installments of $283 including interest, with rates
ranging from 3.9% to 18.8%, maturing through
2002, collateralized by related equipment.............. 5,250 9,528
------- --------
$94,074 $10,258
Less current maturities (3,853) (4,251)
-------- --------
$90,221 $ 6,007
======= ========
Year Amount
-------- --------
(amounts in 000s)
Maturities of debt, including capital lease obligations,
are as follows at December 31, 1997: 1998 $ 3,853
1999 1,685
2000 608
2001 33,859
2002 54,069
--------
$94,074
========
</TABLE>
B. SENIOR CREDIT FACILITY AND LINES OF CREDIT:
On July 21, 1995, the Company entered into an agreement for a $35.0 million
five year senior revolving credit facility with two financial institutions.
Borrowings were limited individually to $5.0 million for ACC UK and $2.0 million
for ACC US, with total borrowings for the Company limited to $35.0 million.
Initial borrowings under the agreement were used to pay down and terminate the
Company's previously existing lines of credit and to pay fees related to the
transaction. Subsequent borrowings were used to finance capital expenditures
and to provide working capital. On January 14, 1997 this facility was amended
and restated increasing the aggregate commitment to $100 million and including
three additional banks in the syndicate. The amendment also allowed for
borrowing in Canadian dollars and increased the sublimits individually for ACC
UK to $20.0 million, ACC US to $15.0 million and Canada to $30.0 million. Both
the $35 million facility and the $100 million facility had financial and other
covenants similar to those described below.
In conjunction with the closing of the $35 million facility, the Company
issued to a financial advisor warrants to purchase 45,000 shares of the
Company's Class A Common Stock at an exercise price of $10.67 per share. The
warrants were exercised in October 1996.
Under the $35 million facility, the Company was obligated to pay the
financial institution an aggregate contingent interest payment based on the
minimum of $750,000 or the appreciation in value of 140,000 shares of the
Company's Class A Common Stock over the 18-month period ending January 21, 1997,
but not to exceed $2.1 million. A payment of $2.1 million was made on January
15, 1997 in conjunction with the first amendment and restatement of the credit
facility, and was reflected as an accrued expense on the accompanying balance
sheet at December 31, 1996.
On December 19, 1997, the Company amended and restated its credit facility
increasing the amount to $150 million. The amended credit facility is
syndicated among six financial institutions. Borrowings can be made in US
dollars, Canadian dollars, British pounds and German Deutsche Marks, and are
limited individually to $30.0 million for ACC Canada, $50.0 million for ACC UK,
and $20.0 million for ACC Germany, with any unused capacity available for ACC
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Corp. and its US subsidiaries. The amended facility will be used to finance
investments, acquisitions and capital expenditures and provide working capital.
The agreement limits the amount that may be borrowed against this facility based
on the Company's operating cash flow. The agreement also contains certain
covenants including restrictions on the payment of dividends, maintenance of a
maximum leverage ratio, minimum debt service coverage ratio, maximum fixed
charge coverage ratio, and minimum net worth, all as defined under the agreement
and subjective covenants. At December 31, 1997, the Company had available $59.0
million under this facility. Borrowings under the facility are secured by
certain of the Company's assets and will bear interest at either the LIBOR rate
or the base rate (base rate being the greater of the prime interest rate or the
federal funds rate plus 1/2%), with additional percentage points added based on
a ratio of debt to operating cash flow, as defined in the agreement. The maximum
aggregate commitment and the sublimits of the amended facility are required to
be reduced by 8.0% per quarter commencing on March 31, 2000 until December 31,
2001, and by 9.0% per quarter commencing on March 31, 2002 until maturity of the
loan in December 2002. All amounts outstanding under the amended facility may
become due and payable, at the discretion of the financial institutions, upon
closing of the merger with Teleport Communications Group (see Note 10,
"Mergers"). The Company is currently negotiating with its lenders to obtain a
waiver of this requirement.
In connection with the credit facility, the Company has entered into two
interest rate swap agreements. The amended and restated $150 million facility
requires the Company to enter into hedging agreements with respect to interest
rate exposure with an aggregate notional principal amount equal to 50% of the
outstanding borrowings if the Company's leverage ratio is equal to or exceeds
2.0 to 1.0. The agreements have certain conditions regarding the interest
rates, and must have durations of at least two years.
The weighted average interest rate during 1997 under these facilities was
6.97%. Expenses related to obtaining these agreements are being amortized over
the original terms of the agreements.
At December 31, 1997, the Company had issued letters of credit totaling
$3.2 million which reduce the available balance of the credit facility. The
letters of credit guarantee performance to third parties. Management does not
expect any material losses to result from these off-balance sheet instruments
because the Company will meet its obligations to the third parties.
C. WORKING CAPITAL LINES OF CREDIT:
The Company has four working capital lines of credit for daily cash
management, one in each of the countries in which it operates. The aggregate
amount available under these facilities at December 31, 1997 was approximately
$5.2 million of which $1.0 million was borrowed. These facilities are due on
demand and are secured by a corporate guarantee or a letter of credit. The
interest rates charged on these facilities are generally floating rates based on
the prime rate or local equivalent in each country.
The Company had two working capital lines of credit for daily cash
management in 1996. The first was a US $1.0 million facility, due on demand,
with an interest rate equal to US prime. Outstanding borrowings on this line at
December 31, 1996 totaled $730,000 and the weighted average interest expense for
the year ended December 31, 1996 was 8.25%. The second line was a Cdn. $1.0
million facility, due on demand, with an interest rate equal to Canadian prime
plus 1/2%. There were no outstanding borrowings on this line at December 31,
1996.
4. INCOME TAXES
The following is a summary of the US and non-US income (loss) from
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 US statutory income tax rate
to the effective income tax rate.
Income (loss) from operations before provision for (benefit from) income
taxes and minority interest (amounts in 000s):
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
</TABLE>
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
US............................................................................ $ 5,292 $ 6,675 $ 1,510
Non-US........................................................................ 5,575 4,184 (6,335)
-------- ------- -------
$ 10,867 $10,859 $(4,825)
======== ======= =======
Provision for (benefit from) income taxes (amounts in 000s):
1997 1996 1995
-------- ------- -------
Current:
US.......................................................................... $ 1,797 $ 2,689 $ 581
Non-US...................................................................... -- -- --
-------- ------- -------
1,797 2,689 581
-------- ------- -------
Deferred:
US.......................................................................... 107 (504) (185)
Non-US...................................................................... (1,428) -- --
-------- ------- -------
(1,321) (504) (185)
-------- ------- -------
$ 476 $ 2,185 $ 396
======== ======= =======
Provision for (benefit from) deferred income taxes (amounts in 000s):
1997 1996 1995
-------- ------- -------
Difference between tax and book depreciation
and amortization............................................................ $ 1,457 $ 526 $ 772
Valuation allowance........................................................... (1,894) 98 2,223
Contingent interest........................................................... 459 (459) --
Severance costs............................................................... 113 (568) --
Software development costs.................................................... -- - (502)
Bad debt reserve.............................................................. (189) - --
Other temporary differences................................................... (1,267) (101) (103)
Net operating loss............................................................ -- -- (2,575)
-------- ------- -------
($1,321) ($504) ($185)
======== =======
Reconciliation of US statutory income tax rate to effective income tax rate:
1997 1996 1995
-------- ------- -------
US statutory income tax rate.................................................. 34.0% 34.0% (34.0%)
Non-deductible goodwill and customer base..................................... 6.1 2.6 2.7
Foreign income taxes, including
valuation allowance......................................................... (34.0) (13.1) 44.6
</TABLE>
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
State tax benefit............................................................. - - (2.4)
Other......................................................................... (1.7) (3.4) (2.7)
-------- ------- -------
Effective income tax rate..................................................... 4.4% 20.1% 8.2%
======== =======
</TABLE>
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, 1997, the Company had unused tax benefits of approximately $4.6
million related to non-US net operating loss carryforwards totaling $10.3
million for income tax purposes, of which $2.5 million expire in 2000, $4.8
million expire in 2001, $0.9 million expire in 2002, and $2.1 million expire in
2004. However, the Company has the ability to adjust certain depreciation and
amortization adjustments in Canada which may be used to extend its ability to
utilize certain net operating losses. In addition, the Company had $.9 million
of deferred tax assets related to non-US temporary differences. The valuation
allowance was decreased by $4.4 million to approximately $5.2 million to reflect
tax benefits recognized during 1997. The remaining valuation allowance reflects
the uncertainty of realizing the benefit of the non-US loss carryforwards and
temporary differences.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1997 and 1996 (amounts in
000s):
1997 1996
-------- --------
Deferred tax assets:
Depreciation and amortization -- non-US.......... $ 93 $ 967
Contingent interest.............................. - 459
Severance costs.................................. 227 568
Other non-deductible reserves and accruals....... 916 528
Non-US operating loss carryforwards.............. 4,644 6,702
Less -- valuation allowance for non-US deferred
tax assets.................................... (3,309) (7,669)
------- -------
Net deferred tax assets.......................... 2,571 1,555
Deferred tax liabilities:
Depreciation and amortization.................... (1,888) (2,767)
------- -------
$ 683 $(1,212)
======= =======
5. REDEEMABLE PREFERRED STOCK
On May 22, 1995, the Company completed a $10.0 million private placement of
12% subordinated convertible debt to a group of investors. The notes were
converted into 10,000 shares of cumulative, convertible Series A Preferred Stock
on September 1, 1995. The Series A Preferred Stock had a liquidation value of
$1,000 per share, and accrued cumulative dividends, compounded on the
accumulated and unpaid balance, as defined, at a rate of 12% annually. The
Series A Preferred Shares were converted into 937,500 shares of Class A Common
Stock at a conversion price of $10.67 per share in October 1996. Pursuant to
the terms of the Series A Preferred Stock, the cumulative dividends were
forfeited, due to conversion by the investors.
The Series A Preferred Stock contained terms of mandatory redemption, on
the seventh anniversary of the private placement, at a price per share equal to
the greater of (i) the liquidation value of $1,000 per share plus all accrued
and unpaid dividends; or (ii) the fair market value of the underlying Class A
Common Stock into which the Series A Preferred Stock was convertible.
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Concurrent with the private placement, warrants to purchase 150,000 shares
of the Company's Class A Common Stock were issued at an initial exercise price
of $10.67 per share. These warrants were exercised in October 1996. In
addition, the Company issued warrants to purchase Class A Common Stock that were
to become exercisable upon one or more optional repayments of the Series A
Preferred Stock at an exercise price of $10.67 per share, subject to
adjustments, as defined, and permitted each holder to acquire initially the same
number of shares of Class A Common Stock into which the Series A Preferred Stock
was convertible as of the relevant repayment date. These warrants were
extinguished in October 1996, as a result of the conversion of the Series A
Preferred shares. Upon conversion in October 1996, unamortized issuance costs
of approximately $1.1 million were reclassified into the appropriate equity
accounts.
6. EQUITY
During 1995, the Company's shareholders approved an amendment to the
Company's Certificate of Incorporation that authorized the creation of 2,000,000
shares of Series A Preferred Stock, par value $1.00 per share; authorized the
creation of 25,000,000 shares of Class B non-voting Common Stock, par value
$.015 per share; and redesignated the 50,000,000 shares of Common Stock, par
value $.015 per share, that were previously authorized, for issuance as
50,000,000 shares of Class A Common Stock.
On June 14, 1996, the Company's Board of Directors authorized a three-for-
two stock split in the form of a stock dividend issued on August 8, 1996 of the
Company's Class A Common Stock to shareholders of record as of July 3, 1996.
Share and per share amounts in the accompanying financial statements and
footnotes have been adjusted for the split.
A. PUBLIC OFFERINGS:
In May 1996, the Company completed a public offering of 3,018,750 shares of
its Class A Common Stock at a price of $22.50 per share. The offering raised net
proceeds of $63.1 million, after deduction of fees and expenses of approximately
$4.8 million. The net proceeds were used to reduce all indebtedness under the
Company's credit facility, for working capital needs, and for capital
expenditures.
In October 1996, the Company completed a public offering of 1,194,722
shares of its Class A Common Stock, on behalf of selling shareholders, at a
price of $45.00 per share. 937,500 of the shares resulted from the conversion
to Class A Common Stock of all of the outstanding Series A Preferred Stock (see
Note 5). Additionally, outstanding warrants and options to purchase the
Company's Class A Common Stock were exercised by the holders and the underlying
shares of Class A Common Stock were sold. The Company received the exercise
price of the warrants and options, approximately $2.1 million, and incurred fees
and expenses of approximately $270,000.
B. PRIVATE PLACEMENT:
During 1995, the Company made an offshore sale of 1,237,000 shares of its
Class A Common Stock at an average price of $9.69 per share. The sale raised
net proceeds of $11.1 million after deduction of fees and expenses of $0.9
million. In conjunction with this transaction, warrants to purchase 123,750
shares of Class A Common Stock at an exercise price of $9.60 per share were
issued. These warrants were exercised in 1995.
C. STOCK-BASED COMPENSATION:
The Company has four stock-based compensation plans, which are described
below. The Company accounts for these plans under APB Opinion No. 25.
Accordingly, no compensation cost has been recognized for incentive stock
options, nonqualified stock options, and the employee stock purchase plan. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (amounts in 000s, except per share data):
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1997 1996 1995
---- ---- ----
Net income (loss) As reported $10,391 $7,765 $(5,354)
Pro forma $ 2,866 $4,869 $(6,251)
Net income (loss) per share - basic As reported $ 0.62 $ 0.37 $ (0.52)
Pro forma $ 0.17 $ 0.17 $ (0.60)
Net income (loss) per share - diluted As reported $ 0.59 $ 0.34 $ (0.52)
Pro forma $ 0.16 $ 0.15 $ (0.60)
Compensation cost for stock incentive right agreements recognized in the
statement of operations for the years ended December 31, 1997 and 1996 was
approximately $0.6 million and $0.1 million respectively. Stock incentive
rights issued in 1997 and 1996 were 25,000 and 30,000 respectively. The SFAS
No. 123 method of accounting has not been applied to options granted prior to
January 1, 1995, so the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
In connection with the merger with Teleport Communications Group Inc.
("TCG") all outstanding and unexercised options and SIRs will be converted to
options and SIRs of TCG upon the closing of the merger (See Note 10, "Mergers").
EMPLOYEE LONG-TERM INCENTIVE PLAN:
The Company has an Employee Long-Term Incentive Plan (the "Plan"), whereby
options to purchase shares of Class A Common Stock may be granted to officers
and key employees of the Company. In July 1995, shareholders of the Company
approved an additional 750,000 shares of Class A Common Stock to be reserved for
issuance under this Plan, and authorized the issuance of stock incentive rights
("SIRs") thereunder. In June 1996, the Company's shareholders approved an
additional 750,000 shares for issuance under the Plan. In June 1997, the
Company's shareholders approved an additional 800,000 shares for issuance under
the Plan, bringing the total shares reserved for issuance to 5,300,000. 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 on the date of grant and 25% on
each of the three anniversary dates thereafter. SIRs represent the right to
receive shares of the Company's Class A Common Stock without any cash payment to
the Company, conditioned only on continued employment with the Company through a
specified incentive period of at least three years. At December 31, 1997, SIRs
for 55,000 shares had been awarded. 50% of the shares vest over a three-year
period beginning on the date of grant, and 25% on each of the two anniversary
dates thereafter.
For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Dividend yield 0% 0% 0%
Expected volatility 51% 43% 44%
Risk-free interest rate 6.04% 5.60% 7.26%
Expected life 3 years 3 years 3 years
Changes in the status of the Plan during 1997, 1996, and 1995
are summarized as follows:
<TABLE>
1997 1996 1995
---- ---- ----
Shares Wtd. Avg. Shares Wtd. Avg Shares Wtd. Avg
(000s) Ex. Price (000s) Ex. Price (000s) Ex. Price
------- --------- ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,598 $13.97 1,606 $ 8.81 1,178 $ 9.02
Granted 1,095 29.99 681 14.95 512 10.23
Exercised (573) 12.61 (588) 7.99 (50) 9.53
Forfeited (243) 27.84 (101) 8.72 (34) 10.42
------ ------ ------
Outstanding at end of year 1,877 21.98 1,598 13.97 1,606 8.81
====== ====== ======
Number of options at end of year:
Exercisable 617 17.00 637 12.65 608 7.94
Available for grant 843 895 725
Weighted average fair
value of options granted $12.37 $ 7.09 $3.69
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Wtd-Avg. Number
Range of Outstanding Remaining Wtd. Avg. Exercisable Weighted Avg.
Exer. Prices at 12/31/97 Cont. Life Exer. Price at12/31/97 Exercise Price
- ----------------- ----------- ------------------- ------------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0 to 9.50 149 7.6 years $ 5.90 39 $ 9.25
$9.83 to 12.50 402 6.9 10.69 285 10.84
$15.37 304 8.0 15.37 128 15.37
$17.50 to 23.00 130 9.4 21.09 6 23.00
$28.83 93 8.5 28.83 43 28.83
$30.25 to 32.00 678 9.1 30.57 104 30.53
$43.38 121 9.8 43.38 12 43.38
----- ---
$0 to 43.38 1,877 8.1 21.98 617 17.00
===== ===
</TABLE>
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 Class A 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.
In June 1997, the Company's shareholders approved an additional 200,000 shares
for issuance under the plan, bringing the total shares available for issuance to
950,000. Class A Common Stock reserved for future employee purchases aggregated
847,748 shares at December 31, 1997. There were 35,450 shares issued at an
average price of $8.37 per share during the year ended December 31, 1995; 19,341
shares issued at an average price of $17.69 per share during the year ended
December 31, 1996; and 28,339 shares issued at an average price of $24.24 per
share during the year ended December 31, 1997. There have been no charges to
income in connection with this plan other than incidental expenses related to
the issuance of shares. The weighted average fair value of shares offered in
1997 and 1996 were $14.82 and $3.80, respectively. In connection with the
merger with Teleport Communications Group Inc., the employee stock purchase plan
has been discontinued effective January 1, 1998 (see Note 10, "Mergers").
For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Dividend yield 0% 0% 0%
Expected volatility 57% 19% 18%
Risk-free interest rate 6.04% 5.77% 7.66%
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expected life 3 months 3 months 3 months
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN:
In June 1996, the Company's shareholders approved a Non-Employee Directors'
Stock Option Plan (the Directors' Stock Option Plan). The Directors' Stock
Option Plan provides for grants of options to purchase 7,500 shares of Class A
Common Stock at an exercise price of 100% of the fair market value of the stock
on the date of grant, which options vest at the first anniversary of the date of
grant. The maximum number of shares with respect to which options may be
granted under the Directors' Stock Option Plan is 375,000 shares, subject to
adjustment for stock splits, stock dividends, and the like.
Each option shall be exercisable for ten years and one day after its date
of grant. Any vested option is exercisable during the holder's term as a
director (in accordance with the option's terms) and remains exercisable for one
year following the date of termination as a director (unless the director is
removed for cause). Exercise of the options would involve payment in cash,
securities, or a combination of cash and securities.
For purposes of the pro forma disclosure above, the fair value of each option
grant is estimated on the date of the grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions used for grants
in 1997, 1996 and 1995:
1997 1996 1995
-------- -------- ----
Dividend yield 0% 0% -
Expected volatility 54% 44% -
Risk-free interest rate 6.36% 5.39% -
Expected life 3 years 3 years -
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in the status of the Directors' Stock Option Plan during 1997 and 1996
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Shares Weighted Average Shares Weighted Average
(000s) Exercise Price (000s) Exercise Price
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 60 $22.08 -- --
Granted 45 17.50 60 $22.08
Exercised -- --
Forfeited 7 17.50 -- --
--- ---
Outstanding at end of year 98 $20.32 60 $22.08
Number of options at end of year:
Exercisable 60 $22.08 30 $15.33
Available for grant 277 315
Range of prices:
Granted during the year $ 17.50 $15.33 - $28.83
Outstanding at end of year $15.33 - 28.83 $15.33 - $28.83
Exercised during the year $ - $ -
Weighted average fair
value of options granted $ 7.33 $ 5.41
</TABLE>
The table summarizing information about stock options outstanding, required by
SFAS No. 123, is not included, as the impact of the application of this
statement would not be material.
UNITED KINGDOM SHARESAVE SCHEME:
In August 1996, the Executive Compensation Committee of the Board of
Directors approved the United Kingdom Sharesave Scheme whereby eligible
employees of ACC UK are entitled to purchase shares of the Company's Class A
Common Stock at an exercise price equal to 85% of market value on the date that
the purchase period begins. Employees contribute the purchase price through
monthly payroll deduction of a predetermined amount, not to exceed 250 pounds
sterling, over a three year period, at the end of which the shares are
purchased. A total of 150,000 shares are reserved for issuance under this plan,
of which options for 17,160 shares at an exercise price of $32.08 were granted
in 1996, and options for 7,259 shares at an exercise price of $26.56 were
granted in 1997. The weighted average fair value of options offered in 1997 and
1996 was $12.63 and $14.29.
For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1997, 1996 and 1995:
1997 1996 1995
-------- -------- ----
Dividend yield 0% 0% -
Expected volatility 48% 40.8% -
Risk-free interest rate 5.93% 6.45% -
Expected life 3 years 3 years -
The table summarizing information about stock options outstanding, required by
SFAS No. 123, is not included, as the impact of the application of this
statement would not be material.
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
D. SHAREHOLDER RIGHTS PLAN:
In October 1997, the Board of Directors adopted a Shareholder Rights Plan.
In connection with this plan, the Board of Directors declared a dividend of one
Preferred Stock Purchase Right (Right) on each outstanding share of ACC Common
Stock. The dividend was distributed on October 15, 1997 to shareholders of
record on that date. Subject to certain exceptions, the Rights would be
exercisable only if a person or group acquired 15% or more of ACC's Common Stock
or announced a tender or exchange offer which would result in ownership by a
person or group of 15% or more of the Common Stock. The plan was amended in
November 1997 to reduce the threshold by which the Rights become exercisable
from 15% to 7.5%. Any shareholder whose ownership exceeded 7.5% on November 6,
1997, and who did not acquire additional shares, was exempt from this amendment.
Each Right entitles its holder to buy one one-thousandth of a share of Series A
preferred stock at an exercise price of $150.00. Each Right entitles its holder
(other than the acquiring person or group) to purchase, at the exercise price,
shares of the preferred stock or shares of the acquiring company having a market
value of twice such price. The Company could redeem the rights for $.01 per
Right before the acquisition by a person or group of 7.5% or more of ACC's
Common Stock and thereafter under certain circumstances. In connection with
the merger with Teleport Communications Group Inc. ("TCG") (see Note 10,
"Mergers"), the Board of Directors amended the Shareholder Rights Plan to exempt
TCG from the 7.5% threshold by which the rights become exercisable. The
amendment will remain in effect until December 31, 1998.
7. COMMITMENTS AND CONTINGENCIES
A. OPERATING LEASES:
The Company leases office space and other items under various agreements
expiring through 2004. At December 31, 1997, the minimum aggregate payments
under non-cancelable operating leases are summarized as follows (amounts in
000s):
Year Amount
---- ------
1998................................. $ 6,373
1999................................. 5,339
2000................................. 4,991
2001................................. 4,753
2002................................. 4,665
Thereafter........................... 6,916
-------
$33,037
=======
Rent expense for the years ending December 31, 1997, 1996, and 1995 was
approximately $4,583,000, $4,006,000, and $1,965,000, respectively.
B. EMPLOYMENT AND OTHER AGREEMENTS:
On December 5, 1997 the Company's Chairman and Chief Executive Officer died
unexpectedly. As an interim measure, the Board of Directors created an Office
of the Chief Executive, electing each of Christopher Bantoft (President of
European Operations), Steve Dubnik (President and Chief Operating Officer of
North American Operations), and Michael Daley (Executive Vice President and
Chief Financial Officer) to this office. The Company has employment agreements
with each of Messrs. Bantoft, Dubnik and Daley, which provides for continuation
of salary and benefits in the event each is terminated without cause or in the
event of a change in control of the Company. At December 31, 1997, the
Company's maximum potential liability for each of these individuals separately
is approximately $350,000.
The Company had a contract with a former Chairman which provided for an
annual base salary, including an annual bonus and other benefits during his
employment term, and also for a payment of $1.0 million, payable over a three
year term, in the event that he resigned or was terminated without cause. During
1996, the Chairman of the Board resigned his position as Chairman of the
Company. At December 31, 1996, under this agreement, the Company had accrued
the entire $1.0 million, and a payment of $0.3 million was made in each of
January 1997 and January 1998. In consideration
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for a non-compete agreement which has a three-year term beginning in January
1997, the former Chairman received a payment of $750,000, which was expensed in
1995.
The Company has entered into employee continuation incentive agreements
with certain other key management personnel. These agreements provide for
continued compensation and continued vesting of options previously granted under
the Company's Employee Long-Term Incentive Plan for a period of up to one year
in the event of termination without cause or in the event of termination after a
change in control of the Company. At December 31, 1997, the Company's estimated
maximum potential liability under these agreements totaled approximately $3.7
million (excluding the Office of the Chief Executive).
C. PURCHASE COMMITMENTS:
At December 31, 1997, the Company had outstanding purchase commitments
totaling approximately $7.5 million primarily related to the purchase of local
exchange switches for the US business, the purchase of a microwave for the UK
operation and other capital expenditures.
In 1993, ACC Long Distance Ltd., a subsidiary of ACC TelEnterprises Ltd.,
entered into an agreement with one of its vendors to lease long distance
facilities totaling a minimum of Cdn. $1.0 million per month for seven years.
The Company currently leases more than Cdn. $1.0 million per month of such
facilities from this vendor. This commitment allows the Company to receive up
to a 60% discount on certain monthly charges from this vendor.
D. DEFINED CONTRIBUTION PLANS:
The Company provides a defined contribution 401(k) plan to substantially
all US employees. Amounts contributed to this plan by the Company were
approximately $314,000, $240,000, and $183,000 in 1997, 1996, and 1995,
respectively. The Company's Canadian subsidiary provides a registered
retirement savings plan to substantially all Canadian employees. Amounts
contributed to this plan by the Company were Cdn. $229,000, Cdn. $186,000, and
Cdn. $106,000 in 1997, 1996, and 1995, respectively. In 1997, the Company's UK
subsidiary established a group retirement plan available to substantially all UK
employees. Amounts contributed to this plan in 1997 were 37,400 pounds
sterling.
E. ANNUAL INCENTIVE PLAN:
During 1997, no incentive bonuses were authorized, as performance criteria
specified under the incentive plan were not met. During 1996, the Company's
Board of Directors authorized incentive bonuses based upon the Company's sales,
gross margin, operating expenses, and operating income. Prior to 1995,
incentive bonuses were discretionary as determined by the Company's management
and approved by the Board of Directors. The amounts included in operations for
these incentive bonuses were approximately $0, $2.6 million, and $1.4 million
for the years ended December 31, 1997, 1996, and 1995, respectively.
F. 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 as
of December 31, 1997 will not have a material adverse effect on the Company's
financial condition or results of operations.
8. GEOGRAPHIC AREA INFORMATION (AMOUNTS IN 000S)
Year ended December 31, 1997:
<TABLE>
<CAPTION>
United United
States Canada Kingdom Germany Eliminations Consolidated
------ ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $120,627 $116,638 $132,151 $ 3,197 $ $372,613
Intercompany revenue 43,460 3,875 7,377 - (54,712) -
-------- -------- -------- ------- --------- --------
</TABLE>
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total revenue $164,087 $120,513 $139,528 $ 3,197 $ (54,712) $372,613
-------- -------- -------- ------- --------- --------
Income (loss) from operations
before income taxes $ 8,254 $ (1,079) $ 6,654 $(2,962) $ - $ 10,867
-------- -------- -------- ------- --------- --------
Identifiable assets at
December 31, 1997 $258,390 $ 96,679 $ 90,649 $12,929 $(142,335) $316,312
-------- -------- -------- ------- --------- --------
</TABLE>
YEAR ENDED DECEMBER 31, 1996:
<TABLE>
<CAPTION>
United United
States Canada Kingdom Germany Eliminations Consolidated
------------ ------------ ------------ ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $ 99,461 $117,168 $92,138 $ - $ - $308,767
Intercompany revenue 35,060 2,917 3,519 - (41,496) -
-------- -------- ------- ----------- --------- --------
Total revenue $134,521 $120,085 $95,657 $ - $ (41,496) $308,767
-------- -------- ------- ----------- --------- --------
Income (loss) from operations
before income taxes $ 6,676 $ 3,452 $ 731 $ - $ - $ 10,859
-------- -------- ------- ----------- --------- --------
Identifiable assets at
December 31, 1996 $182,435 $ 94,165 $49,667 $ - $(122,236) $204,031
-------- -------- ------- ----------- --------- --------
</TABLE>
Year ended December 31, 1995:
<TABLE>
<CAPTION>
United United
States Canada Kingdom Germany Eliminations Consolidated
------------ ------------ ------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $ 65,975 $84,421 $38,470 $ - $ - $188,866
Intercompany revenue 15,256 4,071 1,143 - (20,470) -
-------- ------- ------- ----------- -------- --------
Total revenue $ 81,231 $88,492 $39,613 $ - $(20,470) $188,866
-------- ------- ------- ----------- -------- --------
Income (loss) from
operations
before income taxes $ 1,512 $ 456 $(6,793) $ - $ - $ (4,825)
-------- ------- ------- ----------- -------- --------
Identifiable assets at
December 31, 1995 $105,995 $43,775 $31,593 $ - $(57,379) $123,984
-------- ------- ------- ----------- -------- --------
</TABLE>
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 charged by unaffiliated
companies. Income from operations before income taxes of the Canadian, United
Kingdom and German operations includes corporate charges for general corporate
expenses and interest.
Corporate general and administrative expenses are allocated to subsidiaries
based on time dedicated to each subsidiary by members of corporate management
and staff.
9. RELATED PARTY TRANSACTIONS
The Company's headquarters is in a building owned by a partnership in which
the Company's former chairman of the board has a 50% ownership interest. A
Special Committee of the Company's Board of Directors reviewed the lease to
ensure that the terms and conditions were commercially reasonable and fair to
the Company prior to approval of the plan in February 1994. 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.
<PAGE>
ACC. CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total rent and maintenance payments under this lease were approximately
$0.8 million, $0.8 million, and $0.6 million during 1997, 1996, and 1995,
respectively.
During 1994 and early 1995, the Company initiated efforts to obtain new
telecommunications software programs from a software development company. The
Company's former chairman of the board and chief executive officer was a
controlling shareholder of the software development company during such period.
In May 1995, anticipating material agreements with the software development
company, all of the common shares owned by the Company's former chairman of the
board were placed in escrow under the direction of a Special Committee of the
Company's Board of Directors. The Special Committee, its outside consultants,
and the Company's management then proceeded to review and evaluate the software
technology and the terms and conditions of the proposed transactions.
In 1996, the Special Committee approved a software license agreement
between the Company and a newly formed company (the purchaser of the software
development company's intellectual property and other assets and an affiliate of
such company). Immediately prior to entering into the agreement, the shares of
the software development company held in escrow were returned to such company
and the related party nature of the Company's relationship with the software
development company was thereby extinguished. Total amounts accrued at December
31, 1997, 1996, and 1995 relating to this vendor were $0, $0 and $44,000,
respectively. For an aggregate consideration of $1.8 million, paid in 1996, the
Company received a perpetual right to use the telecommunications software
programs. Approximately $0.2 million was paid to the vendor in 1996 and was
expensed prior to entering into the agreement. During 1995, the Company paid
the software development company $1.2 million, of which $772,000, relating to
the purchase of certain hardware and acquisition of certain software licenses,
was capitalized and recorded on the balance sheet as a component of property,
plant, and equipment and $500,000 relating to software development was expensed.
The Company had notes receivable from two officers which totaled $370,000
as of December 31, 1996. These notes were paid in full in 1997.
10. MERGERS
On October 28, 1997, the Company entered into an agreement and plan merger
with US WATS Inc. ("USW"), a switch-based long distance provider based in Bala
Cynwyd, Pennsylvania. Upon consummation of the merger, USW was to become a
wholly owned subsidiary of ACC, and the shares of USW common stock that were
issued and outstanding at the effective of the USW merger, other than the shares
held by shareholders who perfected their statutory dissenters' rights, would
have been converted automatically into the right to receive a number of shares
of ACC stock determined pursuant to the merger agreement.
On March 11, 1998, ACC and USW agreed to a mutual termination of the
agreement and plan of merger, by and among USW and ACC.
In November 1997, the Company signed a definitive agreement to be acquired
by Teleport Communications Group Inc. ("TCG"), the largest competitive local
exchange carrier in the US, in a stock for stock merger. Under the agreement,
ACC shareholders will receive $50 in value of TCG Class A common stock for each
share of ACC stock, based upon the average closing price of TCG stock for a ten
trading day period preceding the date of merger. The total value of the
transaction would be approximately $1 billion. However, if TCG's average
closing price during the ten day trading period prior to closing is below $45 or
above $55, the exchange ratios will be fixed at 1.11111 shares of TCG stock or
0.90909 shares of TCG stock, respectively. It is anticipated that the merger
will be treated as a tax-free exchange. The merger is subject to the approval
of the holders of a majority of the outstanding shares of ACC and to other
conditions, including various regulatory consents in the US and certain foreign
jurisdictions.
In connection with the proposed mergers with USW and TCG, the Company has
incurred costs for certain investment advisory, legal, accounting and other
professional services. The Company has recorded $5.0 million of such costs
(reflected in the consolidated statements of operations as "merger costs") in
1997, of which $1.3 million as been paid through December 31, 1997 and the
remaining $3.7 million is accrued and expected to be paid during 1998.
<PAGE>
(b) The following Financial Statements for ACC Corp. Employee Stock
Purchase Plan are included herewith as follows:
Report of Independent Public Accountants
Statements of Financial Condition, December 31, 1997 and 1996
Statements of Changes in Participants' Equity for the years ended December
31, 1997, 1996 and 1995
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the ACC Corp. Employee Stock Purchase Plan:
We have audited the accompanying statements of financial condition of the
ACC Corp. Employee Stock Purchase Plan as of December 31, 1997 and 1996, and the
related statements of changes in participants' equity for each of the three
years ended December 31, 1997. These financial statements are the
responsibility of the Plan'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 evaluating 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 condition of the Plan as of December 31,
1997 and 1996, and the results of its changes in participants' equity for each
of the three years ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Rochester, New York
March 13, 1998
<PAGE>
ACC Corp.
Employee Stock Purchase Plan
Statements of Financial Condition
December 31, 1997 and 1996
ASSETS: 1997 1996
------ ------
Receivable from ACC Corp. $2,361 $1,627
------ ------
TOTAL ASSETS $2,361 $1,627
====== ======
LIABILITIES AND PARTICIPANTS' EQUITY:
Participants' equity $2,361 $1,627
----- -----
TOTAL LIABILITIES AND PARTICIPANTS' EQUITY $2,361 $1,627
===== ======
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
ACC Corp.
Employee Stock Purchase Plan
Statements of Changes in Participants' Equity
For the Years Ended December 31, 1997, 1996 and 1995
ADDITIONS: 1997 1996 1995
-------- -------- --------
Employee contributions $595,062 $356,514 $331,256
-------- -------- --------
DEDUCTIONS:
Stock purchased 583,349 343,870 297,027
Employee withdrawals 10,979 11,700 34,103
-------- -------- --------
Total deductions 594,328 355,570 331,130
-------- -------- --------
NET INCREASE IN PARTICIPANTS' EQUITY 734 944 126
PARTICIPANTS' EQUITY, BEGINNING OF PERIOD 1,627 683 557
-------- -------- --------
PARTICIPANTS' EQUITY, END OF PERIOD $ 2,361 $ 1,627 $ 683
======== ======== ========
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
ACC Corp.
Employee Stock Purchase Plan
Notes to Financial Statements
1. PLAN DESCRIPTION:
The ACC Corp. Employee Stock Purchase Plan (the "Plan") was adopted by the
Board of Directors on February 8, 1994 and was ratified by the shareholders on
October 13, 1994. The first offering period began July 1, 1994. Officers did
not participate until the ratification by the shareholders occurred. The Plan
was established to provide employees with increased employment and performance
incentives and to enhance ACC Corp.'s (the "Company") efforts to attract and
retain employees of outstanding ability. The Plan permits eligible Company
employees to make periodic purchases of shares of the Company's Class A Common
Stock through payroll deductions at prices below then-prevailing market prices.
As of December 31, 1997, 651,692 shares of the Company's Class A Common Stock
(which may be treasury shares, authorized and unissued shares, or a combination
thereof at the Company's discretion) are reserved for future issuance under the
Plan. The Plan is administered by the Executive Compensation Committee of the
Board of Directors of ACC Corp. (the "Committee"). None of the members of the
Committee is eligible to participate in the Plan. Reference should be made to
the Plan for more complete information.
Any employee of the Company or any of its subsidiaries who is employed at
least 20 hours per week is eligible to participate in the Plan. Participants
may enroll in the Plan prior to an offering commencement date. Employees may
authorize payroll deductions of up to 15% of their then-current straight-time
earnings during the term of an offering, which will be applied to the purchase
of shares under the Plan. These payroll deductions will begin on that offering
commencement date and will end on the last purchase date applicable to any
offering in which he/she holds any options to purchase shares of the Company's
Class A Common Stock, or if sooner, on the effective date of his/her termination
of participation in the Plan. Newly hired employees hired subsequent to an
offering commencement date may begin participation in the Plan at the beginning
of the next calendar quarter following their date of hire.
Payroll deductions will be held by the Company as part of its general funds
for the credit of the participants and will not accrue interest pending the
periodic purchase of shares under the Plan. On the last business day of each
calendar quarter during the term of an offering, a participant will
automatically be deemed to have exercised his/her options to purchase, at the
applicable purchase price, the maximum number of full shares that can be
purchased with the amounts deducted from the participant's pay during that
quarter, together with any excess funds from preceding quarters. The purchase
price at which shares may be purchased under the Plan is 85% of the closing
price of the Company's Class A Common Stock in Nasdaq trading on either a) the
offering commencement date (or, in the case of interim participation by newly
hired employees, the date on which they are permitted to begin participation in
that offering) or b) the date on which shares are purchased through the
automatic exercise of an option to purchase shares under the Plan, whichever is
lower. The maximum number of shares that a participant will be permitted to
purchase in any single offering is subject to certain limitations, as set forth
in the plan document.
A participant may, at any time and for any reason, withdraw from further
participation in any offering or from the Plan by giving written notice. In
such event, the participant's payroll deductions which have been credited to
his/her plan account and not already expended to purchase shares under the Plan
will be refunded without interest. No further payroll deductions will be made
from his/her pay during the term of that offering. No withdrawing participant
will be permitted to re-commence his/her participation in an offering, however,
termination of participation in an offering or in the Plan will not have any
effect upon subsequent eligibility to participate in the Plan. A participant's
retirement, death or other termination of employment will be treated as a
permanent withdrawal from participation. In the event of a participant's death,
his/her estate or designated beneficiary shall have the right to elect, no later
than 60 days following his/her date of death, to receive either the accumulated
payroll deductions in the deceased participant's plan account or to exercise, on
the next subsequent purchase date, the deceased participant's options to
purchase the number of full shares of Class A Common Stock that can be purchased
with the balance in the decedent's plan account as of his/her date of death,
together with the return of any excess cash, without interest.
In connection with the merger with Teleport Communications Group Inc. the
Plan has been discontinued effective January 1, 1998.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements are prepared using the accrual basis of
accounting. The Company pays all of the Plan's administrative expenses.
3. INCOME TAX STATUS:
The Plan is intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code. In order for favorable tax treatment
to be available to the participant, the participant cannot dispose of any shares
acquired under the Plan within two years following the date the option to
purchase was granted, nor within one year following the date the shares were
actually purchased.
4. STOCK PURCHASES:
Stock purchases by offering period are as follows:
Purchase price Number of
Offering Period Valuation Date per share shares purchased
- --------------------- ------------------- -------------- ----------------
January 1, 1995 - December 31, 1994 $ 9.83 26,903
December 31, 1995 March 31, 1995* $11.17 105
June 30, 1995* $ 9.83 101
September 30, 1995* $11.00 77
July 1, 1995 - June 30, 1995 $ 9.83 7,746
December 31, 1995 September 30, 1995* $11.00 519
January 1, 1996 - December 30, 1995 $15.37 12,544
June 30, 1996 March 31, 1996* $19.75 158
July 1, 1996 - June 30, 1996 $32.42 2,834
December 31, 1996 December 31, 1996 $30.25 3,806
January 1, 1997 - March 31, 1997 $18.91 6,784
June 30, 1997 March 31, 1997 $18.91 584
December 31, 1996 $25.71 5,458
July 1, 1997- June 30, 1997 $26.25 5,494
December 31, 1997 September 30, 1997 $26.25 6,075
*For those employees who began participation during the offering period.
The valuation date is the date during the offering period, as defined, on
which the stock price was the lowest, therefore becoming the base for the
calculation of shares to be purchased.
<PAGE>
(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, 1997, 1996 and 1995
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:
<PAGE>
LIST OF EXHIBITS
<TABLE>
EXHIBIT NUMBER Description Location
- -------------- ----------- --------
<C> <S> <C>
3-1 First Restated Certificate of Incorporation of ACC Incorporated by Reference to Exhibit 3 to the
Corp. Company's Quarterly Report on Form 10-Q for
its Quarter Ended September 30, 1995
("September 30, 1995 10-Q")
3-2 Certificate of Designation of the Voting Powers, Incorporated by Reference from Exhibit 1 to
Designation, Preferences and Relative, the Company's Registration Statement on Form
Participating, Optional or other Special Rights 8-A dated October 3, 1997 (as amended on Form
and Qualifications, Limitations and Restrictions 8-A/A dated December 10, 1997).
of the Series A Preferred Stock of ACC Corp.
3-3 Bylaws of ACC Corp., as amended on May 21, 1996 Incorporated by Reference to Exhibit 99.5 to
the Company's Current Report on Form 8-K
filed on September 17, 1996 ("September 17,
1996 8-K")
4-1 Form of ACC Corp. Class A Common Stock Certificate Incorporated by Reference to Exhibit 4-1 to
the Company's Registration Statement on Form
S-3, No. 333-01157 declared effective May 2,
1996
4-2 Form of Warrant to purchase 7,500 Shares of Class Incorporated by Reference to Exhibit 99.4 to
A Common Stock dated October 30, 1995 the Company's Current Report on Form 8-K
filed on February 22, 1996 8-K ("February 22,
1996 8-K")
4-5 Form of Rights Agreement, dated as of October 3, Incorporated by Reference from Exhibit 1 to
1997, between ACC Corp. and First Union National the Company's Registration Statement on Form
Bank, as Rights Agent, which includes as Exhibit 8-A dated October 3, 1997 (as amended on Form
A-Form of Rights Certificate; Exhibit B-Summary of 8-A/A dated December 10, 1997).
Rights to Purchase Preferred Stock; and Exhibit
C-Certificate of Designation
10-1 Form of Employment Continuation Incentive Incorporated by Reference to Exhibit 99.3 to
Agreement between ACC Corp. and certain of its Key the Company's February 22, 1996 8-K
Employees
10-2 ACC Corp. Employee Long Term Incentive Plan, as Incorporated by Reference to Exhibit 4-1 to
amended through February 5, 1996 the Company's Registration Statement on Form
S-8, No. 333-01219, effective February 26,
1996
10-3 Form of ACC Corp. Indemnification Agreement with Incorporated by Reference to Exhibit 10-29 to
its Directors and certain of its Executive Officers the Company's Report on Form 10-K for its
year ended December 31, 1987
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
10-4 ACC Corp. Employee Stock Purchase Plan Incorporated by Reference to Exhibit 4-4 to
the Company's Registration Statement on Form
S-8, No. 33-75558, effective February 22, 1994
10-5 Employment Agreement between ACC Corp. and David Incorporated by Reference to Exhibit 10-2 to
K. Laniak, dated October 6, 1995 the Company's September 30, 1995 10-Q
10-6 Salary Continuation and Deferred Compensation Incorporated by Reference to Exhibit 10-3 to
Agreement between ACC Corp. and Richard T. Aab, the Company's September 30, 1995 10-Q
dated October 6, 1995
10-7 Non-Competition Agreement between ACC Corp. and Incorporated by Reference to Exhibit 10-4 to
Richard T. Aab, dated October 6, 1995 the Company's September 30, 1995 10-Q
10-8 Release and Settlement Agreement between ACC Corp. Incorporated by Reference to Exhibit 99.2 to
and Francis Coleman, dated December 29, 1995 the Company's February 22, 1996 8-K
10-9 Software License Agreement dated March 30, 1995 by Incorporated by Reference to Exhibit 99.5 to
and between AMBIX Systems Corp. and ACC Corp. the Company's February 22, 1996 8-K
10-10 Software License Agreement dated February 21, 1996 Incorporated by Reference to Exhibit 99.6 to
between AMBIX Acquisition Corp. and ACC Corp. the Company's February 22, 1996 8-K
10-11 Bill of Sale from AMBIX Systems Corp. to ACC Corp. Incorporated by Reference to Exhibit 99.7 to
dated February 6, 1996 the Company's February 22, 1996 8-K
10-12 Letter Agreement dated April 27, 1995 between the Incorporated by Reference to Exhibit 99.8 to
Special Committee of the Board of Directors of ACC the Company's February 22, 1996 8-K
Corp. and Richard T. Aab
10-13 Lease dated January 25, 1994 between the Hague Incorporated by Reference to Exhibit 99.9 to
Corporation and ACC Corp., as modified by a Lease the Company's February 22, 1996 8-K
Modification Agreement No. 1 dated May 31, 1994
and a Lease Modification Agreement No. 2 dated May
31, 1994, relating to the leased premises located
at 400 West Avenue, Rochester, New York
10-14 Amended and Restated Lease Agreement dated March Incorporated by Reference to Exhibit 99.10 to
1, 1994 between ACC Long Distance the Company's February 22, 1996 8-K
Inc./Interurbains ACC Inc. and Coopers & Lybrand
relating to the leased premises located at 5343
Dundas Street West, Etobicoke, Ontario, Canada
10-15 Underlease Agreement dated December 23, 1993 Incorporated by Reference to Exhibit 99.11 to
between ACC Long Distance UK Limited, IBM United the Company's February 22, 1996 8-K
Kingdom Limited, and ACC Corp. relating to the
leased premises located on the tenth floor at The
Chiswick Centre 414 Chiswick High Road, London,
England
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-16 Underlease Agreement dated June 6, 1995 between Incorporated by Reference to Exhibit 99.12 to
ACC Long Distance UK Limited, IBM United Kingdom the Company's February 22, 1996 8-K
Limited, and ACC Corp. relating to the leased
premises located on the first floor at The
Chiswick Centre 414 Chiswick High Road, London,
England
10-17 Supplemental Lease Agreement dated June 3, 1994 Incorporated by Reference to Exhibit 99.13 to
between ACC Long Distance UK Limited, IBM United the Company's February 22, 1996 8-K
Kingdom Limited, and ACC Corp. relating to the
leased premises located on the ninth floor at The
Chiswick Centre 414 Chiswick High Road, London,
England
10-18 Second Amended and Restated Credit Agreement, Filed herewith
dated as of December 19, 1997, by and among ACC
Corp. and certain Subsidiaries as Borrowers, ACC
Corp. as Guarantor, First Union National Bank of
North Carolina as Managing Agent and
Administrative Agent, and Fleet National Bank, as
Managing Agent and Documentation Agent
10-19 Leasehold Mortgage dated July 21, 1995 between ACC Incorporated by Reference to Exhibit 99.16 to
Corp. and First Union National Bank of North the Company's February 22, 1996 8-K
Carolina relating to the leased premises located
at 400 West Avenue, Rochester, New York
("Rochester Leasehold Mortgage")
10-20 Modification to Rochester Leasehold Mortgage dated Incorporated by Reference to Exhibit 10-20 to
January 14, 1997 the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996
10-21 Leasehold Mortgage dated July 21, 1995 between ACC Incorporated by Reference to Exhibit 99.16 to
Corp. and First Union National Bank of North the Company's February 22, 1996 8-K
Carolina relating to the leased premises located
at Suite 206, State Tower Building, 109 South
Warren Street, Syracuse, New York ("Syracuse
Leasehold Mortgage")
10-22 Modification to Syracuse Leasehold Mortgage dated Incorporated by Reference to Exhibit 10-22 to
January 14, 1997 the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996
10-23 Leasehold Mortgage dated July 21, 1995 between ACC Incorporated by Reference to Exhibit 99.17 to
Corp. and First Union National Bank of North the Company's February 22, 1996 8-K
Carolina relating to the leased premises located
at Suite 2200, Suite 204 and Suite 205, State
Tower Building, 109 South Warren Street, Syracuse,
New York ("Additional Syracuse Leasehold Mortgage")
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-24 Modification to Additional Syracuse Leasehold Incorporated by Reference to Exhibit 10-24 to
Mortgage dated January 14, 1997 the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996
10-25 Mortgage of Leasehold Interest, dated as of Incorporated by Reference to Exhibit 10-25 to
January 14, 1997, between ACC TelEnterprises the Company's Annual Report on Form 10-K for
Ltd./TelEnterprises ACC LTEE and First Union the Year Ended December 31, 1996
National Bank of North Carolina, as Agent,
relating to the leased premises located at One
Toronto Street, Toronto, Ontario, Canada
10-26 Mortgage of Leasehold Interest, dated as of Incorporated by Reference to Exhibit 10-26 to
January 14, 1997, between ACC TelEnterprises the Company's Annual Report on Form 10-K for
Ltd./TelEnterprises ACC LTEE and First Union the Year Ended December 31, 1996
National Bank of North Carolina, as Agent,
relating to the leased premises located at 5343
Dundas Street West, Etobicoke, Ontario, Canada
10-27 Second Amended and Restated Pledge Agreement dated Filed herewith
as of December 19, 1997 by ACC Corp. in favor of
First Union National Bank of North Carolina as
Administrative Agent
10-28 Amended and Restated Pledge Agreement dated as of Incorporated by Reference to Exhibit 10-28 to
January 14, 1997 by ACC National Long Distance the Company's Annual Report on Form 10-K for
Corp. in favor of First Union National Bank of the Year Ended December 31, 1996
North Carolina as Administrative Agent
10-29 Seconded Amended and Restated Security Agreement Filed herewith
dated as of December 19, 1997 between ACC Corp.,
certain Domestic Subsidiaries of the Company and
First Union National Bank of North Carolina as
Administrative Agent
10-30 Amended and Restated Trademark Security Agreement Incorporated by Reference to Exhibit 10-30 to
dated as of January 14, 1997 between ACC Corp. and the Company's Annual Report on Form 10-K for
First Union National Bank of North Carolina as the Year Ended December 31, 1996
Administrative Agent
10-31 License Agreement dated July 1, 1993 between Incorporated by Reference to Exhibit 99.23 to
Hudson's Bay Company and ACC Long Distance Inc. the Company's February 22, 1996 8-K
10-32 Employment Agreement between Christopher Bantoft Incorporated by Reference to Exhibit 10-29 of
and ACC Long Distance UK Ltd. dated November 16, the Company's Report on Form 10-K for its
1993, as amended year ended December 31, 1995 ("December 31,
1995 10-K")
10-33 Employment Agreement between Steve M. Dubnik and Incorporated by Reference to Exhibit 10-30 of
ACC TelEnterprises Ltd. Dated August 4, 1994 the Company's December 31, 1995 10-K
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-34 ACC Corp. Non-Employee Directors' Stock Option Plan Incorporated by Reference to Exhibit 99.6 to
the Company's September 17, 1996 8-K
10-35 Rules of the ACC Corp. 1996 UK Sharesave Scheme Incorporated by Reference to Exhibit 10-35 to
dated August 5, 1996 the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996
10-36 Net Settlement Agreement dated September 9, 1996 Incorporated by Reference to Exhibit 99.6 to
between Teletek, Inc. and ACC Long Distance Corp. the Company's September 17, 1996 8-K
10-37 License Agreement between EDS of Canada Ltd. And Incorporated by Reference to Exhibit 99.7 to
ACC TelEnterprises Ltd. Dated June 24, 1996 the Company's September 17, 1996 8-K
10-38 Amendment to Salary Continuation and Deferred Incorporated by Reference to Exhibit 99.8 to
Compensation Agreement between ACC Corp. and the Company's September 17, 1996 8-K
Richard T. Aab dated September 13, 1996
10-39 License Granted by the Secretary of State for Incorporated by Reference to Exhibit 10-39 to
Trade and Industry to ACC Long Distance UK Ltd. the Company's Annual Report on Form 10-K for
Under Section 7 of the Telecommunications Act 1984 the Year Ended December 31, 1996
10-40 Leasehold Mortgage dated as of January 14, 1997 by Incorporated by Reference to Exhibit 10-40 to
and among ACC National Telecom Corp. and First the Company's Annual Report on Form 10-K for
Union National Bank of North Carolina as the Year Ended December 31, 1996
Administrative Agent relating to the leased
premises located at One Commerce Plaza, Albany,
New York
10-41 Leasehold Mortgage dated as of January 14, 1997 by Incorporated by Reference to Exhibit 10-41 to
and among ACC Long Distance Corp. and First Union the Company's Annual Report on Form 10-K for
National Bank of North Carolina as Administrative the Year Ended December 31, 1996
Agent relating to the leased premises located at
69 Delaware Avenue, Buffalo, New York
10-42 Leasehold Mortgage dated as of January 14, 1997 by Incorporated by Reference to Exhibit 10-42 to
and among ACC National Telecom Corp. and First the Company's Annual Report on Form 10-K for
Union National Bank of North Carolina as the Year Ended December 31, 1996
Administrative Agent relating to the leased
premises located at 32 Old Slip, New York, New York
10-43 Mortgage of Leasehold Interest, dated as of Incorporated by Reference to Exhibit 10-43 to
January 14, 1997, between ACC TelEnterprises the Company's Annual Report on Form 10-K for
Ltd./TelEnterprises ACC LTEE and First Union the Year Ended December 31, 1996
National Bank of North Carolina as Administrative
Agent relating to the leased premises located in
Vancouver, British Columbia, Canada
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-44 Agreement for Lease, dated October 9, 1997, among Filed herewith
ACC Long distance U.K. Limited, ACC Corp. and
Lasmo (ULX) Limited relating to leased premises at
626 Chiswick High Road, London, England
11 Statement re: Computation of Per Share Earnings See Note 1 to the Notes to the Consolidated
Financial Statements filed herewith
21 Subsidiaries of ACC Corp. Filed herewith
23 Accountant's Consent Filed herewith
27 Financial Data Schedule Filed only with EDGAR filing, per Reg. S-K,
Rule 601(c)(1)(v)
27-1 Restated Financial Data Schedules Filed only with EDGAR filing, per Reg. S-K,
Rule 601(c)(1)(v)
</TABLE>
<PAGE>
(b) REPORTS ON FORM 8-K. The following Reports on Form 8-K were filed for
-------------------
the quarter ended December 31, 1997.
Form 8-K dated October 3, 1997
Form 8-K dated November 26, 1997
(c) EXHIBITS. See Exhibit Index.
-----------------------------
(d) FINANCIAL STATEMENT SCHEDULES. Financial Statement Schedules, along
-----------------------------
with the report of the independent public accountants thereon, are as follows:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ACC Corp.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of ACC Corp. included in this Form 10-K and have issued
our report thereon dated February 3, 1998. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The schedule listed
in the accompanying index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has 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.
Rochester, New York
February 3, 1998
/s/ Arthur Andersen LLP
<PAGE>
SCHEDULE II
ACC CORP AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1997, 1996, 1995
(000's)
<TABLE>
<CAPTION>
Balance Charged Net Balance
at to Costs Charged Accounts at
Beginning and to Other Written End of
of Period Expenses Accounts Off Period
--------- --------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $ 3,795 $ 3,810 - ($2,314) $ 5,291
Valuation allowance for deferred tax assets $ 7,669 ($4,360) - - $ 3,309
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ 2,085 $ 5,143 - ($3,433) $ 3,795
Valuation allowance for deferred tax assets $10,938 ($3,269) - - $ 7,669
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ 1,035 $ 3,284 - ($2,234) $ 2,085
Valuation allowance for deferred tax assets $ 7,454 $ 2,223 $1,261 (1) - $10,938
</TABLE>
- -----------------------------------
(1) Represents valuation allowance associated with loss carryforwards of
Metrowide Communications which was purchased by ACC Canada on August 1,
1995.
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.
<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 25, 1998 By: /s/Michael R. Daley
------------------------------------
Michael R. Daley
Executive Vice President
and Chief Financial
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 25, 1998 By: /s/Michael R. Daley
------------------------------------
Michael R. Daley,
Executive Vice President
and Chief Financial
Officer (Principal
Executive Officer and
Principal Financing and
Accounting Officer)
Dated: March 25, 1998 By: /s/Steve M. Dubnik
------------------------------------
Steve M. Dubnik,
Executive Vice President
(Principal Executive
Officer)
Dated: March 25, 1998 By: /s/Christopher B. Bantoft
------------------------------------
Christopher Bantoft,
Executive Vice President
(Principal Executive
Officer)
Dated: March 25, 1998 By: /s/Hugh F. Bennett
------------------------------------
Hugh F. Bennett,
Director
Dated: March 25, 1998 By: /s/Arunas A. Chesonis
------------------------------------
Arunas A. Chesonis,
President and a Director
Dated: March 25, 1998 By: /s/ Willard Z. Estey, Director
------------------------------------
Willard Z. Estey, Director
Dated: March 25, 1998 By: /s/ Leslie D. Shroyer
------------------------------------
Leslie D. Shroyer,
Director
<PAGE>
Dated: March , 1998 By:
__ ------------------------------------
Daniel D. Tessoni, Director
Dated: March 25, 1998 By: /s/Robert M. Van Degna
------------------------------------
Robert M. Van Degna, Director
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description Location
- -------------- ----------- --------
<S> <C> <C>
3-1 First Restated Certificate of Incorporation of ACC Incorporated by Reference to Exhibit 3 to the
Corp. Company's Quarterly Report on Form 10-Q for
its Quarter Ended September 30, 1995
("September 30, 1995 10-Q")
3-2 Certificate of Designation of the Voting Powers, Incorporated by Reference from Exhibit 1 to
Designation, Preferences and Relative, the Company's Registration Statement on Form
Participating, Optional or other Special Rights 8-A/A dated October 3, 1997 (as amended on
and Qualifications, Limitations and Restrictions Form 8-A/A dated December 10, 1997)
of the Series A Preferred Stock of ACC Corp.
3-3 Bylaws of ACC Corp., as amended on May 21, 1996 Incorporated by Reference to Exhibit 99.5 to
the Company's Current Report on Form 8-K
filed on September 17, 1996 ("September 17,
1996 8-K")
4-1 Form of ACC Corp. Class A Common Stock Certificate Incorporated by Reference to Exhibit 4-1 to
the Company's Registration Statement on Form
S-3, No. 333-01157 declared effective May 2,
1996
4-2 Form of Warrant to purchase 7,500 Shares of Class Incorporated by Reference to Exhibit 99.4 to
A Common Stock dated October 30, 1995 the Company's Current Report on Form 8-K
filed on February 22, 1996 8-K ("February 22,
1996 8-K")
4-5 Form of Rights Agreement, dated as of October 3, Incorporated by Reference from Exhibit 1 to
1997, between ACC Corp. and First Union National the Company's Registration Statement on Form
Bank, as Rights Agent, which includes as Exhibit A 8-A/A dated October 3, 1997 (as amended on
Form of Rights Certificate; Exhibit B Summary of Form 8-A/A dated December 10, 1997)
Rights to Purchase Preferred Stock; and Exhibit C
Certificate of Designation
10-1 Form of Employment Continuation Incentive Incorporated by Reference to Exhibit 99.3 to
Agreement between ACC Corp. and certain of its Key the Company's February 22, 1996 8-K
Employees
10-2 ACC Corp. Employee Long Term Incentive Plan, as Incorporated by Reference to Exhibit 4-1 to
amended through February 5, 1996 the Company's Registration Statement on Form
S-8, No. 333-01219, effective February 26,
1996
10-3 Form of ACC Corp. Indemnification Agreement with Incorporated by Reference to Exhibit 10-29 to
its Directors and certain of its Executive Officers the Company's Report on Form 10-K for its
year ended December 31, 1987
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-4 ACC Corp. Employee Stock Purchase Plan Incorporated by Reference to Exhibit 4-4 to
the Company's Registration Statement on Form
S-8, No. 33-75558, effective February 22, 1994
10-5 Employment Agreement between ACC Corp. and David Incorporated by Reference to Exhibit 10-2 to
K. Laniak, dated October 6, 1995 the Company's September 30, 1995 10-Q
10-6 Salary Continuation and Deferred Compensation Incorporated by Reference to Exhibit 10-3 to
Agreement between ACC Corp. and Richard T. Aab, the Company's September 30, 1995 10-Q
dated October 6, 1995
10-7 Non-Competition Agreement between ACC Corp. and Incorporated by Reference to Exhibit 10-4 to
Richard T. Aab, dated October 6, 1995 the Company's September 30, 1995 10-Q
10-8 Release and Settlement Agreement between ACC Corp. Incorporated by Reference to Exhibit 99.2 to
and Francis Coleman, dated December 29, 1995 the Company's February 22, 1996 8-K
10-9 Software License Agreement dated March 30, 1995 by Incorporated by Reference to Exhibit 99.5 to
and between AMBIX Systems Corp. and ACC Corp. the Company's February 22, 1996 8-K
10-10 Software License Agreement dated February 21, 1996 Incorporated by Reference to Exhibit 99.6 to
between AMBIX Acquisition Corp. and ACC Corp. the Company's February 22, 1996 8-K
10-11 Bill of Sale from AMBIX Systems Corp. to ACC Corp. Incorporated by Reference to Exhibit 99.7 to
dated February 6, 1996 the Company's February 22, 1996 8-K
10-12 Letter Agreement dated April 27, 1995 between the Incorporated by Reference to Exhibit 99.8 to
Special Committee of the Board of Directors of ACC the Company's February 22, 1996 8-K
Corp. and Richard T. Aab
10-13 Lease dated January 25, 1994 between the Hague Incorporated by Reference to Exhibit 99.9 to
Corporation and ACC Corp., as modified by a Lease the Company's February 22, 1996 8-K
Modification Agreement No. 1 dated May 31, 1994
and a Lease Modification Agreement No. 2 dated May
31, 1994, relating to the leased premises located
at 400 West Avenue, Rochester, New York
10-14 Amended and Restated Lease Agreement dated March Incorporated by Reference to Exhibit 99.10 to
1, 1994 between ACC Long Distance the Company's February 22, 1996 8-K
Inc./Interurbains ACC Inc. and Coopers & Lybrand
relating to the leased premises located at 5343
Dundas Street West, Etobicoke, Ontario, Canada
10-15 Underlease Agreement dated December 23, 1993 Incorporated by Reference to Exhibit 99.11 to
between ACC Long Distance UK Limited, IBM United the Company's February 22, 1996 8-K
Kingdom Limited, and ACC Corp. relating to the
leased premises located on the tenth floor at The
Chiswick Centre 414 Chiswick High Road, London,
England
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-16 Underlease Agreement dated June 6, 1995 between Incorporated by Reference to Exhibit 99.12 to
ACC Long Distance UK Limited, IBM United Kingdom the Company's February 22, 1996 8-K
Limited, and ACC Corp. relating to the leased
premises located on the first floor at The
Chiswick Centre 414 Chiswick High Road, London,
England
10-17 Supplemental Lease Agreement dated June 3, 1994 Incorporated by Reference to Exhibit 99.13 to
between ACC Long Distance UK Limited, IBM United the Company's February 22, 1996 8-K
Kingdom Limited, and ACC Corp. relating to the
leased premises located on the ninth floor at The
Chiswick Centre 414 Chiswick High Road, London,
England
10-18 Second Amended and Restated Credit Agreement, Filed herewith
dated as of December 19, 1997, by and among ACC
Corp. and certain Subsidiaries as Borrowers, ACC
Corp. as Guarantor, First Union National Bank of
North Carolina as Managing Agent and
Administrative Agent, and Fleet National Bank, as
Managing Agent and Documentation Agent
10-19 Leasehold Mortgage dated July 21, 1995 between ACC Incorporated by Reference to Exhibit 99.16 to
Corp. and First Union National Bank of North the Company's February 22, 1996 8-K
Carolina relating to the leased premises located
at 400 West Avenue, Rochester, New York
("Rochester Leasehold Mortgage")
10-20 Modification to Rochester Leasehold Mortgage dated Incorporated by Reference to Exhibit 10-20 to
January 14, 1997 the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996
10-21 Leasehold Mortgage dated July 21, 1995 between ACC Incorporated by Reference to Exhibit 99.16 to
Corp. and First Union National Bank of North the Company's February 22, 1996 8-K
Carolina relating to the leased premises located
at Suite 206, State Tower Building, 109 South
Warren Street, Syracuse, New York ("Syracuse
Leasehold Mortgage")
10-22 Modification to Syracuse Leasehold Mortgage dated Incorporated by Reference to Exhibit 10-22 to
January 14, 1997 the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996
10-23 Leasehold Mortgage dated July 21, 1995 between ACC Incorporated by Reference to Exhibit 99.17 to
Corp. and First Union National Bank of North the Company's February 22, 1996 8-K
Carolina relating to the leased premises located
at Suite 2200, Suite 204 and Suite 205, State
Tower Building, 109 South Warren Street, Syracuse,
New York ("Additional Syracuse Leasehold Mortgage")
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-24 Modification to Additional Syracuse Leasehold Incorporated by Reference to Exhibit 10-24 to
Mortgage dated January 14, 1997 the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996
10-25 Mortgage of Leasehold Interest, dated as of Incorporated by Reference to Exhibit 10-25 to
January 14, 1997, between ACC TelEnterprises the Company's Annual Report on Form 10-K for
Ltd./TelEnterprises ACC LTEE and First Union the Year Ended December 31, 1996
National Bank of North Carolina, as Agent,
relating to the leased premises located at One
Toronto Street, Toronto, Ontario, Canada
10-26 Mortgage of Leasehold Interest, dated as of Incorporated by Reference to Exhibit 10-26 to
January 14, 1997, between ACC TelEnterprises the Company's Annual Report on Form 10-K for
Ltd./TelEnterprises ACC LTEE and First Union the Year Ended December 31, 1996
National Bank of North Carolina, as Agent,
relating to the leased premises located at 5343
Dundas Street West, Etobicoke, Ontario, Canada
10-27 Second Amended and Restated Pledge Agreement dated Filed herewith
as of December 19, 1997 by ACC Corp. in favor of
First Union National Bank of North Carolina as
Administrative Agent
10-28 Amended and Restated Pledge Agreement dated as of Incorporated by Reference to Exhibit 10-28 to
January 14, 1997 by ACC National Long Distance the Company's Annual Report on Form 10-K for
Corp. in favor of First Union National Bank of the Year Ended December 31, 1996
North Carolina as Administrative Agent
10-29 Seconded Amended and Restated Security Agreement Filed herewith
dated as of December 19, 1997 between ACC Corp.,
certain Domestic Subsidiaries of the Company and
First Union National Bank of North Carolina as
Administrative Agent
10-30 Amended and Restated Trademark Security Agreement Incorporated by Reference to Exhibit 10-30 to
dated as of January 14, 1997 between ACC Corp. and the Company's Annual Report on Form 10-K for
First Union National Bank of North Carolina as the Year Ended December 31, 1996
Administrative Agent
10-31 License Agreement dated July 1, 1993 between Incorporated by Reference to Exhibit 99.23 to
Hudson's Bay Company and ACC Long Distance Inc. the Company's February 22, 1996 8-K
10-32 Employment Agreement between Christopher Bantoft Incorporated by Reference to Exhibit 10-29 of
and ACC Long Distance UK Ltd. dated November 16, the Company's Report on Form 10-K for its
1993, as amended year ended December 31, 1995 ("December 31,
1995 10-K")
10-33 Employment Agreement between Steve M. Dubnik and Incorporated by Reference to Exhibit 10-30 of
ACC TelEnterprises Ltd. dated August 4, 1994 the Company's December 31, 1995 10-K
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-34 ACC Corp. Non-Employee Directors' Stock Option Plan Incorporated by Reference to Exhibit 99.6 to
the Company's September 17, 1996 8-K
10-35 Rules of the ACC Corp. 1996 UK Sharesave Scheme Incorporated by Reference to Exhibit 10-35 to
dated August 5, 1996 the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996
10-36 Net Settlement Agreement dated September 9, 1996 Incorporated by Reference to Exhibit 99.6 to
between Teletek, Inc. and ACC Long Distance Corp. the Company's September 17, 1996 8-K
10-37 License Agreement between EDS of Canada Ltd. and Incorporated by Reference to Exhibit 99.7 to
ACC TelEnterprises Ltd. Dated June 24, 1996 the Company's September 17, 1996 8-K
10-38 Amendment to Salary Continuation and Deferred Incorporated by Reference to Exhibit 99.8 to
Compensation Agreement between ACC Corp. and the Company's September 17, 1996 8-K
Richard T. Aab dated September 13, 1996
10-39 License Granted by the Secretary of State for Incorporated by Reference to Exhibit 10-39 to
Trade and Industry to ACC Long Distance UK Ltd. the Company's Annual Report on Form 10-K for
Under Section 7 of the Telecommunications Act 1984 the Year Ended December 31, 1996
10-40 Leasehold Mortgage dated as of January 14, 1997 by Incorporated by Reference to Exhibit 10-40 to
and among ACC National Telecom Corp. and First the Company's Annual Report on Form 10-K for
Union National Bank of North Carolina as the Year Ended December 31, 1996
Administrative Agent relating to the leased
premises located at One Commerce Plaza, Albany,
New York
10-41 Leasehold Mortgage dated as of January 14, 1997 by Incorporated by Reference to Exhibit 10-41 to
and among ACC Long Distance Corp. and First Union the Company's Annual Report on Form 10-K for
National Bank of North Carolina as Administrative the Year Ended December 31, 1996
Agent relating to the leased premises located at
69 Delaware Avenue, Buffalo, New York
10-42 Leasehold Mortgage dated as of January 14, 1997 by Incorporated by Reference to Exhibit 10-42 to
and among ACC National Telecom Corp. and First the Company's Annual Report on Form 10-K for
Union National Bank of North Carolina as the Year Ended December 31, 1996
Administrative Agent relating to the leased
premises located at 32 Old Slip, New York, New York
10-43 Mortgage of Leasehold Interest, dated as of Incorporated by Reference to Exhibit 10-43 to
January 14, 1997, between ACC TelEnterprises the Company's Annual Report on Form 10-K for
Ltd./TelEnterprises ACC LTEE and First Union the Year Ended December 31, 1996
National Bank of North Carolina as Administrative
Agent relating to the leased premises located in
Vancouver, British Columbia, Canada
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10-44 Agreement for Lease, dated October 9, 1997, among Filed herewith
ACC Long distance U.K. Limited, ACC Corp. and
Lasmo (ULX) Limited relating to leased premises at
626 Chiswick High Road, London, England
11 Statement re: Computation of Per Share Earnings See Note 1 to the Notes to the Consolidated
Financial Statements filed herewith
21 Subsidiaries of ACC Corp. Filed herewith
23 Accountant's Consent re: Incorporation by Reference Filed herewith
27 Financial Data Schedule Filed only with EDGAR filing, per Reg. S-K,
Rule 601(c)(1)(v)
27-1 Restated Financial Data Schedules Filed only with EDGAR filing, per Reg. S-K,
Rule 601(c)(1)(v)
</TABLE>
<PAGE>
------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of December 19, 1997
by and among
ACC CORP.,
and certain Subsidiaries thereof designated herein,
as Borrowers,
ACC CORP.,
as Guarantor,
the Lenders referred to herein,
FIRST UNION NATIONAL BANK,
as Managing Agent and Administrative Agent,
and
FLEET NATIONAL BANK,
as Managing Agent and Documentation Agent
------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS ........................................................1
SECTION 1.1. Definitions ................................1
SECTION 1.2. General ...................................20
SECTION 1.3. Other Definitions and Provisions ..........20
ARTICLE II CREDIT FACILITY...................................................21
SECTION 2.1. Revolving Credit Loans.....................21
SECTION 2.2. Swingline Loans............................21
SECTION 2.3. Procedure for Advances of Revolving
Credit and Swingline Loans.................23
. 35
SECTION 2.4. Repayment of Extensions of Credit.........24
SECTION 2.5. Notes.....................................26
SECTION 2.6. Permanent Reductions of the Aggregate
Commitment.................................26
SECTION 2.7. Termination of Credit Facility.............28
SECTION 2.8. Use of Proceeds............................28
SECTION 2.9. Nature of Obligations; Security............28
ARTICLE III LETTER OF CREDIT FACILITY........................................29
SECTION 3.1. L/C Commitment.............................29
SECTION 3.2. Procedure for Issuance of
Letters of Credit.........................29
SECTION 3.3. Fees and Other Charges.....................30
SECTION 3.4. L/C Participations.........................30
SECTION 3.5. Reimbursement Obligation of
the Borrower..............................31
SECTION 3.6. Obligations Absolute.......................32
SECTION 3.7. Effect of Application......................32
ARTICLE IV GENERAL LOAN PROVISIONS...........................................33
SECTION 4.1. Interest...................................35
SECTION 4.2. Notice and Manner of Conversion or
Continuation of Revolving Credit Loans.....36
SECTION 4.3. Fees.......................................36
SECTION 4.4. Manner of Payment..........................37
SECTION 4.5. Crediting of Payments and Proceeds........38
SECTION 4.6. Nature of Obligations of Lenders
Regarding Extensions of Credit;
Assumption by
Administrative Agent......................38
SECTION 4.7. Mandatory Redenomination of
Alternative Currency Loans ................39
SECTION 4.8. Regulatory Limitation..................... 39
SECTION 4.9. Changed Circumstances..................... 39
SECTION 4.10. Indemnity................................. 42
<PAGE>
SECTION 4.11. Capital Requirements.......................42
SECTION 4.12. Taxes......................................42
ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING.......................44
SECTION 5.1. Closing....................................44
SECTION 5.2. Conditions to Closing and
Initial Extensions of Credit .............44
SECTION 5.3. Conditions to All Extensions of Credit ...49
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BORROWERS.......................50
SECTION 6.1. Representations and Warranties.............50
SECTION 6.2. Survival of Representations and
Warranties, Etc............................58
ARTICLE VII FINANCIAL INFORMATION AND NOTICES................................58
SECTION 7.1. Financial Statements and Projections.......58
SECTION 7.2. Officer's Compliance Certificate...........59
SECTION 7.3. Accountants' Certificate...................59
SECTION 7.4. Other Reports..............................59
SECTION 7.5. Notice of Litigation and Other Matters.....60
SECTION 7.6. Accuracy of Information................... 61
ARTICLE VIII AFFIRMATIVE COVENANTS.......................................... 62
SECTION 8.1. Preservation of Corporate Existence
and Related Matters...................... 62
SECTION 8.2. Maintenance of Property................... 62
SECTION 8.3. Insurance................................. 62
SECTION 8.4. Accounting Methods and Financial Records.. 62
SECTION 8.5. Payment and Performance of Obligations.... 62
SECTION 8.6. Compliance With Laws and Approvals........ 63
SECTION 8.7. Environmental Laws........................ 63
SECTION 8.8. Employee Benefit, Pension and
Retirement Laws.......................... 63
SECTION 8.9. Compliance With Agreements................ 64
SECTION 8.10. Conduct of Business....................... 64
SECTION 8.11. Visits and Inspections.................... 64
SECTION 8.12. Material Subsidiaries; Additional
Collateral............................... 65
SECTION 8.13. Hedging Agreement......................... 66
SECTION 8.14. Further Assurances........................ 65
SECTION 8.15. Post-Closing Matters...................... 65
ARTICLE IX FINANCIAL COVENANTS.............................................. 65
SECTION 9.1. Maximum Leverage Ratio.................... 66
SECTION 9.2. Minimum Pro Forma Debt Service
Coverage Ratio........................... 66
SECTION 9.3. Fixed Charge Coverage Ratio............... 66
SECTION 9.4. Capital Expenditures...................... 66
SECTION 9.5. Minimum Net Worth......................... 67
<PAGE>
ARTICLE X NEGATIVE COVENANTS................................................ 67
SECTION 10.1. Limitations on Debt....................... 67
SECTION 10.2. Limitations on Contingent Obligations..... 67
SECTION 10.3. Limitations on Liens...................... 68
SECTION 10.4. Limitations on Loans, Advances,
Investments and Acquisitions............. 69
SECTION 10.5. Limitations on Mergers and Liquidation.... 71
SECTION 10.6. Limitations on Sale of Assets............. 71
SECTION 10.7. Limitations on Dividends and
Distributions............................ 71
SECTION 10.8. Limitations on Exchange and
Issuance of Capital Stock................ 72
SECTION 10.9. Transactions with Affiliates.............. 72
SECTION 10.10. Certain Accounting Changes................ 72
SECTION 10.11. Amendments; Payments and Prepayments
of Subordinated Debt..................... 72
SECTION 10.12. Restrictive Agreements.................... 72
SECTION 10.13. Hedging Agreements........................ 72
ARTICLE XI UNCONDITIONAL GUARANTY........................................... 73
SECTION 11.1. Guaranty of Obligations................... 73
SECTION 11.2. Nature of Guaranty........................ 73
SECTION 11.3. Demand by the Administrative Agent........ 74
SECTION 11.4. Waivers................................... 74
SECTION 11.5. Modification of Loan Documents etc........ 74
SECTION 11.6. Reinstatement............................. 75
SECTION 11.7. No Subrogation............................ 75
ARTICLE XII DEFAULT AND REMEDIES............................................ 76
SECTION 12.1. Events of Default......................... 76
SECTION 12.2. Remedies.................................. 78
SECTION 12.3. Rights and Remedies Cumulative;
Non-Waiver; etc........................... 79
SECTION 12.4. Consents.................................. 80
SECTION 12.5. Judgment Currency......................... 80
SECTION 12.6. Adjustments............................... 81
ARTICLE XIII THE AGENTS .....................................................81
SECTION 13.1. Appointment............................... 81
SECTION 13.2. Delegation of Duties...................... 81
SECTION 13.3. Exculpatory Provisions.................... 82
SECTION 13.4. Reliance by Agents........................ 82
SECTION 13.5. Notice of Default......................... 82
SECTION 13.6. Non-Reliance on Such Agents
and Other Lenders........................ 83
SECTION 13.7. Indemnification........................... 84
SECTION 13.8. Each of the Agents in Its
Individual Capacity...................... 84
SECTION 13.9. Resignation of Agents; Successor Agents... 84
SECTION 13.10 Documentation Agent....................... 85
<PAGE>
ARTICLE XIV MISCELLANEOUS ...................................................85
SECTION 14.1. Notices................................... 85
SECTION 14.2. Expenses.................................. 86
SECTION 14.3. Set-off................................... 87
SECTION 14.4. Governing Law............................. 87
SECTION 14.5. Consent to Jurisdiction................... 87
SECTION 14.6. Binding Arbitration; Waiver of
Jury Trial............................... 87
SECTION 14.7. Reversal of Payments...................... 89
SECTION 14.8. Injunctive Relief......................... 89
SECTION 14.9. Accounting Matters........................ 89
SECTION 14.10. Successors and Assigns; Participations.... 89
SECTION 14.11. Amendments, Waivers and Consents;
Renewal.................................. 93
SECTION 14.12. Performance of Duties..................... 94
SECTION 14.13. Indemnification........................... 94
SECTION 14.14. All Powers Coupled with Interest.......... 94
SECTION 14.15. Survival of Indemnities................... 95
SECTION 14.16. Titles and Captions....................... 95
SECTION 14.17. Severability of Provisions................ 95
SECTION 14.18. Counterparts.............................. 95
SECTION 14.19. ACC as Agent for Other Borrowers.......... 95
SECTION 14.20. Term of Agreement......................... 96
SECTION 14.21. Inconsistencies with Other Documents;
Independent Effect of Covenants........... 96
<PAGE>
EXHIBITS
Exhibit A-1 - Form of Domestic Revolving Credit Note
Exhibit A-2 - Form of U.K. Revolving Credit Note
Exhibit A-3 - Form of Canadian Revolving Credit Note
Exhibit A-4 - Form of German Revolving Credit Note
Exhibit A-5 - Form of Swingline Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Prepayment
Exhibit D - Form of Notice of Conversion/Continuation
Exhibit E - Form of Officer's Certificate
Exhibit F - Form of Notice of Account Designation
Exhibit G - Form of Assignment and Acceptance
Exhibit H - Form of Pledge Agreement
Exhibit I - Form of Security Agreement
Exhibit J - Form of Modification to Leasehold Mortgage
Exhibit K - Form of Joinder Agreement
Exhibit L - Form of Intercompany Subordination Agreement
SCHEDULES
Schedule 1 - Lenders and Commitments
Schedule 1.2 - Sublimits
Schedule 1.3 - Canadian Security Documents
Schedule 1.4 - German Security Documents
Schedule 1.5 - U.K. Security Documents
Schedule 6.1(a) - Jurisdictions of Organization and Qualification
Schedule 6.1(b) - Subsidiaries and Capitalization
Schedule 6.1(d) - Governmental Approvals
Schedule 6.1(h) - ERISA Plans
Schedule 6.1(l) - Material Contracts
Schedule 6.1(m) - Labor and Collective Bargaining Agreements
Schedule 6.1(r) - Real Property
Schedule 6.1(t) - Debt and Contingent Obligations
Schedule 6.1(u) - Litigation
Schedule 6.1(v) - Communications Licenses and PUC Authorizations
Schedule 10.3 - Existing Liens
Schedule 10.4 Existing Loans, Advances and Investments
<PAGE>
EXHIBIT-10.18
SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of the 19th day
of December, 1997, by and among ACC CORP., a corporation organized under the
laws of Delaware ("ACC"), and the Subsidiaries thereof designated as Borrowers
herein, as Borrowers, ACC, as Guarantor, the Lenders who are or may become a
party to this Agreement, FIRST UNION NATIONAL BANK (formerly known as First
Union National Bank of North Carolina), a national banking association, as
Managing Agent and Administrative Agent and FLEET NATIONAL BANK, a national
banking association, as Managing Agent and Documentation Agent.
STATEMENT OF PURPOSE
The Borrowers have requested and the Lenders have agreed to amend and
restate the First Amended and Restated Credit Agreement (as hereinafter defined)
pursuant to the terms hereof in order to extend certain credit facilities to the
Borrowers. ACC, as parent of the other Borrowers, will benefit directly and
indirectly from the extension of such credit facilities to such other Borrowers.
As a precondition to making any extensions of credit hereunder, the Lenders have
required ACC, and ACC has agreed, to execute this Agreement as Guarantor.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms when used in this
Agreement shall have the meanings assigned to them below:
"ACC" means ACC Corp., a corporation organized under the laws of
Delaware, and its successors.
"ACC Canada" means ACC TelEnterprises Ltd., a corporation organized
under the laws of Ontario, and its successors.
"ACC Germany" means ACC Telekommunikation GMBH, a corporation organized
under the laws of the Federal Republic of Germany, and its successors.
"ACC National" means ACC National Long Distance Corp., a corporation
organized under the laws of Delaware, and its successors.
"ACC National Pledge Agreement" means the Second Amended and Restated
Pledge Agreement of even date executed by ACC National in favor of the
Administrative Agent for the
<PAGE>
benefit of itself and the Lenders substantially in the form of Exhibit H, as
amended, restated or otherwise modified.
"ACC Pledge Agreement" means the Second Amended and Restated Pledge
Agreement of even date executed by ACC in favor of the Administrative Agent for
the benefit of itself and the Lenders substantially in the form of Exhibit H, as
amended, restated or otherwise modified.
"ACC U.K." means ACC Long Distance U.K., Ltd., a corporation organized
under the laws of the United Kingdom, and its successors.
"Additional Borrower" means any Material Subsidiary which has become a
Borrower hereunder in accordance with Section 8.12.
"Administrative Agent" means First Union in its capacity as
administrative agent hereunder, and any successor thereto appointed pursuant to
Section 13.9.
"Administrative Agent's Correspondent" means First Union National Bank,
London Branch, or any other financial institution designated by the
Administrative Agent to act as its correspondent hereunder with respect to
distribution and payment of Extensions of Credit denominated in Alternative
Currencies.
"Administrative Agent's Office" means the office of the Administrative
Agent specified in or determined in accordance with the provisions of Section
14.1.
"Affiliate" means, with respect to any Person and its Subsidiaries, any
other Person (other than a Subsidiary thereof) which directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such first Person or any of its Subsidiaries. The term
"control" means (a) the power to vote ten percent (10%) or more of the
securities or other equity interests of a Person having ordinary voting power,
or (b) the possession, directly or indirectly, of any other power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
"Agents" means the collective reference to the Managing Agents,
Documentation Agent and Administrative Agent.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any time or
from time to time pursuant to the terms hereof. On the Closing Date, the
Aggregate Commitment shall be One Hundred Fifty Million Dollars ($150,000,000).
"Agreement" means this Second Amended and Restated Credit Agreement, as
further amended, restated or otherwise modified from time to time.
"Alternative Currency" means Sterling, Canadian Dollars or
Deutschemarks, or any combination of such currencies, as the context requires.
<PAGE>
"Alternative Currency Amount" means with respect to each Extension of
Credit made or continued (or to be made or continued) in an Alternative
Currency, the amount of such Alternative Currency which is equivalent to the
principal amount in Dollars of such Extension of Credit at the most favorable
spot exchange rate determined by the Administrative Agent to be available to its
London branch at approximately 11:00 a.m. (London time) two (2) Business Days
before such Extension of Credit is made, continued or issued (or to be made,
continued or issued). When used with respect to any other sum expressed in
Dollars, "Alternative Currency Amount" shall mean the amount of such Alternative
Currency which is equivalent to the amount so expressed in Dollars at the most
favorable spot exchange rate determined by the Administrative Agent to be
available to it at the relevant time.
"Applicable Law" means all applicable provisions of constitutions,
laws, statutes, treaties, rules, regulations and orders of all Governmental
Authorities and all orders and decrees of all courts and arbitrators.
"Applicable Margin" shall have the meaning assigned thereto in Section
4.1(c).
"Application" means an application, in the form specified by the
Issuing Lender from time to time, requesting the Issuing Lender to issue a
Letter of Credit.
"Assignment and Acceptance" shall have the meaning assigned thereto in
Section 14.10.
"Available Commitment" means, as to any Lender at any time, an amount
equal to the excess, if any, of (a) such Lender's Commitment minus (b) such
Lender's Extensions of Credit.
"Authorized Officer" means with respect to any Person, the chief
executive officer, chief financial officer, or vice president of finance of such
Person.
"Base Rate" means, at any time, the rate of interest per annum which is
the higher of (a) the Prime Rate or (b) the Federal Funds Rate as determined by
the Administrative Agent plus 1/2 of 1%; each change in the Base Rate shall take
effect simultaneously with the corresponding change or changes in the Prime Rate
or the Federal Funds Rate.
"Base Rate Loan" means any Loan denominated in Dollars bearing interest
at a rate determined with reference to the Base Rate as provided in Section
4.1(a) hereof.
"Borrowers" means the collective reference to the Domestic Borrowers,
Canadian Borrowers, U.K. Borrowers and German Borrowers party hereto on the
Closing Date and each Additional Borrower in its capacity as a Borrower
hereunder.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Charlotte, North Carolina are open for the conduct of their
domestic and international commercial banking business, and (b) with respect to
all notices and determinations in connection with, and payments of principal and
<PAGE>
interest on, any Extension of Credit to be denominated in an Alternative
Currency or on any LIBOR Rate Loan, any day (i) that is a Business Day described
in clause (a) and that is also a day for trading by and between banks in
deposits for the applicable Permitted Currency in the London interbank market
and (ii) on which banks are open for the conduct of their domestic and
international banking business in the place where the Administrative Agent or
the Administrative Agent's Correspondent shall make available Extensions of
Credit in such Permitted Currency.
"Canadian Base Rate" shall mean, at any time, that annual rate of
interest quoted, published or announced by Bank of Montreal from time to time or
commonly known to be its Canadian Dollar Prime Rate (which may not necessarily
be its lowest or best rate then in effect for determining interest rates on
commercial loans made in Canada by it), as adjusted to conform to changes in
such rate as of the opening of business on the date of any such change in such
rate without notice to any Borrower, plus the Applicable Margin with respect to
Base Rate Loans in effect at such time. Each Loan or portion thereof bearing
interest based on the Canadian Dollar Prime Rate shall be a "Canadian Base Rate
Loan."
"Canadian Borrowers" means the collective reference to all Borrowers
organized under the laws of Canada or any province thereof.
"Canadian Dollars" means, at any time of determination, the then official
currency of Canada.
"Canadian Law" means all applicable provisions of constitutions, laws,
statutes, treaties, rules, regulations and orders of Canada and any political
subdivision thereof and all orders and decrees of all courts and arbitrators of
such jurisdictions.
"Canadian Plan" means any employee benefit plan which ACC or any
Subsidiary thereof maintains or to which it is obligated to contribute and which
is subject to any Canadian federal or provincial law relating to employee
benefit plans, pension benefits or retirement savings.
"Canadian Security Documents" means the collective reference to
documents set forth on Schedule 1.3 and any other agreement or writing pursuant
to which a Canadian Borrower or Canadian Subsidiary pledges or grants a security
interest in its assets in order to secure the payment and/or performance of any
Canadian Borrower under a Loan Document, in each case as amended, restated or
otherwise modified.
"Canadian Subsidiary" means a Subsidiary organized under the laws of
Canada or any province thereof.
"Canadian Termination Event" means any termination of a Canadian Plan
or any other event or condition which would constitute grounds for or result in
(a) the termination of a Canadian Plan; or (b) the appointment of a trustee to
administer any Canadian Plan; or (c) the partial or complete withdrawal of ACC
or any of its Subsidiaries from a Canadian Plan; or (d) the imposition of a
lien, charge or prior claim on the assets of a Canadian Plan; or (d) the
reorganization or insolvency of a Canadian Plan; or (e) a material liability of
any applicable
<PAGE>
Borrower or Borrowers to a Canadian Plan or, in the reasonable opinion of any
firm of independent Canadian chartered accountants or actuaries, a reasonable
likelihood of such a material liability; or (f) a material liability of any
applicable Borrower or Borrowers to any federal or provincial Governmental
Authority with respect to a Canadian Plan or, in the reasonable opinion of any
firm of independent Canadian chartered accountants or actuaries, a reasonable
likelihood of such a material liability.
"Capital Asset" means, with respect to ACC and its Subsidiaries, any
asset that would, in accordance with GAAP, be required to be classified and
accounted for as a capital asset on a Consolidated balance sheet of ACC and its
Subsidiaries.
"Capital Expenditures" means, with respect to ACC and its Subsidiaries
for any period, the aggregate cost of all Capital Assets acquired by any such
Person during such period, determined in accordance with GAAP; provided, that
the aggregate purchase price with respect to any acquisition or Controlled
Venture permitted under Section 10.4(c) will not be included in Capital
Expenditures.
"Capital Lease" means, with respect to ACC and its Subsidiaries, any
lease of any property that would, in accordance with GAAP, be required to be
classified and accounted for as a capital lease on a Consolidated balance sheet
of ACC and its Subsidiaries.
"Change in Control" shall have the meaning assigned thereto in Section
12.1(i).
"Closing Date" means the date of this Agreement or such later Business
Day upon which each condition described in Article V shall be satisfied or
waived in all respects in a manner acceptable to the Agents in their sole
discretion.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Collateral" means any assets pledged by ACC or any of its Subsidiaries
to the Lenders or to the Administrative Agent for the ratable benefit of the
Agents and the Lenders in order to secure the Obligations or any portion
thereof.
"Commitment" means, as to any Lender, the obligation of such Lender to
make Loans hereunder and issue or participate in Letters of Credit hereunder in
an aggregate outstanding principal amount not to exceed at any time the amount
set forth opposite such Lender's name on Schedule 1.1, as the same may be
reduced or modified at any time or from time to time pursuant to the terms
hereof.
"Commitment Percentage" means, as to any Lender at any time, the ratio
of (a) the amount of the Commitment of such Lender to (b) the Aggregate
Commitment of all of the Lenders.
"Communications License" means any long distance telecommunications or
other license, permit, consent, certificate of compliance, franchise, approval,
waiver or authorization granted or
<PAGE>
issued by the FCC, CRTC, DTI, OFTEL, the Regulating Authority for
Telecommunications and Postal Services (Regulierungsbehorde fur
Telekommunikation und Post) or other applicable Governmental Authority
including, without limitation, any of the foregoing authorizing or permitting
the acquisition, construction or operation of Network Facilities or any other
long distance telecommunications system.
"Consolidated" means, when used with reference to financial statements
or financial statement items of ACC and its Subsidiaries, such statements or
items on a consolidated basis in accordance with applicable principles of
consolidation under GAAP.
"Contingent Obligation" means, with respect to ACC and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any Debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of any such Person (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement condition or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, that the term Contingent
Obligation shall not include endorsements for collection or deposit in the
ordinary course of business.
"Controlled Venture" means any joint venture with respect to which ACC
beneficially owns a greater than 66.6% equity interest.
"Credit Facility" means the collective reference to the revolving
credit facility and swingline facility established pursuant to Article II hereof
and the L/C Facility.
"CRTC" means the Canadian Radio-Television and Telecommunications
Commission or any successor Governmental Authority.
"Debt" means, with respect to ACC and its Subsidiaries at any date and
without duplication, the sum of the following calculated in accordance with
GAAP: (a) all liabilities, obligations and indebtedness for borrowed money
including but not limited to obligations evidenced by bonds, debentures, notes
or other similar instruments of any such Person, (b) all obligations to pay the
deferred purchase price of property or services of any such Person, except trade
payables arising in the ordinary course of business not more than ninety (90)
days past due, (c) all obligations of any such Person as lessee under Capital
Leases, (d) all Debt of any other Person secured by a Lien on any asset of any
such Person, (e) all Contingent Obligations of any such Person and (f) all
obligations, contingent or otherwise, of any such Person relative to the face
amount of letters of credit, whether or not drawn, including without limitation
any Reimbursement Obligation, and banker's acceptances issued for the account of
any such Person.
<PAGE>
"Default" means any of the events specified in Section 12.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"Deutschemarks" means, at any time of determination, the then official
currency of the Federal Republic of Germany, subject to Section 4.7.
"Documentation Agent" means Fleet in its capacity as Documentation
Agent hereunder. "Dollars" or "$" means, unless otherwise qualified, the then
official currency of the United States of America.
"Dollar Amount" means (a) with respect to each Loan made or continued
(or to be made or continued), or each Letter of Credit issued (or to be issued),
in Dollars, the principal amount thereof and (b) with respect to each Loan made
or continued (or to be made or continued), or each Letter of Credit issued (or
to be issued), in an Alternative Currency, the amount of Dollars which is
equivalent to the principal amount of such Extension of Credit at the most
favorable spot exchange rate determined by the Administrative Agent at
approximately 11:00 A.M. (Charlotte time) two (2) Business Days before such
Extension of Credit is made, continued or issued (or to be made, continued or
issued). When used with respect to any other sum expressed in an Alternative
Currency, "Dollar Amount" shall mean the amount of Dollars which is equivalent
to the amount so expressed in such Alternative Currency at the most favorable
spot exchange rate determined by the Administrative Agent to be available to it
at the relevant time.
"Domestic Borrowers" means the collective reference to all Borrowers
organized under the laws of any State of the United States or the District of
Columbia.
"Domestic Subsidiary" means a Subsidiary organized under the laws of
any State of the United States or the District of Columbia.
"DTI" means the Department of Trade and Industry of the United Kingdom
or any successor Governmental Authority.
"Eligible Assignee" means, with respect to any assignment of the
rights, interest and obligations of a Lender hereunder, a Person that is at the
time of such assignment (a) a commercial bank organized under the laws of the
United States or any state thereof, having combined capital and surplus in
excess of $500,000,000, (b) a finance company, insurance company or other
financial institution which in the ordinary course of business extends credit of
the type extended hereunder and that has total assets in excess of
$1,000,000,000, (c) already a Lender hereunder (whether as an original party to
this Agreement or as the assignee of another Lender) or (d) the successor
(whether by transfer of assets, merger or otherwise) to all or substantially all
of the commercial lending business of the assigning Lender, and, in the case of
(a), (b) or any other Person, has been approved in writing as an Eligible
Assignee by ACC and the Administrative Agent.
<PAGE>
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (i) is maintained for employees of ACC or
any ERISA Affiliate or (ii) has at any time within the preceding six years been
maintained for the employees of ACC or any current or former ERISA Affiliate.
"Environmental Laws" means any and all federal, state, provincial and
local laws, statutes, ordinances, rules, regulations, permits, licenses,
approvals, interpretations and orders of courts or Governmental Authorities,
relating to the protection of human health or the environment, including, but
not limited to, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended, restated or otherwise
modified from time to time.
"ERISA Affiliate" means any Person who together with the ACC is treated
as a single employer within the meaning of Section 414(b), (c), (m) or (o) of
the Code or Section 4001(b) of ERISA.
"Event of Default" means any of the events specified in Section 12.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Letters of Credit" means letters of credit issued pursuant to
the First Amended and Restated Credit Agreement which remain outstanding on the
Closing Date, including but not limited to the German letter of credit issued
pursuant to the waiver letter dated as of August 19, 1997.
"Extensions of Credit" means, as to any Lender at any time, an amount
equal to the sum of (a) the aggregate principal Dollar Amount of all Loans made
by such Lender then outstanding and (b) such Lender's Commitment Percentage of
the L/C Obligations then outstanding.
"FCC" means the Federal Communications Commission or any successor
Governmental Authority.
"Federal Funds Rate" means, the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Administrative Agent and confirmed in
Federal Reserve Board Statistical release H.15 (519) or any successor or
substitute publication selected by such Agent. If, for any reason, such rate is
not available, then "Federal Funds Rate" shall mean a daily rate which is
determined, in the opinion of the Administrative Agent, to be the rate at which
federal funds are being offered for sale in the national federal funds market at
9:00 a.m. (Charlotte time). The rate for a weekend or holiday shall be the same
as the rate for the most immediate preceding Business Day.
<PAGE>
"First Amended and Restated Credit Agreement" means the Amended and
Restated Credit Agreement dated as of January 14, 1997, by and among ACC, and
certain Subsidiaries thereof designated therein, as Borrowers, ACC, as
Guarantor, the lenders referred to therein, First Union, as Managing Agent and
Administrative Agent, and Fleet National Bank, as Managing Agent, as modified by
the letter agreement dated August 19, 1997 and the letter agreement dated
October 27, 1997.
"First Union" means First Union National Bank (formerly known as First
Union National Bank of North Carolina), a national banking association, and its
successors.
"Fiscal Year" means the fiscal year of ACC and its Subsidiaries ending
on December 31.
"Fixed Charges" means, with respect to ACC and its Subsidiaries, for
any period, the following without duplication, each calculated for such period
in accordance with GAAP: (a) all principal payments or similar amounts required
to be paid with respect to Total Debt during such period plus (b) Interest
Expense required to be paid during such period plus (c) total cash dividends or
distributions paid or payable by ACC during such period plus (d) all payments in
respect of any retirement, redemption or other acquisition of the capital stock
of ACC and its Subsidiaries consummated during such period plus (e) all Capital
Expenditures during such period plus (f) all income and franchise taxes paid or
payable in cash during such period.
"Fleet" means Fleet National Bank, a national banking association, and
its successors.
"GAAP" means generally accepted accounting principles, as recognized by
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for ACC and its Subsidiaries throughout the period indicated.
"German Base Rate" shall mean, at any time, that rate per annum
announced by Deutsche Bundesbank Frankfurt to be its Lombard Rate (Lombardsatz)
from time to time (which may not necessarily be its lowest or best rate), as
adjusted to conform to changes as of the opening of business on the date of any
such change in such rate, plus the sum of (a) the Applicable Margin with respect
to Base Rate Loans in effect at such time and (b) two percent (2%). Each Loan or
portion thereof bearing interest based on the German Base Rate shall be a
"German Base Rate Loan."
"German Borrowers" means the collective reference to all Borrowers
organized under the laws of the Federal Republic of Germany or any subdivision
thereof.
"German Law" means all applicable provisions of constitutions, laws,
statutes, treaties, rules, regulations and orders of the Federal Republic of
Germany and any political subdivision thereof and all orders and decrees of all
courts and arbitrators of such jurisdictions.
"German Plan" means any employee benefit plan which ACC or any
Subsidiary thereof maintains or to which it is obligated to contribute and which
is subject to any German federal or
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provincial law or any German contract relating to employee benefit plans,
pension benefits or retirement savings.
"German Pledge Agreement" means the Pledge Agreement dated on or about
the date hereof, executed by ACC in favor of the Lenders, as described on
Schedule 1.4, as amended, restated or otherwise modified.
"German Security Documents" means the collective reference to the
German Pledge Agreement and the other documents set forth on Schedule 1.4 and
any other agreement or writing pursuant to which a German Borrower or German
Subsidiary pledges or grants a security interest in its assets in order to
secure the payment and/or performance of any German Borrower under a Loan
Document, in each case as amended, restated or otherwise modified.
"German Subsidiary" means a Subsidiary organized under the laws of the
Federal Republic of Germany or any subdivision thereof.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities, including without limitation all Communications
Licenses and PUC Authorizations.
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing, including
without limitation the FCC, CRTC, DTI, OFTEL, any PUC and the Regulating
Authority for Telecommunications and Postal Services (Regulierungsbehorde fur
Telekommunikation und Post).
"Guaranteed Obligations" shall have the meaning assigned thereto in
Section 11.1.
"Guarantor" means ACC in its capacity as guarantor under Article XI.
"Guaranty" means the unconditional guaranty agreement of ACC set forth
in Article XI.
"Hazardous Materials" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (b) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise harmful to human health or the environment and are or
become regulated by any Governmental Authority, (c) the presence of which
require investigation or remediation under any Environmental Law or common law,
(d) the discharge or emission or release of which requires a permit or license
under any Environmental Law or other Governmental Approval, (e) which are deemed
to constitute a nuisance, a trespass or pose a health or safety hazard to
persons or neighboring properties, (f) which are materials consisting of
underground or aboveground storage tanks, whether empty, filled or partially
filled with any substance or (g) which contain, without limitation, asbestos,
polychlorinated biphenyls, urea formaldehyde
<PAGE>
foam insulation, petroleum hydrocarbons, petroleum derived substances or waste,
crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedging Agreement" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate or currency risk exposure executed in
connection with hedging the interest rate or currency exposure of the Borrowers,
and any confirming letter executed pursuant to such hedging agreement, all as
amended, restated or otherwise modified.
"Intercompany Note" shall have the meaning assigned thereto in Section
10.4(a).
"Intercompany Subordination Agreement" means the Second Amended and
Restated Subordination Agreement of even date substantially in the form of
Exhibit L, as amended, restated or otherwise modified, executed by the Borrowers
and other Subsidiaries party thereto with respect to the loans by ACC to such
Persons as described on Schedule 10.4.
"Interest Expense" means, with respect to ACC and its Subsidiaries for
any period, total interest expense of ACC and its Subsidiaries (including
without limitation, interest expense attributable to Capital Leases and any
other capitalized interest expense) and, to the extent not included therein,
fees and other charges payable with respect to all Debt, (including fees and
charges payable with respect to Hedging Agreements, letters of credit and
similar investments), all determined on a Consolidated basis for such period in
accordance with GAAP.
"Interest Period" shall have the meaning assigned thereto in Section
4.1(b).
"Issuing Lender" means First Union in its capacity as issuer of any
Letter of Credit.
"Joinder Agreement" means an Second Amended and Restated Joinder Agreement
substantially in the form of Exhibit K executed by each Material Subsidiary in
accordance with Section 8.12, as amended, restated or otherwise modified.
"Landlord Consents" means the Landlord Agreements delivered by or on
behalf of a Borrower pursuant to the First Amended and Restated Credit
Agreement, as any such Landlord Agreement may be amended, restated or otherwise
modified.
"L/C Commitment" means the lesser of (a) Ten Million Dollars
($10,000,000) and (b) the Aggregate Commitment.
"L/C Facility" means the letter of credit facility established pursuant
to Article III hereof.
"L/C Obligations" means at any time, an amount equal to the sum of (a)
the aggregate undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
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"L/C Participants" means the collective reference to all the Lenders
other than the Issuing Lender.
"Lender" means each Person executing this Agreement as a Lender set
forth on the signature pages hereto and each Person that hereafter becomes a
party to this Agreement as a Lender pursuant to Section 14.10.
"Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Extensions of Credit.
"Letters of Credit" shall have the meaning assigned thereto in Section
3.1.
"Leverage Ratio" shall have the meaning assigned thereto in Section
9.1.
"LIBOR" means the rate of interest per annum determined on the basis of
the rate for deposits in the currency in which the corresponding loan is to be
denominated in an amount substantially equal to the corresponding loan for a
period equal to the applicable Interest Period appearing on the relevant
Telerate Page (rounded upward, if necessary, to the nearest one-sixteenth of one
percent (1/16%)) as of 11:00 a.m. (London time) two Business Days prior to the
first day of the applicable Interest Period. In the event that such rate does
not appear on such a Telerate Page, "LIBOR" shall be determined by the
Administrative Agent to be the arithmetic average (rounded upward, if necessary,
to the nearest one-sixteenth of one percent (1/16%)) of the rate per annum at
which deposits in the Permitted Currency in which the Loan bearing interest
based upon such rate is denominated would be offered by first class banks in the
London interbank market to the Administrative Agent (or the Administrative
Agent's Correspondent) at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of the applicable Interest Period for a period equal
to such Interest Period and in an amount substantially equal to the amount of
the applicable Loan.
"LIBOR Rate" means the rate per annum equal to (a) LIBOR divided
by (b) one (1) less the Reserve Percentage.
"LIBOR Rate Loan" means any Loan bearing interest at a rate determined
with reference to the LIBOR Rate as provided in Section 4.1(a) hereof.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, hypothecation or encumbrance of any kind in respect
of such asset. For the purposes of this Agreement, a Person shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to such asset.
"Loan" means any Revolving Credit Loan or any Swingline Loan made to
any Borrower pursuant to Section 2.1 or 2.2, respectively, and all such Loans
collectively as the context requires.
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"Loan Documents" means, collectively, this Agreement, the Notes, the
Applications, the Letters of Credit, any Joinder Agreement, the Security
Documents and any supplements thereto executed in connection with any Joinder
Agreement, any Hedging Agreement executed by any Lender, the Intercompany
Subordination Agreement and each other document, instrument and agreement
executed and delivered by any Borrower, a Subsidiary thereof or their counsel in
connection with this Agreement or otherwise referred to herein or contemplated
hereby, all as may be amended, restated or otherwise modified from time to time.
"Managing Agents" means First Union and Fleet in their capacity as
managing agents hereunder, and any successor thereto in each case appointed
pursuant to Section 13.9; each, a "Managing Agent."
"Material Adverse Effect" means, with respect to the Domestic
Borrowers, Canadian Borrowers, German Borrowers or U.K. Borrowers, a material
adverse effect on the properties, business, prospects, operations or condition
(financial or otherwise) of any such group of Borrowers or the ability of any
such group of Borrowers to perform its obligations under the Loan Documents to
which it is a party.
"Material Contract" means (a) any contract or other agreement, written
or oral, of any Borrower or any of its Subsidiaries involving monetary liability
of or to any such Person in an amount in excess of $5,000,000 per annum, or (b)
any other contract or agreement, written or oral, of any Borrower or any of its
Subsidiaries the failure to comply with which could reasonably be expected to
have a Material Adverse Effect.
"Material Subsidiary" means any direct or indirect Subsidiary of ACC
which Subsidiary has total assets equal to or in excess of $5,000,000.
"Mortgage" means a Leasehold Mortgage delivered pursuant to the
Original Credit Agreement (as modified by the Modification to Leasehold Mortgage
delivered pursuant to the First Amended and Restated Credit Agreement and the
modification to Leasehold Mortgage substantially in the form of Exhibit J) or
any other real property security agreement delivered by a Borrower pursuant to
which a Borrower grants a Lien on its interest in a parcel of real property to
the Administrative Agent for the benefit of itself and the Lenders.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which ACC or any ERISA Affiliate is making, or is
accruing an obligation to make, contributions within the preceding six years.
"Net Cash Proceeds" means, as applicable, (a) with respect to any sale
of assets, the gross cash proceeds received by ACC or any of its Subsidiaries
from such sale less the sum of (i) all legal, title, recording, transfer and
income tax expenses, commissions and similar fees and expenses incurred, and all
other federal, state, provincial, local and foreign taxes assessed in connection
therewith and (ii) the aggregate outstanding principal amount of, premium, if
any, and interest on any Debt secured by a Lien on the asset (or a portion
thereof) sold, which Debt is required to be repaid in connection with such sale
of assets, (b) with respect to any offering of debt
<PAGE>
or equity securities, the gross cash proceeds received by ACC or any of its
Subsidiaries therefrom less all legal, underwriting and similar fees and
expenses incurred in connection therewith and (c) with respect to any payment
under an insurance policy, the amount of cash proceeds received by ACC or its
applicable Subsidiary from the related insurance company.
"Net Income" means, with respect to ACC and its Subsidiaries for any
period, the Consolidated net income (or loss) of ACC and its Subsidiaries for
such period determined in accordance with GAAP; provided, that there shall be
excluded from net income (or loss) (a) if the ability of ACC to receive, recover
or repatriate cash or receive economic benefits (other than any increase in
value of ACC's stock or ownership interest in a Subsidiary thereof) from any of
its Subsidiaries is materially limited or restricted for a material period of
time at any date of determination by operation of the terms of the charter of
such Subsidiary or any agreement, instrument, or Applicable Law, the portion of
the income of each such Subsidiary so restricted and (b) the effect of any
currency translation adjustments.
"Network Agreement" means any document or agreement entered into by ACC
or any of its Subsidiaries regarding the use, operation or maintenance of, or
otherwise concerning, any of the Network Facilities.
"Network Facilities" means the network of digital and analog facilities
owned or leased by ACC or any of its Subsidiaries.
"Net Worth" means, at any date of determination thereof, the sum of the
capital stock (excluding treasury stock, cumulative translation adjustments and
capital stock subscribed and unissued) and retained earnings (including earned
surplus, capital surplus and the balance of the current profit and loss account
not transferrable to retained earnings) accounts of ACC and its Subsidiaries
appearing on a Consolidated balance sheet of ACC and its Subsidiaries prepared
in accordance with GAAP.
"Notes" means (a) the separate Second Amended and Restated Revolving
Credit Notes made by the applicable Borrower or Borrowers payable to the order
of each Lender, substantially in the form of Exhibit A-1 hereto with respect to
the Domestic Borrowers, Exhibit A-2 hereto with respect to the U.K. Borrowers,
Exhibit A-3 hereto with respect to the Canadian Borrowers, Exhibit A-4 hereto
with respect to the German Borrowers; (b) the separate Swingline Note and (c)
any amendments and modifications thereto, any substitutes therefor, and any
replacements, restatements, renewals or extension thereof, in whole or in part;
"Note" means any of such Notes.
"Notice of Account Designation" shall have the meaning assigned thereto
in Section 2.3(b).
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 2.3(a).
"Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 4.2.
<PAGE>
"Notice of Prepayment" shall have the meaning assigned thereto in
Section 2.4(d).
"Obligations" means, in each case, whether now in existence or
hereafter arising: (a) the aggregate outstanding principal amount of and
interest on (including interest accruing after the filing of any bankruptcy or
similar petition) the Loans, (b) all payment and other net obligations owing by
a Borrower to any Lender or Agent under any Hedging Agreement permitted pursuant
to Section 10.13, (c) the L/C Obligations, (d) the obligations of the Guarantor
pursuant to Article XI and (e) all other fees and commissions (including
attorney's fees), charges, indebtedness, loans, liabilities, financial
accommodations, obligations, covenants and duties owing by a Borrower or the
Guarantor to the Lenders or to any Agent, of every kind, nature and description,
direct or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, and whether or not evidenced by any note,
and whether or not for the payment of money under or in respect of this
Agreement, any Note, any Letter of Credit or any of the other Loan Documents.
"Officer's Compliance Certificate" shall have the meaning assigned
thereto in Section 7.2.
"OFTEL" means the United Kingdom Office of Telecommunications or any
successor Governmental Authority.
"Operating Cash Flow" means, with respect to ACC and its Subsidiaries
for any period, the following, each calculated on a Consolidated basis for such
period without duplication in accordance with GAAP: (a) Net Income, plus (b) to
the extent deducted in determining Net Income (i) income and franchise taxes,
(ii) Interest Expense, (iii) amortization and depreciation and other similar
non-cash charges and (iv) charges associated with ACC's merger agreements with
U.S. Wats and Teleport Communications Group, Inc., respectively, which are
reflected as "nonrecurring charges" less (c) the sum of (i) interest income,
(ii) non-cash income, (iii) capitalized internally generated software costs and
expenses (provided that capitalized software costs relating to billing systems
shall be amortized over a period not to exceed 7 years) and (iv) any items of
gain (or plus any non-cash items of loss) which were included in determining Net
Income and were not realized in the ordinary course of business. For purposes of
calculating compliance with Article IX, Operating Cash Flow shall be adjusted in
a manner reasonably satisfactory to the Managing Agents to include as of the
first day of any calculation period any acquisition consummated during such
period in accordance with this Agreement and exclude as of the first day of any
calculation period any Subsidiary or assets sold in accordance with this
Agreement during such period.
"Original Credit Agreement" means the Credit Agreement dated as of July
21, 1995, by and among ACC, and certain Subsidiaries thereof designated therein,
as Borrowers, ACC, as Guarantor, the lenders referred to therein, First Union as
Managing Agent and Administrative Agent, and Fleet National Bank (as successor
to Shawmut Bank Connecticut, N.A.), as Managing Agent, as amended by a First
Amendment dated as of October 31, 1995 and a Second Amendment dated as of March
29, 1996, and as modified by certain waiver letters.
"Other Taxes" shall have the meaning assigned thereto in Section
4.12(b).
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of ACC or any
ERISA Affiliates or (b) has at any time within the preceding six years been
maintained for the employees of ACC or any of their current or former ERISA
Affiliates.
"Permitted Currency" means Dollars or an Alternative Currency, or each
such currency, as the context requires.
"Person" means an individual, corporation, partnership, association,
trust, business trust, limited liability company, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.
"Pledge Agreements" means the collective reference to the ACC Pledge
Agreement and ACC National Pledge Agreement.
"Prime Rate" means, at any time, the rate of interest per annum
publicly announced from time to time by the Administrative Agent as its prime
rate. Each change in the Prime Rate shall be effective as of the opening of
business on the day such change in the Prime Rate occurs. The parties hereto
acknowledge that the rate announced publicly by the Administrative Agent as its
Prime Rate is an index or base rate and shall not necessarily be its lowest or
best rate charged to its customers or other banks.
"Pro Forma Debt Service" means, with respect to ACC and its
Subsidiaries at any date of determination, the sum of the following calculated
without duplication on a Consolidated pro forma basis for the period of four (4)
consecutive fiscal quarters immediately succeeding such date of determination in
accordance with GAAP: (a) all payments of principal or similar amounts required
to be paid with respect to Total Debt during such period based upon the
aggregate amount of outstanding Debt on such date of determination and (b)
Interest Expense required to be paid during such period based upon rates of
interest in effect on such date of determination.
"Projections" shall have the meaning assigned thereto in Section
7.1(c).
"PUC" means any state, provincial or other local regulatory agency or
body that exercises jurisdiction over the rates or services or the ownership,
construction or operation of any Network Facility or long distance
telecommunications systems or over Persons who own, construct or operate a
Network Facility or long distance telecommunications systems, in each case by
reason of the nature or type of the business subject to regulation and not
pursuant to laws and regulations of general applicability to Persons conducting
business in any such jurisdiction.
"PUC Authorizations" means all applications, filings, reports,
documents, recordings and registrations with, and all validations, exemptions,
franchises, waivers, approvals, orders or authorizations, consents, licenses,
certificates and permits from any PUC.
<PAGE>
"Register" shall have the meaning assigned thereto in Section 14.10(d).
"Reimbursement Obligation" means the obligation of the Borrowers to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Required Lenders" means, at any date, the holders of at least
fifty-one percent (51%) of the Revolving Credit Loans and L/C Obligations, or if
no Revolving Credit Loans or L/C Obligations are outstanding, any combination of
Lenders whose Commitment Percentages aggregate at least fifty-one percent (51%).
"Reserve Percentage" means the maximum daily arithmetic reserve
requirement imposed by the Board of Governors of the Federal Reserve System (or
any successor) under Regulation D on Eurocurrency liabilities (as defined in
Regulation D) for the applicable Interest Period as of the first day of such
Interest Period, but subject to any changes in such reserve requirement becoming
effective during the Interest Period. For purposes of calculating the Reserve
Percentage, the reserve requirement shall be as set forth in Regulation D
without benefit of credit for prorations, exemptions or offsets under Regulation
D, and further without regard to whether or not any Lender elects to actually
fund any Loan or portion thereof with Eurocurrency liabilities. Each calculation
by the Administrative Agent of the LIBOR Rate shall be conclusive and binding
for all purposes, absent manifest error.
"Revolving Credit Loans" means the collective reference to revolving
credit loans established pursuant to Section 2.1.
"Revolving Credit Termination Date" means the earliest of the dates
referred to in Section 2.7.
"Security Agreement" means the Second Amended and Restated Security
Agreement of even date substantially in the form of Exhibit I executed by the
Domestic Borrowers in favor of the Administrative Agent for the benefit of
itself and the Lenders, as amended, restated or otherwise modified.
"Security Documents" means the collective reference to the Security
Agreement, the Trademark Assignment, the Pledge Agreements, the Mortgages, the
Landlord Consents, the Canadian Security Documents, the U.K. Security Documents,
the German Security Documents and each other agreement or writing pursuant to
which ACC or any Subsidiary thereof pledges or grants a security interest in the
Collateral or such Person guaranties the payment and/or performance of the
Obligations or any portion thereof.
"Solvent" means, as to ACC and its Subsidiaries taken on a Consolidated
basis on a particular date, that such Persons (a) have capital sufficient to
carry on their business and transactions and all business and transactions in
which they are about to engage and are able to pay their debts as they mature,
(b) own property having a value at fair valuation greater than the amount
required to pay their probable liabilities (including contingencies), and (c) do
not believe
<PAGE>
that they will incur debts or liabilities beyond their ability to pay such debts
or liabilities as they mature.
"Sterling" means, at any time of determination, the then official
currency of the United Kingdom, subject to Section 4.7 hereof.
"Sterling Base Rate" shall mean, at any time, that rate per annum
announced by Midland Bank plc to be its Sterling base rate (which may not
necessarily be its lowest or best rate), as adjusted to conform to changes as of
the opening of business on the date of any such change in such rate, plus the
sum of (a) the Applicable Margin with respect to Base Rate Loans in effect at
such time and (b) two percent (2%). Each Loan or portion thereof bearing
interest based on the Sterling Base Rate shall be a "Sterling Base Rate Loan."
"Sublimit" means the maximum aggregate principal Dollar Amount of
Extensions of Credit available at any time to the applicable Borrower or group
of Borrowers hereunder as set forth on Schedule 1.2. If a Sublimit on such
Schedule applies to more than one Borrower, such Sublimit shall be in the
aggregate amount available to all such Borrowers taken together, and not an
amount available to each such Borrower individually.
"Subordinated Debt" means any Debt designated as Subordinated Debt on
Schedule 6.1(t) hereof and any other Debt of ACC or any Subsidiary subordinated
in right and time of payment to the Obligations on terms reasonably satisfactory
to the Required Lenders.
"Subsidiary" means as to any Person, any corporation, partnership or
other entity of which more than fifty percent (50%) of the outstanding capital
stock or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity is at the time, directly or indirectly, owned by or
the management is otherwise controlled by such Person (irrespective of whether,
at the time, capital stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency). Unless otherwise qualified, references to "Subsidiary" or
"Subsidiaries" herein shall refer to those of ACC.
"Supermajority Lenders" means, at any date, the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the Revolving Credit Loans and L/C
Obligations, or if no Revolving Credit Loans or L/C Obligations are outstanding,
any combination of Lenders whose Commitment Percentages aggregate at least
sixty-six and two-thirds percent (66 2/3%).
"Swingline Commitment" means the lesser of (a) Three Million Dollars
($3,000,000) and (b) the Aggregate Commitment.
"Swingline Lender" means First Union in its capacity as swingline
lender hereunder.
"Swingline Loan" means any swingline loan made by the Swingline Lender
to a Borrower pursuant to Section 2.2, and all such Loans collectively as the
context requires.
<PAGE>
"Swingline Note" means the separate Second Amended and Restated
Swingline Note made by the Domestic Borrowers payable to the order of the
Swingline Lender, substantially in the form of Exhibit A-5 hereto and any
amendments and modifications thereto, any substitutes therefor, and any
replacements, restatements, renewals or extension thereof, in whole or in part.
"Swingline Termination Date" means the earlier to occur of (a) the
resignation of First Union as Administrative Agent in accordance with Section
13.9 and (b) the Revolving Credit Termination Date.
"Taxes" shall have the meaning assigned thereto in Section 4.12(a).
"Termination Event" means: (a) a "Reportable Event" described in
Section 4043 of ERISA (other than a Reportable Event as to which the provision
of 30 days notice has been waived by the PBGC under applicable regulations); or
(b) the withdrawal of ACC or any ERISA Affiliate from a Pension Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA; or (c) the termination of a Pension Plan, the filing of a
notice of intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a distress termination under Section 4041(c) of ERISA; or (d) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension Plan by the PBGC; or (e) any other event or condition
which would constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan;
or (f) the partial or complete withdrawal of ACC or any ERISA Affiliate from a
Multiemployer Plan; or (g) the imposition of a Lien pursuant to Section 412 of
the Code or Section 302 of ERISA; or (h) any event or condition which results in
the reorganization or insolvency of a Multiemployer Plan under Sections 4241 or
4245 of ERISA; or (i) any event or condition which results in the termination of
a Multiemployer Plan under Section 4041A of ERISA or the institution by PBGC of
proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.
"Total Debt" means, with respect to ACC and its Subsidiaries at any
date of determination and without duplication, all Debt of ACC and its
Subsidiaries on a Consolidated basis.
"Trademark Assignment" means the Second Amended and Restated Trademark
Assignment of even date executed by ACC in favor of the Administrative Agent for
the benefit of itself and the Lenders, as amended, restated or otherwise
modified.
"UCC" means the Uniform Commercial Code as in effect in the State of
North Carolina.
"U.K. Borrowers" means the collective reference to all Borrowers
organized under the laws of the United Kingdom or any political subdivision
thereof.
"U.K. Guaranty Agreement" means the U.K. Guaranty Agreement set forth
on Schedule 1.5.
"U.K. Security Documents" means the collective reference to the U.K.
Guaranty Agreement, the other documents set forth on Schedule 1.5, and any
other agreement or writing
<PAGE>
pursuant to which a U.K. Borrower or U.K. Subsidiary, pledges or grants a
security interest in the Collateral or any such Person guarantees or otherwise
secures the payment and/or performance of any obligation of a U.K. Borrower
under any Loan Document, in each case as amended, restated or otherwise
modified.
"U.K. Subsidiary" means a Subsidiary organized under the laws of the
United Kingdom or any political subdivision thereof.
"United States" means the United States of America.
"U.S. Wats Acquisition" means the acquisition by ACC or a Wholly-Owned
Subsidiary thereof of U.S. Wats, Inc. via a tax-free exchange of stock as
described in, and as approved by the lenders under the First Amended and
Restated Credit Agreement pursuant to, the letter dated October 27, 1997
executed by ACC and the lenders under the First Amended and Restated Credit
Agreement, and hereby approved by the Lenders hereunder.
"Uniform Customs" means the Uniform Customs and Practice for
Documentary Credits (1993 Revision),International Chamber of Commerce
Publication No. 500, as amended, restated or otherwise modified.
"Versatel Acquisition" means the acquisition by ACC or a Wholly-Owned
Subsidiary thereof of a majority of the capital stock of VersaTel Telecom B.V.,
a description of which has been provided to the Lenders prior to the Closing
Date.
"Wholly-Owned" means, with respect to a Subsidiary, a Subsidiary all of
the shares of capital stock or other ownership interests of which are, directly
or indirectly, owned or controlled by ACC and/or one or more of its Wholly-Owned
Subsidiaries.
SECTION 1.2. General. All terms of an accounting nature not
specifically defined herein shall have the meaning assigned thereto by GAAP.
Unless otherwise specified, a reference in this Agreement to a particular
section, subsection, Schedule or Exhibit is a reference to that section,
subsection, Schedule or Exhibit of this Agreement. Wherever from the context it
is appropriate, each term stated in either the singular or plural shall include
the singular and plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, the feminine and the neuter. Any
reference herein to "Charlotte time" shall refer to the applicable time of day
in Charlotte, North Carolina.
SECTION 1.3. Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Notes and the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement.
<PAGE>
(b) Miscellaneous. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
ARTICLE II
CREDIT FACILITY
SECTION 2.1. Revolving Credit Loans. Subject to the terms and
conditions of this Agreement, each Lender severally agrees to make Revolving
Credit Loans in a Permitted Currency to the applicable Borrower or Borrowers
from time to time from the Closing Date through the Revolving Credit Termination
Date as requested by such Borrower or Borrowers in accordance with the terms of
Sections 2.1 and 2.3; provided, that, based upon the Dollar Amount of all
Extensions of Credit, (a) the maximum amount of Revolving Credit Loans available
to each Borrower or Borrowers at any time hereunder shall not exceed the
Sublimit applicable to such Borrower or Borrowers, (b) the aggregate outstanding
principal amount of all outstanding Revolving Credit Loans (after giving effect
to any amount requested) shall not exceed the Aggregate Commitment less the sum
of the aggregate outstanding principal amount of all outstanding Swingline Loans
and the L/C Obligations and (c) the aggregate outstanding principal amount of
Revolving Credit Loans from any Lender to the Borrowers shall not at any time
exceed such Lender's Commitment. Each Revolving Credit Loan by a Lender shall be
in a principal amount equal to such Lender's Commitment Percentage of the
aggregate outstanding principal amount of Revolving Credit Loans requested on
such occasion. Revolving Credit Loans to be made in an Alternative Currency
shall be funded in an amount equal to the Alternative Currency Amount of such
Loan. Revolving Credit Loans to the Domestic Borrowers shall be denominated in
Dollars, Revolving Credit Loans to the U.K. Borrowers shall be denominated in
Sterling, Revolving Credit Loans to the Canadian Borrowers shall be denominated
in Canadian Dollars and Revolving Credit Loans to the German Borrowers shall be
denominated in Deutschemarks. Subject to the terms and conditions hereof, the
Borrowers may borrow, repay and reborrow Revolving Credit Loans hereunder until
the Revolving Credit Termination Date.
SECTION 2.2. Swingline Loans.
(a) Availability. Subject to the terms and conditions of this
Agreement, the Swingline Lender agrees to make Swingline Loans to the Domestic
Borrowers from time to time from the Closing Date through the Swingline
Termination Date; provided, that (i) all Swingline Loans shall be denominated in
Dollars and (ii) the aggregate outstanding principal amount of all Swingline
Loans (after giving effect to any amount requested), shall not exceed the lesser
of (A) the Aggregate Commitment less the sum of the Dollar Amount of the
aggregate outstanding principal amount of all Revolving Credit Loans and the L/C
Obligations and (B) the Swingline Commitment.
<PAGE>
(b) Refunding.
(i) Swingline Loans (except with respect to any Swingline Loan
extended after the occurrence and during the continuance of an Event of Default
of which the Administrative Agent has received notice which has not been waived
by the Required Lenders or the Lenders, as applicable) shall be refunded to the
Swingline Lender by the Lenders on demand by the Swingline Lender. Such
refundings shall be made by the Lenders in accordance with their respective
Commitment Percentages and shall thereafter be reflected as Revolving Credit
Loans of the Lenders on the books and records of the Administrative Agent. Each
Lender shall fund its respective Commitment Percentage of Revolving Credit Loans
as required to repay Swingline Loans outstanding to the Swingline Lender upon
demand by the Swingline Lender but in no event later than 2:00 p.m. (Charlotte
time) on the next succeeding Business Day after such demand is made. No Lender's
obligation to fund its respective Commitment Percentage of a Swingline Loan
shall be affected by any other Lender's failure to fund its Commitment
Percentage of a Swingline Loan, nor shall any Lender's Commitment Percentage be
increased as a result of any such failure of any other Lender to fund its
Commitment Percentage.
(ii) The Domestic Borrowers shall pay to the Swingline Lender
on demand the amount of such Swingline Loans to the extent that the Lenders fail
to repay in full the outstanding Swingline Loans requested or required to be
refunded. In addition, the Domestic Borrowers hereby authorize the
Administrative Agent to charge any account maintained by it with the Swingline
Lender (up to the amount available therein) in order to immediately pay the
Swingline Lender the amount of such Swingline Loans to the extent amounts
received from the Lenders are not sufficient to repay in full the outstanding
Swingline Loans requested or required to be refunded. If any portion of any such
amount paid to the Swingline Lender shall be recovered by or on behalf of the
Domestic Borrowers from the Swingline Lender in bankruptcy or otherwise, the
loss of the amount so recovered shall be ratably shared among all the Lenders in
accordance with their respective Commitment Percentages.
(iii) Each Lender acknowledges and agrees that its obligation
to refund Swingline Loans (except any Swingline Loan extended after the
occurrence and during the continuance of an Event of Default which has not been
waived by the Required Lenders or the Lenders, as applicable) in accordance with
the terms of this Section 2.2 is absolute and unconditional and shall not be
affected by any circumstance whatsoever; provided, that if prior to the
refunding of any outstanding Swingline Loans pursuant to this Section 2.2, one
of the events described in Section 12.1(j) or (k) shall have occurred, each
Lender will, on the date the applicable Revolving Credit Loan would have been
made, purchase an undivided participating interest in the Swingline Loan to be
refunded in an amount equal to its Commitment Percentage of the aggregate amount
of such Swingline Loan. Each Lender will immediately transfer to the Swingline
Lender, in immediately available funds, the amount of its participation and upon
receipt thereof the Swingline Lender will deliver to such Lender a certificate
evidencing such participation dated the date of receipt of such funds and for
such amount. Whenever, at any time after the Swingline Lender has received from
any Lender such Lender's participating interest in a Swingline Loan, the
Swingline Lender receives any payment on account thereof, the Swingline Lender
will distribute to such Lender its participating interest in such amount
<PAGE>
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such Lender's participating interest was outstanding and
funded).
SECTION 2.3. Procedure for Advances of Revolving Credit and Swingline
Loans.
(a) Requests for Borrowing. The applicable Borrower or Borrowers shall
give the Administrative Agent irrevocable prior written notice in the form
attached hereto as Exhibit B (a "Notice of Borrowing") (i) not later than 11:00
a.m. (Charlotte time) (A) on or prior to the same Business Day for each
Swingline Loan, (B) at least one Business Day before each Base Rate Loan
denominated in Dollars, (C) at least three (3) Business Days before each Base
Rate Loan denominated in an Alternative Currency and (D) at least three (3)
Business Days before each LIBOR Rate Loan denominated in Dollars and (ii) not
later than 9:00 a.m. (Charlotte time) at least three (3) Business Days before
each LIBOR Rate Loan to be denominated in an Alternative Currency of its
intention to borrow, specifying (A) the date of such borrowing, which shall be a
Business Day, (B) whether such Loan is to be a Revolving Credit Loan or a
Swingline Loan, (C) if such Loan is to be a Revolving Credit Loan, whether such
Loan shall be denominated in Dollars or an Alternative Currency, (D) the amount
of such borrowing, which shall be with respect to LIBOR Rate Loans denominated
in Dollars in an aggregate principal amount of $3,000,000 or a whole multiple of
$1,000,000 in excess thereof (and with respect to LIBOR Rate Loans denominated
in an Alternative Currency, the Dollar Amount in each case thereof), with
respect to Base Rate Loans in an aggregate principal amount of $1,500,000 or a
whole multiple of $500,000 in excess thereof, and with respect to Swingline
Loans in an aggregate principal amount of $100,000 or a whole multiple thereof,
(E) if denominated in Dollars, whether the Revolving Credit Loans are to be
LIBOR Rate Loans or Base Rate Loans and (F) in the case of a LIBOR Rate Loan,
the duration of the Interest Period applicable thereto. Notices received after
11:00 a.m. (Charlotte time) shall be deemed received on the next Business Day.
The Administrative Agent shall promptly notify (and in any event provide same
day notice to) the Lenders of each Notice of Borrowing with respect to a
Revolving Credit Loan.
(b) Disbursement of Revolving Credit Loans Denominated in Dollars and
Swingline Loans. Not later than 2:00 p.m. (Charlotte time) on the proposed
borrowing date for any Loan denominated in Dollars, (i) each Lender will make
available to the Administrative Agent, for the account of the applicable
Borrower or Borrowers, at the office of the Administrative Agent in Dollars in
funds immediately available to the Administrative Agent, such Lender's
Commitment Percentage of the requested borrowing to be made on such borrowing
date and (ii) the Swingline Lender will make available to the Administrative
Agent, for the account of the Borrower, at the office of the Administrative
Agent in funds immediately available to the Administrative Agent, the Swingline
Loans to be made to any Borrower or Borrowers on such borrowing date. The
Borrowers hereby irrevocably authorize the Administrative Agent to disburse the
proceeds of each borrowing requested pursuant to this Section 2.3(b) in
immediately available funds by crediting or wiring such proceeds to the deposit
account of the applicable Borrower or Borrowers identified in the most recent
Notice of Account Designation substantially in the form of Exhibit F hereto (a
"Notice of Account Designation") delivered by the Borrowers to the Agent or as
may be otherwise agreed upon by such Borrower or Borrowers and the
Administrative Agent from time to time. Subject to Section 4.6 hereof, the
Administrative Agent shall not be obligated to disburse the portion of the
proceeds of any Loan requested pursuant to this Section 2.3 to the extent that
any
<PAGE>
Lender has not made available to the Administrative Agent its Commitment
Percentage of such Loan. Revolving Credit Loans to be made for the purpose of
refunding Swingline Loans shall be made by the Lenders as provided in Section
2.2(b) hereof.
(c) Disbursement of Revolving Credit Loans Denominated in an
Alternative Currency. Not later than 11:00 a.m. (the time of the Administrative
Agent's Correspondent) on the proposed borrowing date for any Revolving Credit
Loan denominated in an Alternative Currency, each Lender will make available to
the Administrative Agent at the office of the Administrative Agent's
Correspondent in the requested Alternative Currency in funds immediately
available to the Administrative Agent, such Lender's Commitment Percentage of
the requested borrowing to be denominated in such Alternative Currency. The
Borrowers hereby irrevocably authorize the Administrative Agent to disburse the
proceeds of each borrowing requested pursuant to this Section 2.3(c) in
immediately available funds by crediting or wiring such proceeds to an account
of the applicable Borrower identified in the most recent Notice of Account
Designation delivered by the Borrowers to the Agent or as may be otherwise
agreed upon by such Borrower or Borrowers and the Administrative Agent from time
to time.
(d) Availability. The Administrative Agent shall not be obligated to
disburse the proceeds of any Revolving Credit Loan requested pursuant to this
Section 2.3 until each Lender shall have made available to the Administrative
Agent its Commitment Percentage of such Loan.
SECTION 2.4. Repayment of Extensions of Credit.
(a) Repayment. (i) The applicable Borrower or Borrowers shall repay the
aggregate outstanding principal amount of all Revolving Credit Loans on the
Revolving Credit Termination Date in the applicable Permitted Currency, if not
sooner repaid, and (ii) the Domestic Borrowers shall repay the aggregate
outstanding principal amount of all Swingline Loans in accordance with Section
2.2(b), together, in each such case, with all accrued but unpaid interest
thereon.
(b) Mandatory Repayment of Excess Extensions of Credit.
(i) Aggregate Commitments. If at any time (as determined by
the Administrative Agent under Section 2.4(b)(v)), and for any reason, the
aggregate outstanding principal Dollar Amount of all Revolving Credit Loans
exceeds the Aggregate Commitment less the sum of the Dollar Amount of the L/C
Obligations and the aggregate outstanding principal amount of the Swingline
Loans, the applicable Borrower or Borrowers shall (A) if (and to the extent)
necessary to eliminate such excess, immediately repay outstanding Revolving
Credit Loans that are Base Rate Loans, if any, by the Dollar Amount of such
excess (and/or reduce any pending request for a Base Rate Loan on such day by
the Dollar Amount of such excess), and (B) if (and to the extent) necessary to
eliminate such excess, immediately repay LIBOR Rate Loans (and/or reduce any
pending requests for a borrowing or continuation or conversion of such Loans
submitted in respect of such Loans on such day) by the Dollar Amount of such
excess.
(ii) Excess Swingline Loans. If at any time and for any reason
the aggregate outstanding principal amount of all Swingline Loans exceeds the
lesser of (A) the Aggregate
<PAGE>
Commitment less the sum of the aggregate outstanding principal Dollar Amount of
all Revolving Credit Loans and Dollar Amount of the L/C Obligations and (B) the
Swingline Commitment, such excess shall be immediately repaid upon notice from
the Administrative Agent by the Domestic Borrowers to the Administrative Agent
for the account of the Swingline Lender.
(iii) Excess L/C Obligations. If at any time and for any
reason the aggregate outstanding principal Dollar Amount of all L/C Obligations
exceeds the lesser of (A) the Aggregate Commitment less the aggregate
outstanding principal Dollar Amount of all Revolving Credit Loans and Swingline
Loans and (B) the L/C Commitment, the Dollar Amount of such excess shall be
immediately paid upon notice from the Administrative Agent by the applicable
Borrower or Borrowers by means of a payment of cash collateral into a cash
collateral account opened by such Borrower or Borrowers with the Administrative
Agent for the benefit of the Lenders in accordance with Section 12.2(b).
(iv) Sublimits. If at any time (as determined by the
Administrative Agent under Section 2.4(b)(v)), and for any reason, the
Extensions of Credit to any Borrower or Borrowers exceeds the Sublimit
applicable to such Borrower or Borrowers, such Borrower or Borrowers shall (A)
immediately repay Base Rate Loans outstanding to such Borrower or Borrowers
(and/or reduce on such day any pending request for a Base Rate Loan submitted by
such Borrower or Borrowers) by the amount of such excess, (B) immediately repay
LIBOR Rate Loans (and/or reduce any pending requests for a borrowing or
continuation or conversion submitted in respect of such Loans on such day), by
the Dollar Amount of any remaining excess, and (C) if necessary, cash
collateralize any L/C Obligations outstanding to such Borrower or Borrowers in
accordance with paragraph (iii) of this Section 2.4(b).
(v) Compliance and Payments. Each Borrower's compliance with
this Section 2.4(b) shall be tested from time to time by the Administrative
Agent at its sole discretion, but in any event on each day an interest payment
is due under Section 4.1(e). All payments pursuant to this Section 2.4(b) shall
be accompanied by any amount required to be repaid under Section 4.10.
(c) Other Mandatory Prepayments.
(i) Offering Proceeds. If on any such date of receipt the
Leverage Ratio is less than or equal to 3.00 to 1.00, the Net Cash Proceeds
received by any Borrower or Subsidiary from any offering of debt or equity
securities shall be used within three (3) Business Days of receipt thereof to
prepay all Extensions of Credit in the order of priority specified in Section
2.6(d) (and any such repayment shall not result in a reduction to the Aggregate
Commitment).
(ii) Commitment Reductions. The Borrowers shall prepay the
Extensions of Credit in accordance with Section 2.6(d) in connection with any
permanent reduction in the Aggregate Commitment.
(d) Optional Repayments. Any Borrower may at any time and from time to
time repay the Revolving Credit Loans made thereto, in whole or in part, upon at
least three (3) Business Days' irrevocable notice to the Administrative Agent
with respect to LIBOR Rate Loans and one
<PAGE>
(1) Business Day irrevocable notice with respect to Base Rate Loans (other than
Swingline Loans) in the form attached hereto as Exhibit C (a "Notice of
Prepayment"), specifying the date and amount of repayment and whether the
repayment is of LIBOR Rate Loans or Base Rate Loans or a combination thereof,
and, if of a combination thereof, the amount allocable to each. Upon receipt of
such notice with respect to any Revolving Credit Loan, the Administrative Agent
shall promptly notify each Lender. If any such notice is given, the amount
specified in such notice shall be due and payable on the date set forth in such
notice. Any applicable Borrower may at any time and from time to time repay the
Swingline Loans made thereto, in whole or in part, upon same Business Day
irrevocable notice to the Administrative Agent (subject to Section 2.2(b)(ii)).
Partial repayments shall be in an aggregate amount of $3,000,000 or a whole
multiple of $1,000,000 in excess thereof with respect to LIBOR Rate Loans (or
with respect to Loans denominated in an Alternative Currency, the Alternative
Currency Amount thereof), a whole multiple of $100,000 with respect to Swingline
Loans and $1,500,000 or a whole multiple of $500,000 in excess thereof with
respect to other Base Rate Loans. Each such repayment shall be accompanied by
any amount required to be paid pursuant to Section 4.10 hereof.
(e) Limitation on Repayment of LIBOR Rate Loans. No Borrower may repay
any LIBOR Rate Loan (including, without limitation, any LIBOR Rate Loan
denominated in an Alternative Currency) hereunder on any day other than on the
last day of the Interest Period applicable thereto unless such repayment is
accompanied by any amount required to be paid pursuant to Section 4.10.
SECTION 2.5. Notes.
(a) Revolving Credit Notes. Each Lender's Revolving Credit Loans and
the obligation of each Borrower to repay the Revolving Credit Loans made thereto
shall be evidenced by the Note executed by such Borrower payable to the order of
such Lender. Each Note shall be dated the date hereof and shall bear interest on
the unpaid principal amount thereof at the applicable interest rate specified in
Section 4.1.
(b) Swingline Note. The Swingline Loans and the obligation of each
Borrower to repay such Swingline Loans shall be evidenced by the Swingline Note
executed by the Domestic Borrowers payable to the order of the Swingline Lender.
The Swingline Note shall be dated the date hereof and shall bear interest on the
unpaid principal amount thereof at the applicable interest rate specified in
Section 4.1.
SECTION 2.6. Permanent Reductions of the Aggregate Commitment.
(a) Voluntary Reduction. The Borrowers shall have the right at any time
and from time to time, upon at least five (5) Business Days prior written notice
to the Administrative Agent, to permanently reduce, in whole at any time or in
part from time to time, without premium or penalty, the Aggregate Commitment in
an aggregate principal amount not less than $2,500,000 or any whole multiple of
$1,000,000 in excess thereof.
<PAGE>
(b) Quarterly Reduction. The Aggregate Commitment and the Sublimits,
respectively, shall be permanently reduced according to the following schedule:
Percentage
Date Reduction
Mar. 31, 2000 8.00%
June 30, 2000 8.00%
Sep. 30, 2000 8.00%
Dec. 31, 2000 8.00%
Mar. 31, 2001 8.00%
June 30, 2001 8.00%
Sep. 30, 2001 8.00%
Dec. 31, 2001 8.00%
Mar. 31, 2002 9.00%
June 30, 2002 9.00%
Sep. 30, 2002 9.00%
Dec. 19, 2002 9.00%
(c) Other Permanent Reductions. The Aggregate Commitment shall be
permanently reduced as follows by an amount equal to:
(i) Offering Proceeds. If after prepayment of all Extensions
of Credit with Net Cash Proceeds from any offering by any Borrower or Subsidiary
of debt or equity securities pursuant to Section 2.4(c)(i), the Leverage Ratio
exceeds 3.00 to 1.00, an amount equal to the portion of such proceeds required
to be applied to outstanding Obligations in order to reduce the Leverage Ratio
on such prepayment date to 3.00 to 1.00.
(ii) Sale of Assets. The Net Cash Proceeds received by any
Borrower or Subsidiary in connection with any asset sale described in Section
10.6(e), within three (3) Business Days of receipt thereof; provided, that if
any Authorized Officer of ACC delivers a certificate to the Administrative Agent
prior to such date that such Net Cash Proceeds are to be reinvested by the
Borrower or such Subsidiary in the business thereof within 180 days of such
asset sale and such Net Cash Proceeds are so reinvested, such Net Cash Proceeds
need not be used to permanently reduce the Aggregate Commitment.
(iii) Sale of Interest in Subsidiary. The Net Cash Proceeds
received by any Borrower in connection with the sale of an ownership interest in
any Material Subsidiary, within three (3) Business Days of receipt thereof.
(iv) Insurance Proceeds. Any insurance proceeds received by
any Borrower or Subsidiary in excess of $500,000 in the aggregate, within three
(3) Business Days of receipt thereof; provided, that if any Authorized Officer
of ACC delivers a certificate to the Administrative Agent prior to such date
that insurance proceeds are to be reinvested in
<PAGE>
replacement Capital Assets within 180 days of their receipt and such proceeds
are so reinvested, such proceeds need not be used to permanently reduce the
Aggregate Commitment.
(d) Additional Payments. Each permanent reduction permitted or required
pursuant to this Section 2.6 shall be accompanied by a payment of principal (and
with respect to L/C Obligations, furnishing of cash collateral in accordance
with Section 12.2(b)) sufficient to reduce the Extensions of Credit of the
Lenders after such reduction to the Sublimits and Aggregate Commitment as so
reduced. At any time after the Aggregate Commitment has been permanently reduced
pursuant to this Section 2.6 by an aggregate amount in excess of $8,000,000, the
amount of each additional partial permanent reduction under this Section 2.6
shall be applied (i) pro rata to reduce each Sublimit rounded to the nearest
$1,000,000 and (ii) to reduce the remaining mandatory reduction amounts required
under Section 2.6(b) on a pro rata basis. All prepayments required by this
Section 2.6(d) shall be applied first to the aggregate outstanding principal
amount of Swingline Loans, second to the aggregate outstanding principal amount
of Revolving Credit Loans, and third, with respect to any L/C Obligations, by
furnishing cash collateral in accordance with Section 12.2(b). Any permanent
reduction of the Aggregate Commitment to zero shall be accompanied by payment of
all outstanding Obligations and termination of the Commitments and Credit
Facility. If the reduction of the Aggregate Commitment requires the repayment of
any LIBOR Rate Loan, such reduction shall be accompanied by any amount required
to be paid pursuant to Section 4.10.
SECTION 2.7. Termination of Credit Facility. The Credit Facility
(subject to Section 2.2(a) with respect to Swingline Loans) shall terminate on
the earliest of (a) December 19, 2002, (b) the date of termination by the
Borrowers pursuant to Section 2.6(a) and (c) the date of termination by the
Administrative Agent on behalf of the Lenders pursuant to Section 12.2(a).
SECTION 2.8. Use of Proceeds. The Borrowers shall use the proceeds of
the Extensions of Credit (a) to finance investments, acquisitions and Capital
Expenditures permitted by the terms hereof and (b) for working capital and
general corporate requirements of the Borrowers, and including payment of fees
and expenses incurred in connection with the transactions contemplated hereby.
SECTION 2.9. Nature of Obligations; Security. The obligations of the
Domestic Borrowers under the Note or Notes executed thereby and the other
Obligations of such Borrowers (other than the obligations of ACC as Guarantor)
shall be joint and several among such Borrowers. The obligations of the U.K.
Borrowers under the Note or Notes executed thereby and the other Obligations of
such Borrowers hereunder shall be joint and several among such Borrowers, but in
relation to the Domestic Borrowers, the German Borrowers and the Canadian
Borrowers, shall be several and not joint and several; provided, that
notwithstanding the foregoing, the Obligations of United Telecom Ltd. shall not
extend to the Obligations of the other U.K. Borrowers to the extent that such
joint and several liability would cause United Telecom Ltd. to contravene
Section 151 of the Companies Act of 1985. The Obligations of the Canadian
Borrowers in relation to the Domestic Borrowers, the German Borrowers and the
U.K. Borrowers shall be several and not joint and several. The Obligations of
the Canadian Borrowers among themselves shall be joint and several to the
fullest extent permitted by Canadian Law, as set forth in the applicable Joinder
<PAGE>
Agreement or Joinder Agreements joining such Canadian Subsidiary or Subsidiaries
to this Agreement as Canadian Borrowers. The Obligations of the German Borrowers
in relation to the Domestic Borrowers, the U.K. Borrowers and the Canadian
Borrowers, shall be several and not joint and several. The Obligations of the
German Borrowers among themselves shall be joint and several to the fullest
extent permitted by German Law, as set forth in the applicable Joinder Agreement
or Joinder Agreements joining such German Subsidiary or Subsidiaries to this
Agreement as German Borrowers. The Obligations of each Borrower shall be secured
in accordance with the terms of the applicable Security Documents.
ARTICLE III
LETTER OF CREDIT FACILITY
SECTION 3.1. L/C Commitment. Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Lenders
set forth in Section 3.4(a), agrees to issue letters of credit ("Letters of
Credit") denominated in Dollars for the account of the Domestic Borrowers,
denominated in Canadian Dollars for the account of the Canadian Borrowers,
denominated in Sterling for the account of the U.K. Borrowers, and denominated
in Deutschemarks for the account of the German Borrowers, in each case on any
Business Day from the Closing Date through but not including the Revolving
Credit Termination Date in such form as may be approved from time to time by the
Issuing Lender; provided, that the Issuing Lender shall have no obligation to
issue any Letter of Credit if, after giving effect to such issuance, (a) the
Dollar Amount of the L/C Obligations would exceed the L/C Commitment, (b) the
Available Commitment of any Lender would be less than zero or (c) the aggregate
principal Dollar Amount of Extensions of Credit to the applicable Borrower or
Borrowers would exceed the Sublimit thereof. Each Letter of Credit shall (i) be
denominated in a Permitted Currency in a minimum of $100,000 (other than the
Existing Letters of Credit) or the applicable Alternative Currency Amount
thereof, (ii) be a standby letter of credit issued to support obligations of the
applicable Borrower or Borrowers, contingent or otherwise, incurred in the
ordinary course of business, (iii) expire on a date satisfactory to the Issuing
Lender, which date shall be no later than one year after the date of issuance or
the Revolving Credit Termination Date, whichever is earlier, and (iv) be subject
to the Uniform Customs and, to the extent not inconsistent therewith, the laws
of the State of North Carolina. The Issuing Lender shall not at any time be
obligated to issue any Letter of Credit hereunder if such issuance would
conflict with, or cause the Issuing Lender or any L/C Participant to exceed any
limits imposed by, any Applicable Law. References herein to "issue" and
derivations thereof with respect to Letters of Credit shall also include
extensions or modifications of any existing Letters of Credit, unless the
context otherwise requires. Each Existing Letter of Credit shall be deemed to
continue as a Letter of Credit hereunder.
SECTION 3.2. Procedure for Issuance of Letters of Credit. Any Borrower
or Borrowers may from time to time request that the Issuing Lender issue a
Letter of Credit by delivering to the Issuing Lender at the Administrative
Agent's Office an Application therefor, completed to the satisfaction of the
Issuing Lender, and such other certificates, documents and other papers and
information as the Issuing Lender may request. Upon receipt of any Application,
<PAGE>
the Issuing Lender shall process such Application and the certificates,
documents and other papers and information delivered to it in connection
therewith in accordance with its customary procedures and shall, subject to
Section 3.1 and Article V hereof, promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing
Lender and the applicable Borrower or Borrowers. The Issuing Lender shall
furnish to the applicable Borrower or Borrowers a copy of such Letter of Credit
and furnish to each Lender a copy of such Letter of Credit and the amount of
each Lender's participation therein pursuant to Section 3.4(a), all promptly
following the issuance of such Letter of Credit.
SECTION 3.3. Fees and Other Charges.
(a) The applicable Borrower or Borrowers shall pay to the
Administrative Agent, for the account of the Issuing Lender and the L/C
Participants, a letter of credit fee with respect to each Letter of Credit in an
amount equal to the product of (i) the Applicable Margin with respect to LIBOR
Rate Loans (on a per annum basis) and (ii) an amount equal to the daily average
Dollar Amount available to be drawn under such Letter of Credit during the
period for which such fee is payable. Such fee shall be payable quarterly in
arrears on the last Business Day of each calendar quarter and on the Revolving
Credit Termination Date.
(b) The applicable Borrower or Borrowers shall pay to the
Administrative Agent, for the account of the Issuing Lender, a facing fee with
respect to each Letter of Credit in an amount equal to the product of (i) 0.125%
(on a per annum basis) and (ii) the face amount of such Letter of Credit. Such
fee shall be payable quarterly in arrears on the last Business Day of each
calendar quarter and on the Termination Date.
(c) The applicable Borrower or Borrowers shall pay or reimburse the
Issuing Lender for such normal and customary costs and expenses as are incurred
or charged by the Issuing Lender in issuing, effecting payment under, amending
or otherwise administering any Letter of Credit.
SECTION 3.4. L/C Participations.
(a) The Issuing Lender irrevocably agrees to grant and hereby grants to
each L/C Participant, and, to induce the Issuing Lender to issue Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from the Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Commitment Percentage in
the Issuing Lender's obligations and rights under each Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Lender thereunder.
Each L/C Participant unconditionally and irrevocably agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit for which the Issuing
Lender is not reimbursed in full by the Borrowers in accordance with the terms
of this Agreement, such L/C Participant shall pay to the Issuing Lender upon
demand, with respect
<PAGE>
to Letters of Credit denominated in Dollars, and within three (3) Business Days
after demand, with respect to Letters of Credit denominated in Canadian Dollars,
Sterling or Deutschemarks, at the Issuing Lender's address for notices specified
herein an amount equal to such L/C Participant's Commitment Percentage of the
amount of such draft, or any part thereof, which is not so reimbursed and such
payments shall thereafter be reflected as Extensions of Credit of the Lenders on
the books and records of the Administrative Agent.
(b) Upon becoming aware of any amount required to be paid by any L/C
Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any Letter
of Credit, the Issuing Lender shall notify each L/C Participant of the Dollar
Amount thereof and due date of such required payment and such L/C Participant
shall pay to the Issuing Lender the Dollar Amount specified on the applicable
due date. If any such amount is paid to the Issuing Lender after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand,
in addition to such amount, the product of (i) such amount, times (ii) the daily
average Federal Funds Rate as determined by the Administrative Agent during the
period from and including the date such payment is due to the date on which such
payment is immediately available to the Issuing Lender, times (iii) a fraction
the numerator of which is the number of days that elapse during such period and
the denominator of which is 360. A certificate of the Issuing Lender with
respect to any amounts owing under this Section shall be conclusive in the
absence of manifest error. With respect to payment to the Issuing Lender of the
unreimbursed amounts described in this Section 3.4(b), if the L/C Participants
receive notice that any such payment is due (A) prior to 1:00 p.m. (Charlotte
time) on any Business Day, such payment shall be due that Business Day, and (B)
after 1:00 p.m. (Charlotte time) on any Business Day, such payment shall be due
on the following Business Day.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its
Commitment Percentage of such payment in accordance with this Section 3.4, the
Issuing Lender receives any payment related to such Letter of Credit (whether
directly from the Borrowers or otherwise), or any payment of interest on account
thereof, the Issuing Lender will distribute to such L/C Participant its pro rata
share thereof; provided, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
SECTION 3.5. Reimbursement Obligation of the Borrower. The applicable
Borrower or Borrowers agree to reimburse the Issuing Lender on each date on
which the Issuing Lender notifies such Borrower or Borrowers of the date and
amount of a draft paid under any Letter of Credit for the amount of (a) such
draft so paid and (b) any taxes, fees, charges or other costs or expenses
incurred by the Issuing Lender in connection with such payment. Each such
payment shall be made to the Issuing Lender at its address for notices specified
herein in the applicable Permitted Currency and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the
Borrowers under this Article III from the date such amounts become payable
(whether at stated maturity, by acceleration or otherwise) until payment in full
at the rate which would be payable on any outstanding Base Rate Loans which were
then overdue. If the Borrowers fail to timely reimburse the Issuing Lender on
the date the Borrowers receive the
<PAGE>
notice referred to in this Section 3.5, the Borrowers shall be deemed to have
timely given a Notice of Borrowing hereunder to the Administrative Agent
requesting the Lenders to make a Base Rate Loan on such date in an amount equal
to the amount of such drawing and, subject to the satisfaction or waiver of the
conditions precedent specified in Article V, the Lenders shall make Base Rate
Loans in such amount, the proceeds of which shall be applied to reimburse the
Issuing Lender for the amount of the related drawing and costs and expenses.
SECTION 3.6. Obligations Absolute. The Borrowers' obligations under
this Article III (including without limitation the Reimbursement Obligation)
shall be absolute and unconditional under any and all circumstances and
irrespective of any set-off, counterclaim or defense to payment which the
Borrowers may have or have had against the Issuing Lender, any L/C Participant,
any Agent or any beneficiary of a Letter of Credit. The Borrowers also agree
with the Issuing Lender and each L/C Participant that neither the Issuing Lender
nor any L/C Participant shall be responsible for, and the Borrowers'
Reimbursement Obligation under Section 3.5 shall not be affected by, among other
things, the validity or genuineness of documents or of any endorsements thereon,
even though such documents shall in fact prove to be invalid, fraudulent or
forged, or any dispute between or among the Borrowers and any beneficiary of any
Letter of Credit or any other party to which such Letter of Credit may be
transferred or any claims whatsoever of the Borrowers against any beneficiary of
such Letter of Credit or any such transferee. The Issuing Lender shall not be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit, except for errors or omissions caused by the Issuing
Lender's gross negligence or willful misconduct. The Borrowers agree that any
action taken or omitted by the Issuing Lender or any L/C Participant under or in
connection with any Letter of Credit or the related drafts or documents, if done
in the absence of gross negligence or willful misconduct and in accordance with
the standards of care specified in the Uniform Customs and, to the extent not
inconsistent therewith, the UCC, shall be binding on the Borrowers and shall not
result in any liability of the Issuing Lender or any L/C Participant to the
Borrowers. The responsibility of the Issuing Lender to the Borrowers in
connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.
SECTION 3.7. Effect of Application. To the extent that any provision of
any Application related to any Letter of Credit is inconsistent with the
provisions of this Article III, the provisions of this Article III shall apply.
<PAGE>
ARTICLE IV
GENERAL LOAN PROVISIONS
SECTION 4.1. Interest.
(a) Interest Rate Options. Subject to the provisions of this Section
4.1, at the election of the applicable Borrower or Borrowers, Revolving Credit
Loans denominated in Dollars shall bear interest at a rate equal to the Base
Rate or the LIBOR Rate plus, in each case, the Applicable Margin as set forth
below and Revolving Credit Loans denominated in an Alternative Currency shall
bear interest at a rate equal to the LIBOR Rate plus the Applicable Margin as
set forth below; provided that, in accordance with Section 4.9, Loans
denominated in Canadian Dollars shall bear interest at the Canadian Base Rate,
Loans denominated in Sterling shall bear interest at the Sterling Base Rate and
Loans denominated in Deutschemarks shall bear interest at the German Base Rate.
However, the LIBOR Rate with respect to Loans denominated in Dollars shall not
be available until three (3) Business Days after the Closing Date. Any Swingline
Loan shall bear interest at the Base Rate plus the Applicable Margin as set
forth below. The applicable Borrower or Borrowers shall select the rate of
interest and Interest Period, if any, applicable to any Revolving Credit Loan at
the time a Notice of Borrowing is given pursuant to Section 2.3 or at the time a
Notice of Conversion/Continuation is given pursuant to Section 4.2. Each Loan or
portion thereof bearing interest based on the Base Rate shall be a "Base Rate
Loan", and each Loan or portion thereof bearing interest based on the LIBOR Rate
shall be a "LIBOR Rate Loan". Any Loan or any portion thereof to be denominated
in Dollars as to which the applicable Borrower or Borrowers have not duly
specified an interest rate as provided herein shall be deemed a Base Rate Loan.
(b) Interest Periods. In connection with each LIBOR Rate Loan, the
applicable Borrower or Borrowers, by giving notice at the times described in
Section 4.1(a), shall elect an interest period (each, an "Interest Period") to
be applicable to such Loan, which Interest Period shall be a period of one, two,
three, or six months; provided that:
(i) the Interest Period shall commence on the date of advance
of or conversion to any LIBOR Rate Loan and, in the case of immediately
successive Interest Periods, each successive Interest Period shall commence on
the date on which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, that if any Interest Period would otherwise
expire on a day that is not a Business Day but is a day of the month after which
no further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day;
(iii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at
<PAGE>
the end of such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period;
(iv) no Interest Period shall extend beyond the Revolving
Credit Termination Date and no Interest Period shall be selected by any Borrower
which, in connection with mandatory reductions of the Aggregate Commitment
pursuant to Section 2.6, would cause the early termination of such Interest
Period; and
(v) with respect to Revolving Credit Loans denominated in
Dollars, there shall be no more than seven (7) Interest Periods outstanding at
any time and with respect to Revolving Credit Loans denominated in an
Alternative Currency, there shall be no more than three (3) Interest Periods for
each such Alternative Currency.
(c) Applicable Margin. The Applicable Margin provided for in Section
4.1(a) with respect to the Loans (the "Applicable Margin") shall (i) on the
Closing Date equal the percentages set forth in the certificate delivered
pursuant to Section 5.2(e)(ii) and (ii) for each fiscal quarter thereafter be
determined by reference to the Leverage Ratio as of the end of the fiscal
quarter immediately preceding the delivery of the applicable Officer's
Compliance Certificate as follows:
Applicable Margin
Leverage Ratio Base Rate + LIBOR Rate +
Greater than 3.0 0.25% 1.75%
to 1.0.
Greater than 2.5 to 1.0 -0- 1.50%
but less than or equal to
3.0 to 1.0.
Greater than 2.0 to 1.0 but -0- 1.25%
less than or equal to 2.5 to 1.0
Less than or equal to -0- 1.00%
2.0 to 1.0
Adjustments, if any, in the Applicable Margin shall be made by the
Administrative Agent on the tenth (10th) Business Day after receipt by the
Administrative Agent of quarterly financial statements for ACC and its
Subsidiaries and the accompanying Officer's Compliance Certificate setting forth
the Leverage Ratio of ACC and its Subsidiaries as of the most recent fiscal
quarter end. Subject to Section 4.1(d), in the event the Borrowers fail to
deliver such financial statements and certificate within the time required by
Section 7.2(c) hereof, the Applicable Margin shall be the highest Applicable
Margin set forth above until ten (10) Business Days after receipt of such
financial statements and certificate by the Administrative Agent.
<PAGE>
(d) Default Rate. Upon the occurrence and during the continuance of an
Event of Default, (i) the Borrowers shall no longer have the option to request
LIBOR Rate Loans or Loans in an Alternative Currency and at the end of the
applicable Interest Period all outstanding Loans denominated in an Alternative
Currency shall be repaid in full and all Loans denominated in Dollars shall
convert to Base Rate Loans, (ii) at the option of the Managing Agents, all
outstanding LIBOR Rate Loans shall bear interest at a rate per annum two percent
(2%) in excess of the rate then applicable to LIBOR Rate Loans until the end of
the applicable Interest Period, and thereafter shall bear interest at a rate
equal to two percent (2%) in excess of the rate then applicable to Base Rate
Loans and (iii) at the option of the Managing Agents, all outstanding Base Rate
Loans shall bear interest at a rate per annum equal to two percent (2%) in
excess of the rate then applicable to Base Rate Loans. Interest shall continue
to accrue on the Notes after the filing by or against any Borrower of any
petition seeking any relief in bankruptcy or under any act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign.
(e) Interest Payment and Computation. Interest on each Base Rate Loan
shall be payable in arrears on the last Business Day of each calendar quarter
commencing December 31, 1997 and interest on each LIBOR Rate Loan shall be
payable on the last day of each Interest Period applicable thereto, and if such
Interest Period extends over three (3) months, at the end of each three month
interval during such Interest Period. All interest rates, fees and commissions
provided hereunder shall be computed on the basis of a 365/366-day year, except
that (i) interest with respect to each LIBOR Rate Loan denominated in Dollars,
Canadian Dollars or Deutschemarks shall be computed on the basis of a 360-day
year and assessed for the actual number of days elapsed, (ii) interest with
respect to each LIBOR Rate Loan denominated in Sterling shall be computed on the
basis of a 365-day year and assessed for the actual number of days elapsed and
(iii) interest with respect to Canadian Base Rate Loans shall be computed on the
basis of a 365-day year.
(f) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the Notes
charged or collected pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible under any Applicable Law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lenders
have charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate permitted by Applicable Law and the Lenders shall at the Administrative
Agent's option promptly refund to the applicable Borrower or Borrowers any
interest received by Lenders in excess of the maximum lawful rate or shall apply
such excess to the principal balance of the Obligations. It is the intent hereof
that the Borrowers not pay or contract to pay, and that no Agent or any Lender
receive or contract to receive, directly or indirectly in any manner whatsoever,
interest in excess of that which may be paid by the Borrowers under Applicable
Law.
SECTION 4.2. Notice and Manner of Conversion or Continuation of
Revolving Credit Loans. Provided that no Default or Event of Default has
occurred and is then continuing, the Borrowers shall have the option to (a)
convert at any time all or any portion of its outstanding Base Rate Loans that
are Revolving Credit Loans in a principal amount equal to $3,000,000 or any
<PAGE>
whole multiple of $1,000,000 in excess thereof into one or more LIBOR Rate Loans
denominated in Dollars, (b) upon the expiration of any Interest Period, convert
all or any part of its outstanding LIBOR Rate Loans denominated in Dollars in a
principal amount equal to $1,500,000 or a whole multiple of $500,000 in excess
thereof into Base Rate Loans that are Revolving Credit Loans or (c) upon the
expiration of any Interest Period, continue any LIBOR Rate Loan in a principal
amount of $3,000,000 or any whole multiple of $1,000,000 in excess thereof (or
with respect to LIBOR Rate Loans denominated in an Alternative Currency, the
Alternative Currency Amount in each case thereof) as a LIBOR Rate Loan
denominated in the same Permitted Currency. Whenever the Borrowers desire to
convert or continue Loans as provided above, the applicable Borrower or
Borrowers shall give the Administrative Agent irrevocable prior written notice
in the form attached as Exhibit D (a "Notice of Conversion/Continuation") not
later than 11:00 a.m. (Charlotte time) three (3) Business Days before the day on
which a proposed conversion or continuation of such Loan is to be effective
specifying (i) the Loans to be converted or continued, and, in the case of a
LIBOR Rate Loan to be converted or continued, the Permitted Currency in which
such Loan is denominated and the last day of the Interest Period therefor, (ii)
the effective date of such conversion or continuation (which shall be a Business
Day), (iii) the principal amount of such Loans to be converted or continued and
(iv) the Interest Period to be applicable to such converted or continued LIBOR
Rate Loan. The Administrative Agent shall promptly notify the Lenders of such
Notice of Conversion/Continuation. If the Canadian Borrowers, U.K. Borrowers or
German Borrowers fail to notify the Administrative Agent as provided in this
Section 4.2 of the continuation of any LIBOR Rate Loan denominated in the
corresponding Alternative Currency at the end of the Interest Period of such
LIBOR Rate Loan, such Loan upon the expiration of the applicable Interest Period
shall be continued as a LIBOR Rate Loan, denominated in the corresponding
Alternative Currency, with a one month Interest Period.
SECTION 4.3.Fees.
(a) Commitment Fee. The Borrowers shall pay to the Administrative
Agent, for the account of the Lenders, a non-refundable commitment fee on the
average daily amount of the Aggregate Commitment less the aggregate outstanding
principal Dollar Amount of all Revolving Credit Loans (and, with respect to
First Union, all Swingline Loans) and the aggregate outstanding Dollar Amount of
all L/C Obligations at a rate per annum determined by reference to the Leverage
Ratio as of the end of the fiscal quarter immediately preceding the delivery of
the applicable Officer's Compliance Certificate as follows:
Leverage Ratio Commitment Fee
Greater than 2.00 to 1.00 0.375%
Less than or equal to
2.00 to 1.0 0.250%
The commitment fee shall be payable in arrears on the last Business Day of each
calendar quarter during the term of this Agreement commencing December 31, 1997
and on the Revolving Credit
<PAGE>
Termination Date. Such commitment fee shall be distributed promptly by the
Administrative Agent to each Lender pro rata according to the aggregate
principal Dollar Amount of Extensions of Credit held by such Lender.
(b) Administrative Agent's Fees. In order to compensate the
Administrative Agent for its obligations hereunder, the Borrowers agree to pay
to the Administrative Agent for its own account the administrative fee set forth
in the fee letter executed by ACC dated November 5, 1997, which fee shall be
payable in advance on the Closing Date and on each anniversary of such date.
SECTION 4.4. Manner of Payment.
(a) Loans Denominated in Dollars. Each payment (including repayments
described in Article II) by any Borrower on account of the principal of or
interest on the Loans denominated in Dollars or of any fee, commission or other
amounts (including the Reimbursement Obligation) payable to the Lenders under
this Agreement or any Note (except as set forth in Section 4.4(b)) shall be made
in Dollars not later than 1:00 p.m. (Charlotte time) on the date specified for
payment under this Agreement to the Administrative Agent for the account of the
Lenders in accordance with Section 4.4(c) at the Administrative Agent's Office,
in immediately available funds, and shall be made without any set-off,
counterclaim or deduction whatsoever. Any payment received after such time but
before 2:00 p.m. (Charlotte time) on such day shall be deemed a payment on such
date for the purposes of Section 12.1, but for all other purposes shall be
deemed to have been made on the next succeeding Business Day. Any payment
received after 2:00 p.m. (Charlotte time) shall be deemed to have been made on
the next succeeding Business Day for all purposes.
(b) Loans Denominated in Alternative Currencies. Each payment
(including repayments described in Article II) by any Borrower on account of the
principal of or interest on the Loans denominated in any Alternative Currency
shall be made in such Alternative Currency not later than 11:00 a.m. (the time
of the Administrative Agent's Correspondent) on the date specified for payment
under this Agreement to the Administrative Agent's account with the
Administrative Agent's Correspondent for the account of the Lenders in
accordance with Section 4.4(c) in immediately available funds, and shall be made
without any set-off, counterclaim or deduction whatsoever. Any payment received
after such time but before 12:00 noon (the time of the Administrative Agent's
Correspondent) on such day shall be deemed a payment on such date for the
purposes of Section 12.1, but for all other purposes shall be deemed to have
been made on the next succeeding Business Day. Any payment received after 12:00
noon (the time of the Administrative Agent's Correspondent) shall be deemed to
have been made on the next succeeding Business Day for all purposes.
(c) Pro Rata Treatment. Upon receipt by the Administrative Agent of
each such payment, the Administrative Agent shall distribute to each Lender at
its address for notices set forth herein its pro rata share of such payment in
accordance with such Lender's Commitment Percentage and shall wire advice of the
amount of such credit to each Lender. Each payment to the Administrative Agent
of the Swingline Lender's or the Issuing Lender's or L/C Participants' fees or
commissions shall be made in like manner, but for the account of the Swingline
Lender, the Issuing Lender or the L/C Participants, as the case may be. Each
payment to any Agent of such
<PAGE>
Agent's fees or expenses shall be made for the account of such Agent and any
amount payable to any Lender under Section 2.4(b) and Sections 4.8 through 4.11
and 14.2 and 14.13 shall be paid to the Administrative Agent for the account of
the applicable Lender. Subject to Section 4.1(b)(ii), if any payment under this
Agreement or any Note shall be specified to be made upon a day which is not a
Business Day, it shall be made on the next succeeding day which is a Business
Day and such extension of time shall in such case be included in computing any
interest if payable along with such payment.
SECTION 4.5. Crediting of Payments and Proceeds. Unless otherwise
provided in the Security Agreement, in the event that any Borrower shall fail to
pay any of the Obligations when due and the Obligations have been accelerated
pursuant to Section 12.2, all payments received by the Lenders upon the Notes
and the other Obligations and all net proceeds from the enforcement of the
Obligations shall be applied first to all Administrative Agent's fees and
expenses then due and payable by the Borrowers hereunder, then to all other
expenses then due and payable by the Borrowers hereunder, then to all indemnity
obligations then due and payable by the Borrowers hereunder, then to all
commitment and other fees and commissions then due and payable, then to accrued
and unpaid interest on the Swingline Note to the Swingline Lender, then to the
principal amount outstanding under the Swingline Note to the Swingline Lender,
then to accrued and unpaid interest on the Revolving Credit Notes, the
Reimbursement Obligation and any termination payments due in respect of a
Hedging Agreement with any Lender permitted pursuant to Section 10.13 (pro rata
in accordance with all such amounts due), then to the aggregate outstanding
principal amount of the Revolving Credit Notes and Reimbursement Obligation and
then to the cash collateral account described in Section 12.2(b) hereof to the
extent of any L/C Obligations then outstanding, in that order.
SECTION 4.6. Nature of Obligations of Lenders Regarding Extensions of
Credit; Assumption by Administrative Agent. The obligations of the Lenders under
this Agreement to make the Loans and issue or participate in Letters of Credit
are several and are not joint or joint and several. Unless the Administrative
Agent shall have received notice from a Lender prior to a proposed borrowing
date that such Lender will not make available to the Administrative Agent such
Lender's ratable portion of the amount to be borrowed on such date (which notice
shall not release such Lender of its obligations hereunder), the Administrative
Agent may assume that such Lender has made such portion available to the
Administrative Agent on the proposed borrowing date in accordance with Section
3.2 and the Administrative Agent may, in reliance upon such assumption, make
available to the applicable Borrower or Borrowers on such date a corresponding
amount. If such amount is made available to the Administrative Agent on a date
after such borrowing date, such Lender shall pay to the Administrative Agent on
demand an amount, until paid, equal to (a) with respect to a Loan denominated in
Dollars the amount of such Lender's Commitment Percentage of such borrowing and
interest thereon at a rate equal to the daily average Federal Funds Rate during
such period as determined by the Administrative Agent and (b) with respect to a
Loan denominated in an Alternative Currency, such Lender's Commitment Percentage
of such borrowing at a rate per annum equal to the Administrative Agent's
aggregate marginal cost (including the cost of maintaining any required reserves
or deposit insurance and of any fees, penalties, overdraft charges or other
costs or expenses incurred by the Administrative Agent as a result of the
failure to deliver funds hereunder) of
<PAGE>
carrying such amount. A certificate of the Administrative Agent with respect to
any amounts owing under this Section shall be conclusive, absent manifest error.
If such Lender's Commitment Percentage of such borrowing is not made available
to the Administrative Agent by such Lender within three (3) Business Days of
such borrowing date, the Administrative Agent shall be entitled to recover such
amount made available by the Administrative Agent with interest thereon at the
rate then applicable to such Loan hereunder, on demand, from the applicable
Borrower or Borrowers. The failure of any Lender to make its Commitment
Percentage of any Loan available shall not relieve it or any other Lender of its
obligation, if any, hereunder to make its Commitment Percentage of such Loan
available on such borrowing date, but no Lender shall be responsible for the
failure of any other Lender to make its Commitment Percentage of such Loan
available on the borrowing date.
SECTION 4.7. Mandatory Redenomination of Alternative Currency Loans. If
any Alternative Currency becomes unavailable to any Lender for any reason
(including, without limitation, any conversion, discontinuation or replacement
of such currency arising out of or in connection with any event associated with
economic and monetary union in the European Community), and in each case at the
option of the Administrative Agent in its sole discretion, all outstanding Loans
in such Alternative Currency shall be redenominated and converted into Dollars
in an amount equal to the Dollar Amount of such Loan, and the Lenders shall no
longer be obligated to provide Loans in the affected Alternative Currency or
Currencies, all subject to the provisions of Sections 2.4(b) and 4.10.
SECTION 4.8. Regulatory Limitation. In the event, as a result of
increases in the value of Alternative Currencies against the Dollar or for any
other reason, the obligation of any of the Lenders to make Loans or issue or
participate in Letters of Credit (taking into account the Dollar Amount of the
Obligations and all other indebtedness required to be aggregated under 12
U.S.C.A. 84, as amended, the regulations promulgated thereunder and any other
Applicable Law) is determined by such Lender to exceed its then applicable legal
lending limit under 12 U.S.C.A. 84, as amended, and the regulations promulgated
thereunder, or any other Applicable Law, the amount of additional Extensions of
Credit such Lender shall be obligated to make or issue or participate in
hereunder shall immediately be reduced to the maximum amount which such Lender
may legally advance (as determined by such Lender), the obligation of each of
the remaining Lenders hereunder shall be proportionately reduced, based on their
applicable Commitment Percentages, and, to the extent necessary under such laws
and regulations (as determined by each of the Lenders, with respect to the
applicability of such laws and regulations to itself), the Borrowers shall
reduce, or cause to be reduced, complying to the extent practicable with the
remaining provisions hereof, the Obligations outstanding hereunder by an amount
sufficient to comply with such maximum amounts.
SECTION 4.9. Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate Availability. If with respect to
any Interest Period the Administrative Agent or any Lender (after consultation
with the Administrative Agent) shall determine that (i) by reason of
circumstances affecting the foreign exchange and interbank markets generally,
deposits in eurodollars or an Alternative Currency in the applicable amounts are
<PAGE>
not being quoted via Telerate Page 3750 or offered to the Administrative Agent
or such Lender for such Interest Period or (ii) a fundamental change has
occurred in the foreign exchange or interbank markets with respect to any
Alternative Currency (including, without limitation, changes in national or
international financial, political or economic conditions or currency exchange
rates or exchange controls), then the Administrative Agent shall forthwith give
notice thereof to the Borrowers. Thereafter, until the Administrative Agent
notifies the Borrowers that such circumstances no longer exist, the obligation
of the Lenders to make LIBOR Rate Loans, and the right of the Borrowers to
convert any Loan to or continue any Loan as a LIBOR Rate Loan, shall be
suspended, and the applicable Borrower or Borrowers shall repay in full (or
cause to be repaid in full) the then outstanding principal amount of each such
LIBOR Rate Loan, together with accrued interest thereon, on the last day of the
then current Interest Period applicable to such LIBOR Rate Loan or convert the
then outstanding principal amount of each such LIBOR Rate Loan denominated in
Dollars to a Base Rate Loan, each such LIBOR Rate Loan denominated in Sterling
to a Sterling Base Rate Loan, and each such LIBOR Rate Loan denominated in
Canadian Dollars to a Canadian Base Rate Loan, and each such LIBOR Rate Loan
denominated in Deutschemarks to a German Base Rate Loan, as of the last day of
such Interest Period.
(b) Laws Affecting LIBOR Rate Availability. If, after the date hereof,
the introduction of, or any change in, any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any of their respective Lending
Offices) with any request or directive (whether or not having the force of law)
of any such Authority, central bank or comparable agency, shall make it unlawful
or impossible for any of the Lenders (or any of their respective Lending
Offices) to honor its obligations hereunder to make or maintain any LIBOR Rate
Loan, such Lender shall promptly give notice thereof to the Administrative Agent
and the Administrative Agent shall promptly give notice to the Borrowers and the
other Lenders. Thereafter, until the Administrative Agent notifies the Borrowers
that such circumstances no longer exist (which notification shall be given as
soon as practicable, but in any event not later than thirty (30) days after the
Administrative Agent obtains actual knowledge that such circumstances no longer
exist), (i) the obligations of the Lenders to make LIBOR Rate Loans and the
right of the Borrowers to convert any Loan or continue any Loan as a LIBOR Rate
Loan shall be suspended and thereafter the Borrowers may select only Base Rate
Loans, Sterling Base Rate Loans, Canadian Base Rate Loans, or German Base Rate
Loans hereunder, as applicable, and (ii) if any of the Lenders may not lawfully
continue to maintain a LIBOR Rate Loan to the end of the then current Interest
Period applicable thereto as a LIBOR Rate Loan, the applicable LIBOR Rate Loan
shall immediately be converted to a Base Rate Loan, Sterling Base Rate Loan,
Canadian Base Rate Loan or German Base Rate Loan, as applicable, for the
remainder of such Interest Period.
(c) Increased Costs. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any of the
Lenders (or any of their respective Lending Offices) with any request or
directive (whether or not having the force of law) of such Authority, central
bank or comparable agency:
<PAGE>
(i) shall subject any of the Lenders (or any of their
respective Lending Offices) to any tax, duty or other charge with respect to any
LIBOR Rate Loan or any Note, Letter of Credit or Application or shall change the
basis of taxation of payments to any of the Lenders (or any of their respective
Lending Offices) of the principal of or interest on any LIBOR Rate Loan or any
Note, Letter of Credit or Application or any other amounts due under this
Agreement in respect thereof (except for changes in the rate of tax on the
overall net income of any of the Lenders or any of their respective Lending
Offices imposed by the jurisdiction in which such Lender is organized or is or
should be qualified to do business or such Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit, insurance or capital or similar
requirement against assets of, deposits with or for the account of, or credit
extended by any of the Lenders (or any of their respective Lending Offices) or
shall impose on any of the Lenders (or any of their respective Lending Offices)
or the foreign exchange and interbank markets any other condition affecting any
LIBOR Rate Loan or any Note;
and the result of any of the foregoing is to increase the costs to any of the
Lenders of maintaining any LIBOR Rate Loan or issuing or participating in
Letters of Credit or to reduce the yield or amount of any sum received or
receivable by any of the Lenders under this Agreement or under the Notes in
respect of a LIBOR Rate Loan or Letter of Credit or Application, then such
Lender shall promptly notify the Administrative Agent, and the Administrative
Agent shall promptly notify the Borrowers of such fact and demand compensation
therefor and, within fifteen (15) days after such notice by the Administrative
Agent, the applicable Borrower or Borrowers shall pay to such Lender such
additional amount or amounts as will compensate such Lender or Lenders for such
increased cost or reduction. The Administrative Agent will promptly notify the
Borrowers of any event of which it has knowledge which will entitle such Lender
to compensation pursuant to this Section 4.9(c); provided, that the
Administrative Agent shall incur no liability whatsoever to the Lenders or the
Borrowers in the event it fails to do so. A certificate of the Administrative
Agent setting forth the basis for determining such additional amount or amounts
necessary to compensate such Lender or Lenders shall be conclusively presumed to
be correct save for manifest error.
(d) Conversion to Common Currency. Notwithstanding paragraphs (a)
through (c) of this Section 4.9, if it becomes impossible or impractical for the
Lenders to honor their obligation to make LIBOR Rate Loans due to any
conversion, discontinuation or replacement of any Alternative Currency arising
out of or in connection with any event associated with economic and monetary
union in the European Community and resulting in redenomination of all Loans
denominated in such Alternative Currency to Dollars pursuant to Section 4.7, and
at the option of the Administrative Agent in its sole discretion, the obligation
of the Lenders to make LIBOR Rate Loans shall be terminated and all outstanding
LIBOR Rate Loans shall be converted to Base Rate Loans, subject to the
provisions of Section 4.10.
<PAGE>
SECTION 4.10. Indemnity. The applicable Borrower or Borrowers hereby
indemnify each of the Lenders against any loss or expense (including without
limitation any foreign exchange costs) which may arise or be attributable to
each Lender's obtaining, liquidating or employing deposits or other funds
acquired to effect, fund or maintain the Loans (a) as a consequence of any
failure by any such Borrower or Borrowers to make any payment when due of any
amount due hereunder in connection with a LIBOR Rate Loan, (b) due to any
failure of any such Borrower or Borrowers to borrow on a date specified therefor
in a Notice of Borrowing or Notice of Continuation/Conversion with respect to
any LIBOR Rate Loan or (c) due to any payment, prepayment or conversion of any
LIBOR Rate Loan on a date other than the last day of the Interest Period
therefor. Each Lender's calculations of any such loss or expense shall be
furnished to the Borrowers and shall be conclusive, absent manifest error.
SECTION 4.11. Capital Requirements. If either (a) the introduction of,
or any change in, or in the interpretation of, any Applicable Law or (b)
compliance with any guideline or request from any central bank or comparable
agency or other Governmental Authority (whether or not having the force of law),
has or would have the effect of reducing the rate of return on the capital of,
or has affected or would affect the amount of capital required to be maintained
by, any Lender or any corporation controlling such Lender as a consequence of,
or with reference to the Commitments and other commitments of this type, below
the rate which the Lender or such other corporation could have achieved but for
such introduction, change or compliance, then within five (5) Business Days
after written demand by any such Lender, the Borrowers shall pay to such Lender
from time to time as specified by such Lender additional amounts sufficient to
compensate such Lender or other corporation for such reduction. A certificate as
to such amounts submitted to the Borrowers and the Administrative Agent by such
Lender, shall, in the absence of manifest error, be presumed to be correct and
binding for all purposes.
SECTION 4.12. Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrowers
hereunder or under the Notes or the Letters of Credit shall be made free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholding, and all liabilities with respect
thereto (including, without limitation, all claims, penalties, costs and
expenses resulting from any failure to withhold or pay, or any delay in
withholding or paying, any of the foregoing amounts) excluding, (i) in the case
of each Lender and each Agent, income and franchise taxes imposed by the
jurisdiction under the laws of which such Lender or Agent (as the case may be)
is organized or is or should be qualified to do business or any political
subdivision of such jurisdiction or country which includes such jurisdiction (it
being expressly acknowledged by the Borrowers that each Agent and each Lender
are not qualified, nor should they be qualified, for purposes of this Section
4.12(a) or for any other Section of this Agreement, to do business in Canada or
any political subdivision thereof) and (ii) in the case of each Lender, income
and franchise taxes imposed by the jurisdiction of such Lender's Lending Office
or any political subdivision of such jurisdiction or country which includes such
jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If any
Borrower shall be required by law to deduct or withhold any Taxes from or in
respect of any sum payable hereunder or under any Note or Letter of Credit to
any Lender or
<PAGE>
any Agent, (A) the sum payable shall be increased as may be necessary so that
after making all required deductions or withholdings (including deductions or
withholdings applicable to additional sums payable under this Section 4.12) such
Lender or Agent (as the case may be) receives an amount equal to the amount such
party would have received had no such deductions or withholdings been made, (B)
such Borrower shall make such deductions or withholdings , (C) such Borrower
shall pay the full amount deducted or withheld to the relevant taxing authority
or other authority in accordance with applicable law, and (D) such Borrower
shall deliver to the Administrative Agent evidence of such payment to the
relevant taxing authority or other authority in the manner provided in Section
4.12(d). If, for any reason, any Borrower or Borrowers do not pay or remit such
Taxes or do not for any reason pay any additional sums payable to any Lender or
any Agent under this Section 4.12, the interest payable by such Borrower or
Borrowers under this Agreement will be increased to the rate or rates necessary
to yield and remit to such Lender or Agent the principal sum advanced together
with interest at the applicable rate or rates specified in this Agreement after
provision for payment of such Taxes. The Borrowers shall, from time to time,
execute and deliver any and all further documents as may be necessary or
advisable to give full force and effect to such increase in the rate or rates of
interest.
(b) Stamp and Other Taxes. In addition, the Borrowers shall pay any
present or future stamp, registration, recordation or documentary taxes or any
other similar fees or charges or excise or property taxes, levies of the United
States or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the Letters of Credit, the other Loan Documents, or the perfection of any
rights or security interest in respect thereto (hereinafter referred to as
"Other Taxes").
(c) Indemnity. The Borrowers shall indemnify each Lender and each Agent
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this
Section 4.12) paid by such Lender or Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Such indemnification shall be made within thirty (30) days
from the date such Lender or Agent (as the case may be) makes written demand
therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the affected Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 14.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Administrative Agent.
(e) Survival. Without prejudice to the survival of any other agreement
of the Borrowers hereunder, the agreements and obligations of the Borrowers
contained in this Section 4.12 shall survive the payment in full of the
Obligations and the termination of the Commitments.
<PAGE>
ARTICLE V
CLOSING; CONDITIONS OF CLOSING AND BORROWING
SECTION 5.1. Closing. The closing shall take place at the offices of
Kennedy Covington Lobdell & Hickman, L.L.P., 100 North Tryon Street, Suite 4200,
Charlotte, North Carolina 28202 at 10:00 a.m. on December 19th, 1997, or on such
other date as the parties hereto shall mutually agree.
SECTION 5.2. Conditions to Closing and Initial Extensions of Credit .
The obligation of the Lenders to close this Agreement and to make the initial
Loan or issue the initial Letter of Credit is subject to the satisfaction of
each of the following conditions:
(a) Executed Loan Documents. The following Loan Documents, in form and
substance satisfactory to the Managing Agents and each Lender:
(i) this Agreement;
(ii) the Revolving Credit Notes;
(iii) the Swingline Note;
(iv) the Security Agreement;
(v) the Trademark Assignment;
(vi) the Pledge Agreements;
(vii) the Mortgages;
(viii) the Canadian Security Documents;
(ix) the U.K. Security Documents;
(x) the German Security Documents (subject to Section
8.15 with respect to the German Pledge Agreement);
and
(xi) the Intercompany Subordination Agreement;
shall have been duly authorized, executed and delivered by the parties thereto,
shall be in full force and effect and no default shall exist thereunder, and the
Borrowers shall have delivered original counterparts thereof to the
Administrative Agent. Upon receipt of the Notes payable thereto, each
<PAGE>
Lender will return to the Agent for return to the Borrowers and cancellation its
original promissory notes provided pursuant to the First Amended and Restated
Credit Agreement.
(b) Closing Certificates; etc.
(i) Compliance Certificate of the Borrowers. The
Administrative Agent shall have received a certificate from the chief financial
officer or treasurer of ACC, in form and substance reasonably satisfactory to
the Administrative Agent, to the effect that all representations and warranties
of the Borrowers contained in this Agreement and the other Loan Documents are
true, correct and complete in all material respects; that the Borrowers are not
in violation of any of the covenants contained in this Agreement and the other
Loan Documents; that, after giving effect to the transactions contemplated by
this Agreement, no Default or Event of Default has occurred and is continuing;
that the Borrowers have satisfied each of the closing conditions to be satisfied
thereby; and that the Borrowers have filed all material tax returns and owe no
material delinquent taxes.
(ii) Certificate of Secretary of each Borrower. The
Administrative Agent shall have received a certificate of the secretary or
assistant secretary (or director with respect to ACC U.K.) of each Borrower
certifying, as applicable, that attached thereto is a true and complete copy of
the articles of incorporation or other charter documents of such Borrower and
all amendments thereto, certified as of a recent date by the appropriate
Governmental Authority in its jurisdiction of incorporation; that attached
thereto is a true and complete copy of the bylaws of such Borrower as in effect
on the date of such certification; that attached thereto is a true and complete
copy of resolutions duly adopted by the Board of Directors of such Borrower,
authorizing the borrowings contemplated hereunder and the execution, delivery
and performance of this Agreement and the other Loan Documents to which it is a
party; and as to the incumbency and genuineness of the signature of each officer
of such Borrower executing Loan Documents to which such Person is a party.
(iii) Certificates of Good Standing. The Administrative Agent
shall have received long-form certificates as of a recent date of the good
standing of each Borrower under the laws of their respective jurisdictions of
organization and such other jurisdictions requested by the Managing Agents.
(iv) Opinions of Counsel. The Administrative Agent shall have
received favorable opinions of United States, Canadian, United Kingdom and
German counsel to the Borrowers addressed to the Managing Agents and Lenders
with respect to such Persons, the Loan Documents and regulatory matters
(including without limitation Communications Licenses and PUC Authorizations)
reasonably satisfactory in form and substance to the Managing Agents and
Lenders.
(c) Collateral.
(i) Filings and Recordings. All filings that are necessary to
perfect the Liens of the Administrative Agent and the Lenders in the Collateral
described in the Security Documents
<PAGE>
shall have been filed in all appropriate locations and the Administrative Agent
shall have received evidence satisfactory to the Administrative Agent that such
security interests constitute valid and perfected first priority Liens therein,
subject to Liens permitted by Section 10.3.
(ii) Pledged Stock. The Administrative Agent shall have
received original stock certificates evidencing the capital stock pledged
pursuant to the Pledge Agreements, any Canadian Security Document, any U.K.
Security Document and (to the extent applicable) any German Security Document,
together with an appropriate undated stock power for each certificate (to the
extent applicable) duly executed in blank by the registered owner thereof
(except that such stock certificates of United Telecom Ltd. shall be delivered
to the Administrative Agent as soon as possible (and in any event no later than
7 days) after their registration in favor of ACC U.K., and, notwithstanding the
foregoing, the Administrative Agent shall have received a Stock Transfer Form
for such certificate duly executed in blank and acceptable to the Administrative
Agent in lieu thereof prior to the Closing Date).
(iii) Lien Searches. The Administrative Agent shall have
received the results of any Lien search requested by the Administrative Agent of
filings made against such Borrowers under the Uniform Commercial Code, personal
property security legislation or legislation as to registration of security on
movable property as in effect in any jurisdiction in which any of their assets
are located, indicating among other things that their assets are free and clear
of any Lien except for the Liens permitted by Section 10.3.
(iv) Mortgage Documents. The Administrative Agent shall have
received such mortgagee title and hazard insurance policies, title searches,
property surveys, appraisals and environmental assessments with respect to each
property covered by a Mortgage as it shall reasonably request in writing from
the applicable Borrower.
(v) Insurance. The Administrative Agent shall have received
certificates of insurance and copies (certified by the applicable Borrower) of
insurance policies in the form required under Section 8.3 and the Security
Documents and otherwise in form and substance reasonably satisfactory to the
Managing Agents.
(d) Consents; No Adverse Change.
(i) Governmental and Third Party Approvals. All necessary
approvals, authorizations and consents, if any are required, of any Person and
of all Governmental Authorities and courts having jurisdiction with respect to
the execution and delivery of this Agreement and the other Loan Documents shall
have been obtained and copies thereof delivered to the Administrative Agent.
(ii) Permits and Licenses. All permits and licenses, including
permits and licenses required under Applicable Laws, necessary to the current
conduct of business by the Borrowers and their Subsidiaries shall have been
obtained.
<PAGE>
(iii) No Injunction, Etc. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any Governmental Authority to enjoin, restrain, or prohibit,
or to obtain substantial damages in respect of, or which is related to or arises
out of this Agreement or the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby, or which, in the Managing Agents'
reasonable discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement and such other Loan Documents.
(iv) No Material Adverse Change. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
operations, properties, business or prospects of the Borrowers and their
Subsidiaries, or any event or condition that has had or could be reasonably
expected to have a Material Adverse Effect.
(v) No Event of Default. No Default or Event of Default shall
have occurred and be continuing.
(e) Financial Matters.
(i) Financial Statements. The Managing Agents shall have
received the most recent audited Consolidated financial statements of ACC and
its Subsidiaries.
(ii) Financial Condition Certificate. ACC shall have delivered
to the Administrative Agent a certificate, in form and substance reasonably
satisfactory to such Agent, and certified as accurate in all material respects
by the chief financial officer or treasurer of ACC, that (A) attached thereto is
a pro forma balance sheet of ACC and its Subsidiaries setting forth on a pro
forma basis the financial condition of ACC and its Subsidiaries on a
Consolidated basis as of that date, reflecting on a pro forma basis the effect
of the transactions contemplated herein, including all material fees and
expenses in connection therewith, and evidencing compliance on a pro forma basis
with the covenants contained in Article IX hereof, (B) the financial projections
previously delivered to the Managing Agents represent the good faith opinions of
the Borrowers and senior management thereof as to the projected results
contained therein, and (C) attached thereto is a calculation of the Applicable
Margin in accordance with Section 4.1(c) as of September 30, 1997.
(iii) Payment at Closing. (A) There shall have been paid by
the Borrowers to the Administrative Agent for the account of the Lenders the
amendment fee and incremental commitment fee payable pursuant to the fee letter
referred to in Section 4.3(b) and (B) the Agents and the Lenders shall have
received any other accrued and unpaid fees or commissions due hereunder
(including, without limitation, legal fees and expenses), and to any other
Person such amount as may be due thereto in connection with the transactions
contemplated hereby, including all taxes, fees and other charges in connection
with the execution, delivery, recording, filing and registration of any of the
Loan Documents. The Administrative Agent shall have received duly authorized and
executed copies of the fee letter referred to in Section 4.3(b).
<PAGE>
(f) Miscellaneous.
(i) Notice of Borrowing. The Administrative Agent shall have
received a Notice of Borrowing from the Borrowers in accordance with Section
2.3(a), and a Notice of Account Designation specifying the account or accounts
to which the proceeds of any Loans made after the Closing Date are to be
disbursed.
(ii) Proceedings and Documents. All opinions, certificates and
other instruments and all proceedings in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to the Lenders. The Lenders shall have received copies of all other
instruments and other evidence as the Lender may reasonably request, in form and
substance reasonably satisfactory to the Lenders, with respect to the
transactions contemplated by this Agreement and the taking of all actions in
connection therewith.
(iii) Due Diligence and Other Documents. The Borrowers shall
have delivered to the Administrative Agent such other documents, certificates
and opinions as the Managing Agents reasonably request, including without
limitation copies of each document evidencing or governing the Subordinated
Debt, certified by a secretary or assistant secretary of the applicable Borrower
as a true and correct copy thereof.
(iv) Delivery of U.S. Tax Forms. Each Lender organized under
the laws of a jurisdiction other than the United States or any state thereof
shall deliver to the Administrative Agent on the Closing Date (A) two United
States Internal Revenue Service Forms 4224 or Forms 1001, as applicable (or
successor forms), properly completed and certifying in each case that such
Lender is entitled to a complete exemption from withholding or deduction for or
on account of any United States federal income taxes, and (B) an Internal
Revenue Service Form W-8 or W-9 or successor applicable form, as the case may
be, to establish an exemption from United States backup withholding taxes. (Each
such Lender further agrees to deliver to the Administrative Agent a Form 1001 or
4224 and Form W-8 or W-9, or applicable successor forms or manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Borrower,
unless in any such case an event has occurred prior to the date on which any
such delivery would otherwise be required which renders such forms inapplicable
or the exemption to which such forms relate unavailable and such Lender notifies
the Borrower and the Agent that it is not entitled to receive payments without
deduction or withholding of United States federal income taxes).
(v) Delivery of U.K. Tax Forms. Each Lender organized under
the laws of the United States or any state thereof shall deliver to the
Administrative Agent on the Closing Date (A) two United Kingdom Inland Revenue
Forms FD13 (or successor forms), one with respect to ACC U.K. and one with
respect to United Telecom Ltd., properly completed and (B) any other U.K. tax
forms reasonably requested by the Adminstrative Agent.
<PAGE>
(vi) United Telecom Charter Amendment. The constitutional
documents of United Telecom Ltd. shall have been amended in a manner reasonably
satisfactory to the Administrative Agent such that any restriction on the
transfer of its shares to the Administrative Agent in connection with its
exercise of remedies hereunder is removed.
(vii) Refinancing. On the Closing Date hereunder, (i) all
loans under the First Amended and Restated Credit Agreement ("Existing Loans")
made by any lender who is not a Lender hereunder shall be repaid in full and the
commitments and other obligations and (except as expressly set forth in the
First Amended and Restated Credit Agreement) the rights of such lender shall be
terminated, (ii) all outstanding Existing Loans shall be Revolving Credit Loans
hereunder (secured by the Security Documents) and the Borrowers shall make such
repayments, and the Administrative Agent shall make such transfers of funds, as
are necessary in order that the outstanding balance of such Loans, together with
any Loans funded on the Closing Date, reflect the Commitments of the Lenders
hereunder, (iii) all Letters of Credit issued under the First Amended and
Restated Credit Agreement shall be Letters of Credit hereunder and each Lender
shall be deemed to have purchased a participation therein pursuant to Section
3.4 in accordance with its Commitment Percentage, (iv) there shall have been
paid in cash in full all accrued but unpaid interest due on the Existing Loans
to but excluding the Closing Date, (v) there shall have been paid in cash in
full all accrued but unpaid fees under the First Amended and Restated Credit
Agreement due to but excluding the Closing Date and all other amounts, costs and
expenses then owing to any of the lenders thereunder and/or any Agent, as agent
under the First Amended and Restated Credit Agreement, in each case to the
satisfaction of such Agent or lender, as the case may be, regardless of whether
or not such amounts would otherwise be due and payable at such time pursuant to
the terms of the First Amended and Restated Credit Agreement and (vi) all
outstanding promissory notes issued by the Borrowers to the lenders under the
First Amended and Restated Credit Agreement shall be promptly returned to the
Administrative Agent who shall forward such notes to the Borrower.
(viii) TCG Amendment. An amendment to the Agreement and Plan
of Merger by and among Teleport Communications Group, Inc., TCG Merger Co.,
Inc., and ACC, dated as of November 26, 1997, in form and substance satisfactory
to the Administrative Agent and permitting the execution of all Loan Documents
by all Borrowers party thereto.
SECTION 5.3. Conditions to All Extensions of Credit. The obligations of
the Lenders to make any Loan (subject to Section 2.2(b) with respect to
Swingline Loans) or issue or participate in any Letter of Credit are subject to
the satisfaction of the following conditions precedent on the relevant borrowing
or issue date, as applicable:
(a) Continuation of Representations and Warranties. The representations
and warranties contained in Article VI shall be true and correct on and as of
such borrowing or issuance date with the same effect as if made on and as of
such date.
(b) No Existing Default. No Default or Event of Default shall have
occurred and be continuing hereunder on (i) the borrowing date with respect to
such Loan or after giving
<PAGE>
effect to the Revolving Credit Loans to be made on such date or (ii) the issue
date with respect to such Letter of Credit or after giving effect to such
Letters of Credit on such date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BORROWERS
SECTION 6.1. Representations and Warranties. To induce the Agents to
enter into this Agreement and the Lenders to make the Loans or issue or
participate in the Letters of Credit, the Borrowers hereby represent and warrant
to the Agents and Lenders that:
(a) Organization; Power; Qualification. Each of ACC and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation, has the power and
authority to own its properties and to carry on its business as now being
conducted and is duly qualified and authorized to do business in each
jurisdiction where its business requires such qualification and authorization,
except in those jurisdictions in which the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect. The jurisdictions in
which ACC and its Subsidiaries are organized and qualified to do business as of
the Closing Date are described on Schedule 6.1(a).
(b) Ownership. Each Material Subsidiary and other Subsidiary as of the
Closing Date of ACC is listed on Schedule 6.1(b) and each Material Subsidiary as
of the Closing Date is so designated on such Schedule. As of the Closing Date,
the capitalization of ACC and its Subsidiaries consists of the number of shares,
authorized, issued and outstanding, of such classes and series, with or without
par value, described on Schedule 6.1(b). All outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. The
shareholders of the Subsidiaries of ACC and the number of shares owned by each
as of the Closing Date are described on Schedule 6.1(b). As of the Closing Date,
there are no outstanding stock purchase warrants, subscriptions, options,
securities, instruments or other rights of any type or nature whatsoever, which
are convertible into, exchangeable for or otherwise provide for or permit the
issuance of capital stock of ACC or its Subsidiaries, except as described on
Schedule 6.1(b).
(c) Authorization of Agreement, Loan Documents and Borrowing. Each of
ACC and its Subsidiaries has the right, power and authority and has taken all
necessary corporate and other action to authorize the execution, delivery and
performance of this Agreement and each of the other Loan Documents to which it
is a party in accordance with their respective terms. This Agreement and each of
the other Loan Documents have been duly executed and delivered by the duly
authorized officers of ACC and each of its Subsidiaries party thereto and each
such document constitutes the legal, valid and binding obligation of ACC or its
Subsidiary party thereto, enforceable in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar state, provincial or federal debtor relief laws from time
to time in effect which affect the enforcement of creditors' rights in general
and the availability of equitable remedies.
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(d) Compliance of Agreement, Loan Documents and Borrowing with Laws,
Etc. The execution, delivery and performance by ACC and its Subsidiaries of the
Loan Documents to which each such Person is a party, in accordance with their
respective terms, the borrowings hereunder and the transactions contemplated
hereby do not and will not, by the passage of time, the giving of notice or
otherwise, (i) except as set forth on Schedule 6.1(d) hereto, require any
Governmental Approval as of the Closing Date, (ii) violate any Applicable Law
relating to ACC or any of its Subsidiaries, except to the extent that any such
violation could not reasonably be expected to have a Material Adverse Effect,
(iii) conflict with, result in a breach of or constitute a default under the
articles of incorporation, bylaws or other organizational documents of ACC or
any of its Subsidiaries or any material indenture, agreement or other instrument
to which such Person is a party or by which any of its properties may be bound
or any Governmental Approval relating to such Person or (iv) result in or
require the creation or imposition of any Lien upon or with respect to any
material property now owned or hereafter acquired by such Person other than
Liens arising under the Loan Documents.
(e) Compliance with Law; Governmental Approvals. Each of ACC and its
Subsidiaries (i) has all material Governmental Approvals required by any
Applicable Law for it to conduct its business. Each such Governmental Approval
is in full force and effect, is final and not subject to review on appeal and is
not the subject of any pending or, to the best of its knowledge, threatened
attack by direct or collateral proceeding and (ii) is in compliance with each
material Governmental Approval applicable to it and in material compliance with
all other Applicable Laws relating to it or any of its respective properties.
(f) Tax Returns and Payments. Each of ACC and its Subsidiaries has duly
filed or caused to be filed all federal, state, provincial, local and other tax
returns required by Applicable Law to be filed, and has paid, or made adequate
provision for the payment of, all federal, state, provincial, local and other
taxes, assessments and governmental charges or levies upon it and its property,
income, profits and assets which are due and payable, except where the payment
of such tax is being disputed in good faith and adequate reserves have been
established in accordance with GAAP. No Governmental Authority has asserted any
Lien or other claim against ACC or any Subsidiary thereof with respect to
material unpaid taxes which has not been discharged or resolved or is not being
contested in good faith. The charges, accruals and reserves on the books of ACC
and any of its Subsidiaries in respect of federal, state, provincial, local and
other taxes for all Fiscal Years and portions thereof are in the judgment of ACC
adequate, and ACC does not anticipate any additional material taxes or
assessments for any of such years.
(g) Environmental Matters. (i) To the best knowledge of the Borrowers,
the properties of ACC and its Subsidiaries do not contain, and have not
previously contained, any Hazardous Materials in amounts or concentrations which
(A) constitute or constituted a material violation of, or (B) could give rise to
material liability under, applicable Environmental Laws;
(ii) Such properties and all operations conducted in
connection therewith are in material compliance, and have been in material
compliance, with all applicable Environmental Laws, and to the best knowledge of
the Borrowers, there is no contamination at or under such properties or such
operations in violation of applicable Environmental Laws or which could
<PAGE>
materially interfere with the continued operation of such properties or, if such
properties are owned by any such Person, materially impair the fair saleable
value thereof;
(iii) Neither ACC nor any Subsidiary thereof has received any
notice of material violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of their properties or the operations
conducted in connection therewith, nor does ACC or any Subsidiary thereof have
knowledge or reason to believe that any such notice will be received or is being
threatened;
(iv) Hazardous Materials have not been transported or disposed
of from the properties of ACC and its Subsidiaries in violation of, or in a
manner or to a location which could give rise to material liability under,
Environmental Laws, nor to the best knowledge of the Borrowers, have any
Hazardous Materials been generated, treated, stored or disposed of at, on or
under any of such properties in material violation of, or in a manner that could
give rise to material liability under, any applicable Environmental Laws;
(v) No judicial proceedings or governmental or administrative
action is pending, or to the best knowledge of the Borrowers, threatened, under
any Environmental Law to which ACC or any Subsidiary thereof is or will be named
as a party with respect to such properties or operations conducted in connection
therewith, nor are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to such
properties or such operations; and
(vi) There has been no release, or to the best knowledge of
the Borrowers, threat of release, of Hazardous Materials at or from such
properties, in violation of or in amounts or in a manner that could give rise to
material liability under Environmental Laws.
(h) Employee Benefit Plans and Canadian Plans.
(i) Neither ACC nor any ERISA Affiliate maintains or
contributes to, or has any obligation under, any Employee Benefit Plans,
Canadian Plans or German Plans other than those identified on Schedule 6.1(h);
(ii) ACC and each ERISA Affiliate are in material compliance
with all applicable provisions of ERISA and the regulations and published
interpretations thereunder with respect to all Employee Benefit Plans except for
any required amendments for which the remedial amendment period as defined in
Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that
is intended to be qualified under Section 401(a) of the Code has been determined
by the Internal Revenue Service to be so qualified, and each trust related to
such plan has been determined to be exempt under Section 501(a) of the Code. No
liability has been incurred by ACC or any ERISA Affiliate which remains
unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan
or any Multiemployer Plan;
<PAGE>
(iii) No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the Code) been
incurred (without regard to any waiver granted under Section 412 of the Code),
nor has any funding waiver from the Internal Revenue Service been received or
requested with respect to any Pension Plan, nor has ACC or any ERISA Affiliate
failed to make any contributions or to pay any amounts due and owing as required
by Section 412 of the Code, Section 302 of ERISA or the terms of any Pension
Plan prior to the due dates of such contributions under Section 412 of the Code
or Section 302 of ERISA, nor has there been any event requiring any disclosure
under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any Pension
Plan;
(iv) Neither ACC nor any ERISA Affiliate has: (A) engaged in a
nonexempt prohibited transaction described in Section 406 of the ERISA or
Section 4975 of the Code; (B) incurred any liability to the PBGC which remains
outstanding other than the payment of premiums and there are no premium payments
which are due and unpaid; (C) failed to make a required contribution or payment
to a Multiemployer Plan; or (D) failed to make a required installment or other
required payment under Section 412 of the Code;
(v) No Termination Event or Canadian Termination Event has
occurred or is reasonably expected to occur;
(vi) No material proceeding, claim, lawsuit and/or
investigation is existing or, to the best knowledge of ACC after due inquiry,
threatened concerning or involving any (A) employee welfare benefit plan (as
defined in Section 3(1) of ERISA) currently maintained or contributed to by ACC
or any ERISA Affiliate, (B) Pension Plan, (C) Multiemployer Plan, (D) Canadian
Plan or (E) German Plan;
(vii) ACC and its Subsidiaries are in material compliance with
all Canadian Law relating to employee benefit plans, pension plans and
retirement savings plans and no liability has been incurred in respect thereof
that remains unsatisfied; and
(viii) No Canadian Plan or German Plan has been terminated nor
is there any funding deficiency in respect thereof that has not been remedied or
any contributions or premiums thereto that have not been paid.
(i) Margin Stock. Neither ACC nor any Subsidiary thereof is engaged
principally or as one of its activities in the business of extending credit for
the purpose of "purchasing" or "carrying" any "margin stock" (as each such term
is defined or used in Regulations G and U of the Board of Governors of the
Federal Reserve System). No part of the proceeds of any of the Loans or Letters
of Credit will be used for purchasing or carrying margin stock or for any
purpose which violates, or which would be inconsistent with, the provisions of
Regulation G, T, U or X of such Board of Governors.
(j) Government Regulation. Neither ACC nor any Subsidiary thereof is an
"investment company" or a company "controlled" by an "investment company" (as
each such term is defined or used in the Investment Company Act of 1940, as
amended) and neither ACC nor any
<PAGE>
Subsidiary thereof is, or after giving effect to any Extension of Credit will
be, a "Holding Company" or a "Subsidiary Company" of a "Holding Company" or an
"Affiliate" of a "Holding Company" within the respective meanings of each of the
quoted terms of the Public Utility Holding Company Act of 1935 as amended, or
any other Applicable Law which materially limits its ability to incur or
consummate the transactions contemplated hereby.
(k) Patents, Copyrights and Trademarks. Each of ACC and its
Subsidiaries owns or possesses all patent, copyright and trademark rights which
are required to conduct its business, without infringing upon any validly
asserted rights of others, except where the failure to so own or possess could
not reasonably be expected to have a Material Adverse Effect. No event has
occurred which permits, or after notice or lapse of time or both would permit,
the revocation or termination of any such rights. Neither ACC nor any of its
Subsidiaries have been threatened with any litigation regarding patents,
copyrights or trademarks that would present a material impediment to the
business of any such Person.
(l) Material Contracts. Schedule 6.1(l) sets forth a complete and
accurate list of all Material Contracts of ACC and its Subsidiaries in effect as
of the Closing Date not listed on any other Schedule hereto; other than as set
forth in Schedule 6.1(l), each of ACC and any Subsidiary thereof party thereto
has performed all of its obligations under such Material Contracts and, to the
best knowledge of the Borrowers, each other party thereto is in compliance with
each such Material Contract, and each such Material Contract is, and after
giving effect to the consummation of the transactions contemplated by the Loan
Documents will be, in full force and effect in accordance with the terms
thereof. ACC and its Subsidiaries have delivered to the Administrative Agent a
true and complete copy of each Material Contract required to be listed on
Schedule 6.1(l).
(m) Employee Relations. None of ACC and its Subsidiaries is, except as
set forth on Schedule 6.1(m), party to any collective bargaining agreement nor
has any labor union been recognized as the representative of the employees of
any such Person. ACC knows of no pending, threatened or contemplated strikes,
work stoppage or other collective labor disputes involving its employees or
those of its Subsidiaries.
(n) Burdensome Provisions. Neither ACC nor any Subsidiary thereof is a
party to any indenture, agreement, lease or other instrument, or subject to any
corporate or partnership restriction, Governmental Approval or Applicable Law
which is so unusual or burdensome as in the foreseeable future could be
reasonably expected to have a Material Adverse Effect. ACC and its Subsidiaries
do not presently anticipate that future expenditures needed to meet the
provisions of any statutes, orders, rules or regulations of a Governmental
Authority will be so burdensome as to have a Material Adverse Effect.
<PAGE>
(o) Financial Statements. The (i) Consolidated balance sheets of ACC
and its Subsidiaries as of December 31, 1996, and the related statements of
income and retained earnings and cash flows for the Fiscal Year then ended and
(ii) unaudited Consolidated balance sheet of ACC and its Subsidiaries as of
September 30, 1997 and related unaudited interim statements of income and cash
flows, copies of which have been furnished to the Administrative Agent and each
Lender, are complete and correct and fairly present the assets, liabilities and
financial position of ACC and its Subsidiaries, as at such dates, and the
results of the operations and changes of financial position for the periods then
ended. All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP. ACC and its Subsidiaries
have no material Debt, obligation or other unusual forward or long-term
commitment which is not disclosed in the foregoing financial statements or in
the notes thereto.
(p) No Material Adverse Effect. Since December 31, 1996, there has been
no event or condition that has had or is reasonably likely to have a Material
Adverse Effect.
(q) Solvency. As of the Closing Date and after giving effect to each
Extension of Credit made hereunder, ACC and its Subsidiaries taken as a whole
will be Solvent.
(r) Titles to Properties. Each of ACC and its Subsidiaries has such
title to the real property owned or leased by it as is necessary or desirable to
the conduct of its business and good and marketable title to all of its personal
property sufficient to carry on its business as presently conducted, except such
property as has been disposed of by ACC or its Subsidiaries subsequent to such
date which dispositions have been in the ordinary course of business or as
otherwise expressly permitted hereunder. Schedule 6.1(r) hereto sets forth the
address of all real property owned or leased by a Borrower and its Subsidiaries
(and if leased, the record owner thereof).
(s) Liens. None of the properties and assets of ACC or any Subsidiary
thereof is subject to any Lien, except in each case Liens permitted pursuant to
Section 10.3. No financing statement or application for registration under the
Uniform Commercial Code of any state or personal property security legislation
or legislation as to registration of security on movable property of any other
jurisdiction which names ACC or any Subsidiary thereof or any of their
respective trade names or divisions as debtor or grantor and which has not been
terminated, has been filed in any state or other jurisdiction and neither ACC
nor any Subsidiary thereof has signed any such financing statement or
application for registration or any security agreement authorizing any secured
party thereunder to file any such financing statement or application for
registration, except to perfect those Liens permitted by Section 10.3 hereof.
(t) Debt and Contingent Obligations. Schedule 6.1(t) is a complete and
correct listing of all Debt and Contingent Obligations of ACC and its
Subsidiaries in excess of $500,000. ACC and its Subsidiaries have performed and
are in material compliance with all of the terms of such Debt and Contingent
Obligations and all instruments and agreements relating thereto, and no default
or event of default, or event or condition which with notice or lapse of time or
both would constitute such a default or event of default on the part of ACC or
its Subsidiaries exists with respect to any such Debt or Contingent Obligation.
<PAGE>
(u) Litigation. Except as set forth on Schedule 6.1(u), there are no
actions, suits or proceedings pending nor, to the knowledge of ACC, threatened
against or in any other way relating adversely to or affecting ACC or any
Subsidiary thereof or any of their respective properties in any court or before
any arbitrator of any kind or before or by any Governmental Authority the result
of which could reasonably be expected to have a Material Adverse Effect.
(v) Communications Regulatory Matters.
(i) Each Network Agreement has been duly executed and
delivered by the respective parties thereto, is in full force and effect and
neither the Borrowers, any Subsidiary thereof nor, to the best knowledge of the
Borrowers, any of the other parties thereto, is in default of any of the
provisions thereof in any material respect.
(ii) Schedule 6.1(v) hereto sets forth, as of the date hereof,
a true and complete list of the following information for each Communications
License or PUC Authorization issued to ACC or any its Subsidiaries: (A) for all
Communications Licenses, the name of the licensee, the type of service and the
expiration dates; and (B) for each PUC Authorization, the geographic area
covered by such PUC Authorization, the services that may be provided thereunder
and the expiration date, if any.
(iii) The Communications Licenses and PUC Authorizations
specified on Schedule 6.1(v) hereto are valid and in full force and effect
without conditions except for such conditions as are generally applicable to
holders of such Communications Licenses and PUC Authorizations. No event has
occurred and is continuing which could reasonably be expected to (A) result in
the imposition of a material forfeiture or the revocation, termination or
adverse modification of any such Communications License or PUC Authorization or
(B) materially and adversely affect any rights of ACC or any of its Subsidiaries
thereunder. ACC has no reason to believe and has no knowledge that
Communications Licenses and PUC Authorizations will not be renewed in the
ordinary course.
(iv) All of the material properties, equipment and systems
owned, leased or managed by ACC and its Subsidiaries are, and (to the best
knowledge of ACC) all such property, equipment and systems to be acquired or
added in connection with any contemplated system expansion or construction will
be, in good repair, working order and condition (reasonable wear and tear
excepted) and are and will be in compliance with all terms and conditions of the
Communications Licenses and PUC Authorizations and all standards or rules
imposed by any Governmental Authority or as imposed under any agreements with
telephone companies and customers.
(v) ACC and each of its Subsidiaries have paid all franchise,
license or other fees and charges which have become due pursuant to any
Governmental Approval in respect of their business and have made appropriate
provision as is required by GAAP for any such fees and charges which have
accrued.
<PAGE>
(w) Absence of Defaults. No event has occurred and is continuing which
constitutes a Default or an Event of Default, or which constitutes, or which
with the passage of time or giving of notice or both would constitute, a default
or event of default by ACC or any Subsidiary thereof under any Material Contract
or judgment, decree or order to which ACC or its Subsidiaries are a party or by
which ACC or its Subsidiaries or any of their respective properties may be bound
or which would require ACC or its Subsidiaries to make any payment thereunder
prior to the scheduled maturity date therefor.
(x) Senior Debt. All of the Obligations of ACC and its Subsidiaries
under the Loan Documents are entitled to the benefits of the subordination
provisions of the documents evidencing any Subordinated Debt. ACC acknowledges
that the Agents and Lenders are entering into this Agreement and the Lenders are
making Extensions of Credit in reliance upon such subordination provisions.
(y) Year 2000 Compatibility. The Borrowers have taken all action
necessary to assure that the computer based systems of the Borrowers are able to
operate and effectively process data including dates on and after January 1,
2000. At the request of the Administrative Agent, the Borrowers shall provide
assurance reasonably acceptable to the Administrative Agent and the Lenders of
the Borrowers' Year 2000 compatibility.
(z) Accuracy and Completeness of Information. All written information,
reports and other papers and data produced by or on behalf of ACC or any
Subsidiary thereof and furnished to the Lenders were, at the time the same were
so furnished, complete and correct in all material respects. No document
furnished or written statement made to the Agents or the Lenders by ACC or any
Subsidiary thereof in connection with the negotiation, preparation or execution
of this Agreement or any of the Loan Documents contains or will contain any
untrue statement of a fact material to the creditworthiness of ACC or its
Subsidiaries or omits or will omit to state a material fact necessary in order
to make the statements contained therein not misleading. ACC is not aware of any
facts which it has not disclosed in writing to the Agents having a Material
Adverse Effect, or insofar as ACC can now foresee, could reasonably be expected
to have a Material Adverse Effect.
<PAGE>
SECTION 6.2. Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article VI and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including but not limited to any such representation or warranty made
in or in connection with any amendment thereto) shall constitute representations
and warranties made under this Agreement. All representations and warranties
made under this Agreement shall be made or deemed to be made at and as of the
Closing Date, shall survive the Closing Date and shall not be waived by the
execution and delivery of this Agreement, any investigation made by or on behalf
of the Lenders or any borrowing hereunder.
ARTICLE VII
FINANCIAL INFORMATION AND NOTICES
Until all the Obligations have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner set forth
in Section 14.11 hereof, the Borrowers will furnish or cause to be furnished to
the Administrative Agent and to the Lenders at their respective addresses as set
forth on Schedule 1.1(b), or such other office as may be designated by such
Agent and Lenders from time to time:
SECTION 7.1. Financial Statements and Projections.
(a) Quarterly Financial Statements. As soon as practicable and in any
event within forty-five (45) days after the end of each fiscal quarter, an
unaudited Consolidated and consolidating balance sheet of ACC and its
Subsidiaries as of the close of such fiscal quarter and unaudited Consolidated
and consolidating statements of income, shareholders' equity and cash flows for
the fiscal quarter then ended and that portion of the Fiscal Year then ended,
including the notes thereto (except with respect to consolidating statements),
all in reasonable detail setting forth in comparative form the corresponding
figures for the preceding Fiscal Year and prepared by ACC in accordance with
GAAP (except with respect to consolidating cash flows which shall be prepared in
a form consistent with past practices), and certified by the chief financial
officer of ACC to present fairly in all material respects the financial
condition of ACC and its Subsidiaries as of their respective dates and the
results of operations of ACC and its Subsidiaries for the respective periods
then ended, subject to normal year end adjustments.
(b) Annual Financial Statements. As soon as practicable and in any
event within one hundred and twenty (120) days after the end of each Fiscal
Year, an unaudited consolidating balance sheet and income statement of ACC and
its Subsidiaries and an audited Consolidated balance sheet of ACC and its
Subsidiaries as of the close of such Fiscal Year and audited Consolidated
statements of income, shareholders' equity and cash flows for the Fiscal Year
then ended, including the notes thereto, all in reasonable detail setting forth
in comparative form the corresponding figures for the preceding Fiscal Year and
audited by an independent certified public accounting firm of nationally
recognized standing in accordance with GAAP, and accompanied by a report thereon
by such certified public accountants that is not qualified with respect to scope
<PAGE>
limitations imposed by ACC or any of its Subsidiaries or with respect to
accounting principles followed by ACC or any of its Subsidiaries not in
accordance with GAAP.
(c) Annual Business Plan and Financial Projections. As soon as
practicable and in any event within thirty (30) days prior to the beginning of
each Fiscal Year, a business plan of ACC and its Subsidiaries for the ensuing
four fiscal quarters, such plan to include, on a quarterly basis, the following:
a quarterly operating and capital budget, a projected income statement,
statement of cash flows and balance sheet, each prepared on a basis consistent
with GAAP, and a report containing management's discussion and analysis of such
projections (such business plan and projections, the "Projections"), accompanied
by a certificate from the chief financial officer of ACC to the effect that, to
the best of such officer's knowledge, the Projections are good faith estimates
of the anticipated financial condition and operations of ACC and its
Subsidiaries for such four quarter period based on the then current business
plan.
SECTION 7.2. Officer's Compliance Certificate. At each time financial
statements are delivered pursuant to Sections 7.1(a) or (b), a certificate of
any Authorized Officer of ACC in the form of Exhibit E attached hereto (an
"Officer's Compliance Certificate"):
(a) stating that such officer has reviewed such financial statements
and such statements fairly present the financial condition of the Borrowers as
of the dates indicated and the results of their operations and cash flows for
the periods indicated;
(b) stating that to such officer's knowledge, based on a reasonable
examination, no Default or Event of Default exists, or, if such is not the case,
specifying such Default or Event of Default and its nature, when it occurred,
whether it is continuing and the steps being taken by the Borrowers with respect
to such Default or Event of Default; and
(c) setting forth as at the end of such fiscal quarter or Fiscal Year,
as the case may be, the calculations required to establish whether or not ACC
and its Subsidiaries were in compliance with the financial covenants set forth
in Article IX hereof as at the end of each respective period and the calculation
of the Applicable Margin pursuant to Section 4.1(c) as at the end of each
respective period.
SECTION 7.3. Accountants' Certificate. At each time financial
statements are delivered pursuant to Section 7.1(b), a certificate of the
independent public accountants certifying such financial statements addressed to
the Managing Agents for the benefit of the Lenders stating that in making the
examination necessary for the certification of such financial statements, they
obtained no knowledge of any Default or Event of Default or, if such is not the
case, specifying such Default or Event of Default and its nature and period of
existence.
SECTION 7.4. Other Reports.
(a) Promptly upon receipt thereof, copies of any management report and
any management responses thereto submitted to any Borrower or its Board of
Directors by its independent public accountants in connection with their
auditing function;
<PAGE>
(b) Within ten (10) Business Days after the receipt by ACC or any of
its Subsidiaries of notice that any Communications License or material PUC
Authorization has been lost or canceled, copies of any such notice accompanied
by a report describing the measures undertaken by ACC or any of its Subsidiaries
to prevent such loss or cancellation (and the anticipated impact, if any, that
such loss or cancellation will have upon the business of ACC and its
Subsidiaries);
(c) Promptly but in any event within ten (10) Business Days after the
filing thereof, a copy of (i) each report or other filing made by ACC or any of
its Subsidiaries with the Securities and Exchange Commission and required by the
SEC to be delivered to the shareholders of such Borrower or any of its
Subsidiaries, (ii) each report made by ACC or any of its Subsidiaries to the SEC
on Form 8-K and (iii) each final registration statement of ACC or any of its
Subsidiaries filed with the SEC; and
(d) Such other information regarding the operations, business affairs
and financial condition of ACC or any of its Subsidiaries as the Managing Agents
or any Lender may reasonably request.
SECTION 7.5. Notice of Litigation and Other Matters. Prompt (but in no
event later than three (3) days after an officer of any Borrower obtains
knowledge thereof) telephonic and written notice of:
(a) the commencement of all material proceedings and investigations by
or before any Governmental Authority and all actions and proceedings in any
court or before any arbitrator against or involving ACC or any Subsidiary
thereof or any of their respective properties, assets or businesses;
(b) any notice of any material violation received by ACC or any
Subsidiary thereof from any Governmental Authority including, without
limitation, any notice of a material violation of Environmental Laws;
(c) any labor controversy that has resulted in, or could reasonably be
expected to result in, a strike or other work action against ACC or any
Subsidiary thereof;
(d) any attachment, judgment, lien, levy or order exceeding $1,000,000
that may be assessed against or threatened against ACC or any Subsidiary
thereof;
(e) any Default or Event of Default, or any event which constitutes or
which with the passage of time or giving of notice or both would constitute a
default or event of default under any Subordinated Debt or other Material
Contract to which ACC or any of its Subsidiaries is a party or by which ACC or
any Subsidiary thereof or any of their respective properties may be bound;
(f) (i) the failure of ACC or any ERISA Affiliate to make a required
installment or payment under Section 302 of ERISA or Section 412 of the Code by
the due date, (ii) any Canadian Termination Event, (iii) any Termination Event
or "prohibited transaction", as such term
<PAGE>
is defined in Section 406 of ERISA or Section 4975 of the Code, in connection
with any Employee Benefit Plan or any trust created thereunder, along with a
description of the nature thereof, what action ACC has taken, is taking or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto, (iv) all notices received by ACC or any ERISA Affiliate of
the PBGC's intent to terminate any Pension Plan or to have a trustee appointed
to administer any Pension Plan, (v) all notices received by ACC or any ERISA
Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount
of withdrawal liability pursuant to Section 4202 of ERISA, (vi) any Borrower
obtaining knowledge or reason to know that ACC or any ERISA Affiliate has filed
or intends to file a notice of intent to terminate any Pension Plan under a
distress termination within the meaning of Section 4041(c) of ERISA, and (vii)
any notice from the Canadian federal Superintendent of Insurance or any other
Governmental Authority advising that the Governmental Authority intends to
declare a Canadian Plan terminated or appoint a trustee or curator thereto,
(viii) becoming aware, or receiving any notice from any Governmental Authority
that (A) ACC or any Subsidiary thereof has ceased to be in conformity with the
prescribed tests and standards applicable to a Canadian Plan, (B) any
administrator of a Canadian Plan has failed to furnish any prescribed
information and reports, or (C) any contravention of any applicable Canadian Law
has occurred, which, in each case, constitutes grounds under Canadian Law for
the termination of, or the appointment of a trustee or curator to, any Canadian
Plan or for the imposition of a fine or penalty;
(g) the enactment or promulgation after the date hereof of any federal,
state, provincial or local statute, regulation or ordinance or judicial or
administrative decision or order (or, to the extent that any Borrower has
knowledge thereof, any such proposed statute, regulation, ordinance, decision or
order, whether by the introduction of legislation or the commencement of
rulemaking or similar proceedings or otherwise) having a material effect or
relating to the operation of the Network Facilities by ACC or any of its
Subsidiaries (including, without limitation, any statutes, decisions or orders
affecting long distance telecommunication resellers generally and not directed
against ACC or any of its Subsidiaries specifically) which have been issued or
adopted (or which have been proposed) and which could reasonably be expected to
have a Material Adverse Effect; or
(h) any event which makes any of the representations set forth in
Section 6.1 inaccurate in any material respect.
SECTION 7.6. Accuracy of Information. All written information, reports,
statements and other papers and data furnished by or on behalf of any Borrower
to any Agent or Lender whether pursuant to this Article VII or any other
provision of this Agreement, or any of the Security Documents, shall be, at the
time the same is so furnished, complete and correct in all material respects
based on the applicable Borrower's knowledge thereof.
<PAGE>
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until all of the Obligations have been paid and satisfied in full and
the Commitments terminated, unless consent has been obtained in the manner
provided for in Section 14.11, each Borrower will, and will cause each of its
Subsidiaries to:
SECTION 8.1. Preservation of Corporate Existence and Related Matters.
Except as permitted by Section 10.5 or as a result of any Change in Control
which has been approved pursuant to Section 14.11, preserve and maintain its
separate corporate existence and all rights, franchises, licenses and privileges
necessary to the conduct of its business; and qualify and remain qualified as a
foreign corporation and authorized to do business in each jurisdiction where its
business requires such qualification and authorization.
SECTION 8.2. Maintenance of Property. Protect and preserve all
properties useful in and material to its business, including material
copyrights, patents, trade names and trademarks; maintain in good working order
and condition all buildings (reasonable wear and tear excepted), equipment and
other tangible real and personal property; and from time to time make or cause
to be made all renewals, replacements and additions to such property necessary
in the reasonable judgement of the Borrowers for the conduct of its business, so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
SECTION 8.3. Insurance. In addition to the requirements set forth in
the Security Documents, maintain insurance with financially sound and reputable
insurance companies against such risks and in such amounts as are customarily
maintained by similar businesses and as may be required by Applicable Law, and
on the Closing Date and from time to time deliver to the Administrative Agent
upon its request a detailed list of the insurance then in effect, stating the
names of the insurance companies, the amounts and rates of the insurance, the
dates of the expiration thereof and the properties and risks covered thereby.
SECTION 8.4. Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete in all material respects) as may be required or as may be
necessary to permit the preparation of financial statements in accordance with
GAAP (or generally accepted accounting principles as in effect in Canada, the
United Kingdom and the Federal Republic of Germany with respect to the Canadian
Borrowers, the U.K. Borrowers and the German Borrowers, respectively) and in
compliance with the regulations of any Governmental Authority having
jurisdiction over it or any of its properties.
SECTION 8.5. Payment and Performance of Obligations. Pay and perform
all Obligations under this Agreement and the other Loan Documents and pay or
perform (a) all taxes, assessments and other governmental charges that may be
levied or assessed upon it or any of its property, and (b) all other
indebtedness, obligations and liabilities in accordance with customary trade
practices; provided, that ACC or such Subsidiary may contest any item described
in clauses
<PAGE>
(a) and (b) hereof in good faith so long as adequate reserves are maintained
with respect thereto in accordance with GAAP.
SECTION 8.6. Compliance With Laws and Approvals. Observe and remain in
material compliance with all Applicable Laws and maintain in full force and
effect all material Governmental Approvals, in each case applicable or necessary
to the conduct of its business.
SECTION 8.7. Environmental Laws. In addition to and without limiting
the generality of Section 8.6, (a) comply in all material respects with, and use
its best efforts to ensure such compliance by all of its tenants and subtenants,
if any, with, all applicable Environmental Laws and obtain and comply with and
maintain, and use its best efforts to ensure that all of its tenants and
subtenants obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws; (b) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws, and timely comply with all lawful orders and directives of
any Governmental Authority regarding Environmental Laws; and (c) defend,
indemnify and hold harmless the Agents and the Lenders, and their respective
parents, Subsidiaries, Affiliates, employees, agents, officers and directors,
from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under any Environmental Laws
applicable to the operations of ACC or such Subsidiary, or any orders,
requirements or demands of Governmental Authorities related thereto, including,
without limitation, reasonable attorney's and consultant's fees, investigation
and laboratory fees, response costs, court costs and litigation expenses, except
to the extent that any of the foregoing arise out of or relate to the gross
negligence or willful misconduct of the party seeking indemnification therefor.
SECTION 8.8. Employee Benefit, Pension and Retirement Laws. If
applicable thereto, in addition to and without limiting the generality of
Section 8.6, make timely payment of contributions required to meet the minimum
funding standards set forth in ERISA with respect to any Employee Benefit Plan;
not take any action or fail to take action the result of which could be a
liability to the PBGC or to a Multiemployer Plan; not participate in any
prohibited transaction that could result in any civil penalty under ERISA or tax
under the Code; furnish to the Administrative Agent upon the Administrative
Agent's request such additional information about any Employee Benefit Plan as
may be reasonably requested by the Administrative Agent; and operate each
Employee Benefit Plan in such a manner that will not incur any tax liability
under Section 4980B of the Code or any liability to any qualified beneficiary as
defined in Section 4980B of the Code and not operate or fail to operate any
Canadian Plan or German Plan of ACC or any Subsidiary thereof in full conformity
and compliance with all federal and provincial laws and regulations and
contracts relating to any Canadian Plan or German Plan and, in particular but by
way of illustration only, make timely payments of all contributions required to
meet the minimum funding standards prescribed by such laws and regulations and
contracts and furnish to the Administrative Agent upon such Agent's request such
additional information about any Canadian Plan or German Plan as may be
reasonably requested by the Administrative Agent.
<PAGE>
SECTION 8.9. Compliance With Agreements. Comply in all material
respects with each term, condition and provision of all leases, agreements and
other instruments entered into in the conduct of its business including, without
limitation, any Material Contract; provided, that ACC or such Subsidiary may
contest any such lease, agreement or other instrument in good faith so long as
adequate reserves are maintained in accordance with GAAP.
SECTION 8.10. Conduct of Business. Engage only in businesses in
substantially the same fields as the businesses conducted on the Closing Date
and, to the extent permitted by Section 10.4(c), in lines of business reasonably
related thereto.
SECTION 8.11. Visits and Inspections. Upon reasonable notice therefrom
and during normal business hours, permit representatives of any of the Agents
and Lenders, from time to time, to visit and inspect its properties; inspect,
audit and make extracts from its books, records and files, including, but not
limited to, management letters prepared by independent accountants; and discuss
with its principal officers, and its independent accountants, its business,
assets, liabilities, financial condition, results of operations and business
prospects.
SECTION 8.12. Material Subsidiaries; Additional Collateral. (a) Upon
the creation of any Material Subsidiary permitted by this Agreement, cause to be
executed and delivered to the Administrative Agent: (i) a Joinder Agreement and
the documents referred to therein; provided, that such Joinder Agreement shall
not be required with respect to any Material Subsidiary created as a result of
the Versatel Acquisition, (ii) if such Subsidiary is a Domestic Subsidiary, (A)
the supplement substantially in the form attached to the Security Agreement, (B)
the supplement substantially in the form attached to the applicable Pledge
Agreement, or if the owner of such Subsidiary is not ACC or ACC National, a
pledge agreement substantially in the form of a Pledge Agreement executed by
such owner with such modifications thereto as requested by the Required Lenders
and (C) a Mortgage and landlord consent with respect to any real property owned
or leased by such Subsidiary if reasonably requested by the Required Lenders,
(iii) if such Subsidiary is a Canadian Subsidiary, such joinder agreements as
reasonably requested by the Required Lenders in order that such Subsidiary
become a party to the Canadian Security Documents and/or such additional
Canadian Security Documents as reasonably requested by the Required Lenders,
(iv) if such Subsidiary is a U.K. Subsidiary, such joinder agreements as
reasonably requested by the Required Lenders in order that such Subsidiary
become a party to the U.K. Security Documents and/or such additional U.K.
Security Documents as reasonably requested by the Required Lenders, (v) if such
Subsidiary is a German Subsidiary, such joinder agreements as reasonably
requested by the Required Lenders in order that such Subsidiary become a party
to the German Security Documents and/or such additional German Security
Documents as reasonably requested by the Required Lenders, (vi) such other
documents reasonably requested by the Required Lenders consistent with the terms
of this Agreement which provide that such Subsidiary (if so required by this
Section 8.10) shall become a Borrower bound by all of the terms, covenants and
agreements contained in the Loan Documents and that the assets of such
Subsidiary shall become Collateral for the Obligations, (vii) with respect to
the Material Subsidiary created as a result of the Versatel Acquisition,
documents satisfactory to the Administrative Agent and Required Lenders
evidencing the valid pledge as collateral of 66.66% of the capital stock of such
Material Subsidiary and (viii) such other documents as the Required Lenders
shall reasonably
<PAGE>
request, including without limitation, officers' certificates, financial
statements, opinions of counsel, board resolutions, charter documents,
certificates of existence and authority to do business and any other closing
certificates and documents described in Section 5.2.
(b) ACC shall, and cause its Material Subsidiaries to, promptly deliver
from time to time such additional Security Documents to the Administrative Agent
upon the request of the Required Lenders with respect to any assets of any such
Person not subject to an existing Lien in favor of the Administrative Agent for
the benefit of the Lenders (including, without limitation, Mortgages and
landlord consents with respect to each leased premises at which any Material
switching equipment is located).
SECTION 8.13. Hedging Agreement. (a) Maintain at all times Hedging
Agreements with respect to interest rate exposure under the Credit Agreement
with durations of at least two years and an aggregate notional principal amount
thereunder equal to at least fifty percent (50%) of the aggregate principal
Dollar Amount of the Extensions of Credit at interest rates not to exceed two
percent (2%) over the three month LIBOR Rate at the time of execution of such
Hedging Agreements with respect to each applicable Permitted Currency and
otherwise in form and substance reasonably satisfactory to the Managing Agents;
provided, that at any time the Leverage Ratio is less than 2.50 to 1.00, no such
Hedging Agreements shall be required and (b) maintain at all times Hedging
Agreements with respect to currency risk in form and substance reasonably
satisfactory to the Managing Agents.
SECTION 8.14. Further Assurances. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as any Agent or
Lender may reasonably require to document and consummate the transactions
contemplated hereby and to vest completely in and insure each Agent and the
Lenders their respective rights under this Agreement, the Notes, the Letters of
Credit and the other Loan Documents.
SECTION 8.15. Post-Closing Matters
.
(a) Within thirty (30) days after the date hereof, provide a fully
executed and duly notarized German Pledge Agreement.
(b) Within one hundred twenty (120) days after the date hereof, with
respect to Vista International Communications, Inc., (i) provide to the
Administrative Agent satisfactory evidence that such Person has received all
Governmental Approvals required to become a Borrower hereunder and (ii) comply
with Section 8.12 hereof with respect to such Person.
(c) Within thirty (30) days after the date hereof, provide a fully
executed and duly executed Landlord Agreement with respect to ACC Canada's
leasehold property in Quebec.
ARTICLE IX
FINANCIAL COVENANTS
<PAGE>
Until all of the Obligations have been paid and satisfied in full and
the Commitments terminated, unless consent has been obtained in the manner set
forth in Section 14.11 hereof, ACC and its Subsidiaries on a Consolidated basis
will not:
SECTION 9.1.Maximum Leverage Ratio. As of any date of determination,
permit the ratio (the "Leverage Ratio") of (a) Total Debt as of such date to (b)
Operating Cash Flow for the period of four (4) consecutive fiscal quarters
ending on or immediately prior to such date, to exceed the corresponding ratio
set forth below:
Period Ratio
Closing Date 6/30/98 3.50 to 1.00
7/1/98 - 12/31/98 3.00 to 1.00
1/1/99 - 12/31/99 2.50 to 1.00
1/1/00 and thereafter 2.00 to 1.00
SECTION 9.2. Minimum Pro Forma Debt Service Coverage Ratio. As of any
date of determination, permit the ratio of (a) Operating Cash Flow for the
period of four (4) consecutive fiscal quarters ending on or immediately prior to
such date to (b) Pro Forma Debt Service on such date to be less than 2.50 to
1.00.
SECTION 9.3. Fixed Charge Coverage Ratio. As of any date of
determination, permit the ratio of (a) Operating Cash Flow for the period of
four (4) consecutive fiscal quarters ending on or immediately prior to such date
to (b) Fixed Charges for the period of four (4) consecutive fiscal quarters
ending on or immediately prior to such date, during any given period, to be less
than the corresponding ratio set forth below:
Period Ratio
1/1/99 - 12/31/99 1.00 to 1.00
1/1/00 and thereafter 1.15 to 1.00
SECTION 9.4. Capital Expenditures. During Fiscal Year 1998, make
Capital Expenditures in excess of $70,000,000.
<PAGE>
SECTION 9.5. Minimum Net Worth. Permit Consolidated Net Worth at any
time to be less than (a) $115,000,000 plus (b) fifty percent (50%) of
Consolidated Net Income of ACC and its Subsidiaries as of each fiscal quarter
end occurring after the Closing Date plus (c) one hundred percent (100%) of the
aggregate Net Cash Proceeds of any offering of capital stock of ACC or any of
its Wholly-Owned Subsidiaries received thereby after the Closing Date. For
purposes of this Section 9.5, the minimum required Consolidated Net Worth shall
not be reduced if Consolidated Net Income as of any fiscal quarter end is less
than zero.
ARTICLE X
NEGATIVE COVENANTS
Until all of the Obligations have been paid and satisfied in full and
the Commitments terminated, unless consent has been obtained in the manner set
forth in Section 14.11 hereof, each Borrower will not and will not permit any of
its Subsidiaries to:
SECTION 10.1. Limitations on Debt. Create, incur, assume or suffer to
exist any Debt except:
(a) the Obligations;
(b) Subordinated Debt, the Net Cash Proceeds of which are utilized to
repay the Obligations and, with respect to any such Net Cash Proceeds utilized
to reduce the Leverage Ratio to 3.00 to 1.00, permanently reduce the Aggregate
Commitment by the amount of such Net Cash Proceeds pursuant to Section
2.6(c)(i);
(c) Debt existing on the Closing Date and not otherwise permitted under
this Section 10.1, as set forth on Schedule 6.1(t) and the renewal and
refinancing (but not the increase) thereof;
(d) Debt consisting of Contingent Obligations permitted by Section
10.2;
(e) Debt of ACC and its Subsidiaries incurred in connection with
Capitalized Leases;
(f) purchase money Debt of ACC and its Subsidiaries; and
(g) unsecured Debt of ACC and its Subsidiaries;
provided, that the aggregate amount of the Debt permitted pursuant to clauses
(e), (f) and (g) plus the aggregate amount of Debt constituting Contingent
Obligations permitted by Sections 10.2(b), (d) and (f) shall not at any time
exceed $40,000,000.
SECTION 10.2. Limitations on Contingent Obligations. Create, incur,
assume or suffer to exist any Contingent Obligations except (a) Contingent
Obligations in favor of the Administrative Agent for the benefit of the Agents
and the Lenders, (b) Contingent Obligations
<PAGE>
incurred as a general or joint venture partner in connection with any investment
in a partnership or joint venture permitted pursuant to Section 10.4, (c)
Contingent Obligations in respect of Network Agreements and Network Facilities
incurred in the ordinary course of business, (d) Contingent Obligations to
secure payment or performance of customer service contracts incurred in the
ordinary course of business, (e) Contingent Obligations with respect to
obligations under Hedging Agreements permitted pursuant to Section 10.13(b) and
(f) Contingent Obligations not covered by clauses (a) through (e) of this
Section; provided, that the aggregate outstanding principal amount of all
Contingent Obligations permitted by Sections 10.2(b), (d) and (f) plus the
aggregate outstanding principal amount of all Debt, without duplication,
outstanding under clauses (e), (f) and (g) of Section 10.1 shall not exceed
$40,000,000.
SECTION 10.3. Limitations on Liens. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties (including
without limitation shares of capital stock or other ownership interests), real
or personal, whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or
Environmental Laws) not yet due or as to w hich the period of grace (not to
exceed thirty (30) days), if any, related thereto has not expired or which are
being contested in good faith and by appropriate proceedings if adequate
reserves are maintained to the extent required by GAAP;
(b) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, (i) which are not overdue for a period of more
than thirty (30) days or (ii) which are being contested in good faith and by
appropriate proceedings;
(c) Liens consisting of deposits or pledges made in the ordinary course
of business in connection with, or to secure payment of, obligations under
workers' compensation, unemployment insurance or similar legislation or
obligations (not to exceed $2,000,000) under customer service contracts;
(d) Liens constituting encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the use of real
property, which in the aggregate are not substantial in amount and which do not,
in any case, materially detract from the value of such property or impair the
use thereof in the ordinary conduct of business;
(e) Liens of the Administrative Agent for the benefit of the Agents and
the Lenders;
(f) Liens not otherwise permitted by this Section 10.3 and in existence
on the Closing Date and described on Schedule 10.3;
(g) Liens evidencing the interest of lessors with respect to Debt
permitted under Section 10.1(e); and
<PAGE>
(h) Liens securing Debt permitted under Section 10.1(f); provided that
(i) such Liens shall be created substantially simultaneously with the
acquisition of the related Capital Asset, (ii) such Liens do not at any time
encumber any property other than the property financed by such Debt and (iii)
the aggregate outstanding principal amount of Debt secured by any such Lien
shall at no time exceed 100% of the original purchase price of such property at
the time it was acquired.
SECTION 10.4. Limitations on Loans, Advances, Investments and
Acquisitions. Purchase, own, invest in or otherwise acquire, directly or
indirectly, any capital stock, interests in any partnership or joint venture
(including without limitation the creation or capitalization of any Subsidiary),
evidence of Debt or other obligation or security, substantially all or a
material portion of the business or assets of any other Person or any other
investment or interest whatsoever in any other Person; or make or permit to
exist, directly or indirectly, any loans, advances or extensions of credit to,
or any investment in cash or by delivery of property in, any Person; or enter
into, directly or indirectly, any commitment or option in respect of the
foregoing except:
(a) (i) loans or advances by any Subsidiary of a Borrower to such
Borrower, (ii) advances from ACC to any Wholly-Owned Subsidiary or Controlled
Venture in an aggregate principal amount not to exceed $500,000, (iii) (A)
intercompany loans by ACC to ACC Canada in an aggregate principal amount not to
exceed $70,000,000, (B) intercompany loans by ACC to ACC U.K. in an aggregate
principal amount not to exceed $50,000,000, (C) intercompany loans or
investments in the form of capital contributions by ACC or by a Wholly-Owned
Subsidiary thereof to ACC Germany in an aggregate principal amount not to exceed
$10,000,000 and (D) intercompany loans by ACC to the Material Subsidiary created
as a result of the Versatel Acquisition in an aggregate principal amount not to
exceed $15,000,000; provided, that (x) such intercompany loans shall be
evidenced by promissory notes in form and substance acceptable to the Lenders
(each, an "Intercompany Note"), which notes shall be pledged to the Lenders and
shall be subordinated to the Credit Facility pursuant to the Intercompany
Subordination Agreement and (y) the Intercompany Note evidencing loans permitted
pursuant to Section 10.4(a)(iii)(D) above shall be secured by substantially all
of the assets of such Material Subsidiary pursuant to security documents
reasonably satisfactory to the Administrative Agent and the rights and remedies
of ACC thereunder shall be pledged to the Administrative Agent pursuant to the
Security Agreement and (iii) other existing loans, advances and investments in
existence on the Closing Date and described on Schedule 10.4; provided, that
notwithstanding the above, no further loans or advances shall be made by any
Borrower to Vista International Communications, Inc., until such time as it has
been joined as a Borrower pursuant to Section 8.15.
(b) investments by any Domestic Borrower or Domestic Subsidiary in (i)
marketable direct obligations issued or unconditionally guaranteed by the United
States of America or any agency thereof maturing within one (1) year from the
date of acquisition thereof, (ii) commercial paper maturing no more than 120
days from the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. or Moody's Investors Service, Inc., (iii)
certificates of deposit maturing no more than 120 days from the date of creation
thereof issued by commercial banks incorporated under the laws of the United
States of America, each having combined capital, surplus and undivided profits
of not less than $500,000,000 and having a rating of "A" or better by
<PAGE>
a nationally recognized rating agency; provided, that the aggregate amount
invested in such certificates of deposit shall not at any time exceed $5,000,000
for any one such certificate of deposit and $10,000,000 for any one such bank,
or (iv) time deposits maturing no more than 30 days from the date of creation
thereof with commercial banks or savings banks or savings and loan associations
each having membership either in the Federal Deposit Insurance Corporation
("FDIC") or the deposits of which are insured by the FDIC and in amounts not
exceeding the maximum amounts of insurance thereunder, and investments by any
Canadian Borrower or Canadian Subsidiary, by any U.K. Borrower or any U.K.
Subsidiary or by any German Borrower or German Subsidiary in any corresponding
government securities or cash equivalents reasonably satisfactory to the
Required Lenders;
(c) investments by ACC or any Subsidiary in the form of acquisitions of
all or substantially all of the business or a line of business (whether by the
acquisition of capital stock, assets or any combination thereof) of any other
Person, including any investment constituting a Controlled Venture; provided
that, (i) the Person to be acquired or invested in shall be a provider of long
distance telephone service or other business reasonably related to the provision
of long distance telephone or telecommunications service; (ii) a Borrower shall
be the surviving entity and all necessary documents required to be executed and
filed to evidence that any and all assets required hereunder to be pledged as
Collateral for the Obligations shall have been executed and filed; (iii) at
least fifteen (15) Business Days prior to the consummation of such acquisition,
an authorized officer of ACC shall deliver to the Administrative Agent a
certificate (except with respect to the U.S. Wats Acquisition) demonstrating to
the satisfaction of the Managing Agents that no Default or Event of Default
exists or shall be created by the consummation of such acquisition or
investment; (iv) a description of the acquisition (except with respect to the
Versatel Acquisition and the U.S. Wats Acquisition) and the governing
documentation (except with respect to the U.S. Wats Acquisition) shall have been
delivered to the Administrative Agent at least fifteen (15) Business Days prior
to the consummation of the acquisition; (v) any Subsidiary created pursuant
hereto and organized under the laws of Canada shall be a direct Subsidiary of
ACC Canada and (vi) if such acquisition or investment, if completed, would cause
the aggregate fair market value of the consideration of all such acquisitions or
investments completed during the period (commencing on the Closing Date) of four
consecutive fiscal quarters ending immediately prior to the date of
determination thereof to exceed $30,000,000 (excluding consideration for the
U.S. Wats Acquisition), the Required Lenders shall have consented in writing to
such acquisition or investment prior to the Closing Date.
(d) investments by ACC in any joint venture (other than a Controlled
Venture) not to exceed $5,000,000 with respect to any such individual joint
venture and $15,000,000 with respect to all such joint ventures during the term
of the Credit Facility without the prior written consent of the Required
Lenders; and
(e) loans to employees in the ordinary course of business for travel
and other advanced expenses not to exceed $50,000 with respect to any individual
employee or $500,000 in the aggregate.
<PAGE>
SECTION 10.5. Limitations on Mergers and Liquidation. Merge,
consolidate, amalgamate or enter into any similar combination with any other
Person or liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution) except (a) any Wholly-Owned Subsidiary of ACC which is not a
Borrower may be liquidated, wound-up or dissolved, (b) any Wholly-Owned
Subsidiary of ACC may merge with ACC or any other Wholly-Owned Subsidiary of ACC
which is a Borrower, as long as ACC or such Borrower, as applicable, is the
survivor of such merger and assumes all of the Obligations of the non-surviving
entity, (c) any Wholly-Owned Subsidiary may merge into the Person such
Wholly-Owned Subsidiary was formed to acquire in connection with an acquisition
permitted by Section 10.4(c) and (d) pursuant to any Change in Control which has
been approved pursuant to Section 14.11.
SECTION 10.6. Limitations on Sale of Assets. Convey, sell, lease,
assign, transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, the sale of any receivables and leasehold
interests and any sale-leaseback or similar transaction), whether now owned or
hereafter acquired except:
(a) the sale of inventory in the ordinary course of business;
(b) the sale of obsolete assets no longer used or usable in the
business of ACC or any of its Subsidiaries;
(c) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the compromise or
collection thereof;
(d) the transfer of assets to any Borrower or any Wholly-Owned
Subsidiary of ACC pursuant to Section 10.5(b); and
(e) the sale of assets which generated less than 10% of Operating Cash
Flow in the four quarters immediately preceding such sale so long as no Default
or Event of Default is existing or would be created by such sale of assets.
SECTION 10.7. Limitations on Dividends and Distributions. Declare or
pay any dividends upon any of its capital stock; purchase, redeem, retire or
otherwise acquire, directly or indirectly, any shares of its capital stock, or
make any distribution of cash, property or assets among the holders of shares of
its capital stock, in each case without the prior written consent of the
Required Lenders; or make any material change in its capital structure that
could reasonably be expected to have a Material Adverse Effect; provided that
(a) any Borrower may pay dividends in shares of its own capital stock, (b) any
Subsidiary of a Borrower may pay dividends or make other distributions in
respect of its capital stock to such Borrower, (c) any Subsidiary of a Borrower
may make payments on any Debt or other obligation owed to such Borrower which
Debt or other obligation and such payment are permitted hereunder and any other
applicable Loan Document and (d) as long as no Default or Event of Default has
occurred and is continuing or would be created thereby, ACC stock owned by an
officer or employee of ACC may be repurchased in an aggregate amount not to
exceed $2,000,000 per calendar year.
<PAGE>
SECTION 10.8. Limitations on Exchange and Issuance of Capital Stock.
Issue, sell or otherwise dispose of any class or series of capital stock that,
by its terms or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of an event or passage of time would be,
(a) convertible or exchangeable into Debt or (b) required to be redeemed or
repurchased, including at the option of the holder, in whole or in part, or has,
or upon the happening of an event or passage of time would have, a redemption or
similar payment due, in any such case prior to ninety (90) days after the
Revolving Credit Termination Date.
SECTION 10.9. Transactions with Affiliates. Directly or indirectly: (a)
make any loan or advance to, or purchase or assume any note or other obligation
to or from, any of its officers, directors, shareholders or other Affiliates, or
to or from any member of the immediate family of any of its officers, directors,
shareholders or other Affiliates, or subcontract any operations to any of its
Affiliates, or (b) enter into, or be a party to, any transaction with any of its
Affiliates, except pursuant to the reasonable requirements of its business and
upon fair and reasonable terms that are fully disclosed to the Required Lenders
and are no less favorable to it than would obtain in a comparable arm's length
transaction with a Person not its Affiliate.
SECTION 10.10. Certain Accounting Changes. Change its Fiscal Year end,
or make any material change in its accounting treatment and reporting practices
except as required by GAAP.
SECTION 10.11. Amendments; Payments and Prepayments of Subordinated
Debt. Amend or modify (or permit the modification or amendment of) any of the
terms or provisions of any Subordinated Debt; or cancel or forgive, make any
voluntary or optional payment or prepayment on, or redeem or acquire for value
(including without limitation by way of depositing with any trustee with respect
thereto money or securities before due for the purpose of paying when due) any
Subordinated Debt.
SECTION 10.12. Restrictive Agreements. (a) Enter into any Debt which
contains any negative pledge on assets or any covenants materially more
restrictive than the provisions of Articles VIII, IX and X hereof, or which
restricts, limits or otherwise encumbers its ability to incur Liens on or with
respect to any of its assets or properties other than the assets or properties
securing such Debt, or (b) enter into or permit to exist any agreement which
impairs or limits the ability of any Subsidiary of a Borrower to pay dividends
to such Borrower, unless the Required Lenders shall have previously consented in
writing to such agreement.
SECTION 10.13. Hedging Agreements. Enter into any Hedging Agreements
except: (a) Hedging Agreements required by Section 8.13; (b) Hedging Agreements
executed by a Borrower regarding currency risk exposure in the ordinary course
of business with respect to intercompany loans and advances with durations not
to exceed the remaining duration of the Credit Facility; and (c) any other
Hedging Agreement with a counterparty and upon terms and conditions reasonably
satisfactory to the Managing Agents.
<PAGE>
ARTICLE XI
UNCONDITIONAL GUARANTY
SECTION 11.1. Guaranty of Obligations. The Guarantor hereby
unconditionally guarantees to the Administrative Agent for the ratable benefit
of the Agents and the Lenders, and their respective successors, endorsees,
transferees and assigns, the prompt payment and performance of all Obligations
of the Borrowers (other than ACC), whether primary or secondary (whether by way
of endorsement or otherwise), whether now existing or hereafter arising, whether
or not from time to time reduced or extinguished (except by payment thereof) or
hereafter increased or incurred, whether or not recovery may be or hereafter
become barred by the statute of limitations, whether enforceable or
unenforceable as against any such Borrower, whether or not discharged, stayed or
otherwise affected by any bankruptcy, insolvency or other similar law or
proceeding, whether created directly with any Agent or Lender or acquired by any
Agent or Lender through assignment, endorsement or otherwise, whether matured or
unmatured, whether joint or several, as and when the same become due and payable
(whether at maturity or earlier, by reason of acceleration, mandatory repayment
or otherwise), in accordance with the terms of any such instruments evidencing
any such obligations, including all renewals, extensions or modifications
thereof (all Obligations of each such Borrower to any Agent or Lender, including
all of the foregoing, being hereinafter collectively referred to as the
"Guaranteed Obligations").
SECTION 11.2. Nature of Guaranty. The Guarantor agrees that this
Guaranty is a continuing, unconditional guaranty of payment and performance and
not of collection, and that its obligations under this Guaranty shall be
primary, absolute and unconditional, irrespective of, and unaffected by (a) the
genuineness, validity, regularity, enforceability or any future amendment of, or
change in, this Agreement or any other Loan Document or any other agreement,
document or instrument to which any such Borrower is or may become a party, (b)
the absence of any action to enforce this Guaranty, this Agreement or any other
Loan Document or the waiver or consent by the Administrative Agent or any Lender
with respect to any of the provisions of this Guaranty, this Agreement or any
other Loan Document, (c) the existence, value or condition of, or failure to
perfect its Lien against, any security for or other guaranty of the Guaranteed
Obligations or any action, or the absence of any action, by the Administrative
Agent or any Lender in respect of such security or guaranty (including, without
limitation, the release of any such security or guaranty) or (d) any other
action or circumstances which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor; it being agreed by the Guarantor
that its obligations under this Guaranty shall not be discharged until the final
and indefeasible payment and performance, in full, of the Guaranteed Obligations
and the termination of the Commitments. The Guarantor expressly waives all
rights it may now or in the future have under any statute (including without
limitation North Carolina General Statutes Section 26-7, et seq. or similar
law), or at law or in equity, or otherwise, to compel the Administrative Agent
or any Lender to proceed in respect of the Guaranteed Obligations against any
such Borrower or any other party or against any security for or other guaranty
of the payment and performance of the Guaranteed Obligations before proceeding
against, or as a condition to proceeding against, the Guarantor. The Guarantor
further expressly waives and agrees not to assert or take advantage of any
defense based upon the failure of the Administrative Agent or any Lender to
commence an action in respect of the Guaranteed
<PAGE>
Obligations against any such Borrower, the Guarantor or any other party or any
security for the payment and performance of the Guaranteed Obligations. The
Guarantor agrees that any notice or directive given at any time to the
Administrative Agent or any Lender which is inconsistent with the waivers in the
preceding two sentences shall be null and void and may be ignored by the
Administrative Agent or Lender, and, in addition, may not be pleaded or
introduced as evidence in any litigation relating to this Guaranty for the
reason that such pleading or introduction would be at variance with the written
terms of this Guaranty, unless the Administrative Agent and the Required Lenders
have specifically agreed otherwise in writing. The foregoing waivers are of the
essence of the transaction contemplated by the Loan Documents and, but for this
Guaranty and such waivers, the Agents and Lenders would decline to enter into
this Agreement.
SECTION 11.3. Demand by the Administrative Agent. In addition to the
terms set forth in Section 11.2, and in no manner imposing any limitation on
such terms, if all or any portion of the then outstanding Guaranteed Obligations
under this Agreement are declared to be immediately due and payable, then the
Guarantor shall, upon demand in writing therefor by the Administrative Agent to
the Guarantor, pay all or such portion of the outstanding Guaranteed Obligations
then declared due and payable. Payment by the Guarantor shall be made to the
Administrative Agent, to be credited and applied upon the Guaranteed
Obligations, in immediately available funds in the Permitted Currency in which
the relevant Guaranteed Obligations are denominated to an account designated by
the Administrative Agent or at the Administrative Agent's office or at any other
address that may be specified in writing from time to time by the Administrative
Agent.
SECTION 11.4. Waivers. In addition to the waivers contained in Section
11.2, the Guarantor waives, and agrees that it shall not at any time insist
upon, plead or in any manner whatever claim or take the benefit or advantage of,
any appraisal, valuation, stay, extension, marshalling of assets or redemption
laws, or exemption, whether now or at any time hereafter in force, which may
delay, prevent or otherwise affect the performance by the Guarantor of its
obligations under, or the enforcement by the Administrative Agent or the Lenders
of, this Guaranty. The Guarantor further hereby waives diligence, presentment,
demand, protest and notice of whatever kind or nature with respect to any of the
Guaranteed Obligations and waives the benefit of all provisions of law which are
or might be in conflict with the terms of this Guaranty. The Guarantor
represents, warrants and agrees that its obligations under this Guaranty are not
and shall not be subject to any counterclaims, offsets or defenses of any kind
against the Administrative Agent, the Lenders or any such Borrower whether now
existing or which may arise in the future.
SECTION 11.5. Modification of Loan Documents etc. If the Administrative
Agent or the Lenders shall at any time or from time to time, with or without the
consent of, or notice to, the Guarantor (a) change or extend the manner, place
or terms of payment of, or renew or alter all or any portion of, the Guaranteed
Obligations, (b) take any action under or in respect of the Loan Documents in
the exercise of any remedy, power or privilege contained therein or available to
it at law, in equity or otherwise, or waive or refrain from exercising any such
remedies, powers or privileges, (c) amend or modify, in any manner whatsoever,
the Loan Documents, (d) extend or waive the time for performance by the
Guarantor, any such Borrower or any other Person of, or
<PAGE>
compliance with, any term, covenant or agreement on its part to be performed or
observed under a Loan Document (other than this Guaranty), or waive such
performance or compliance or consent to a failure of, or departure from, such
performance or compliance, (e) take and hold security or collateral for the
payment of the Guaranteed Obligations or sell, exchange, release, dispose of, or
otherwise deal with, any property pledged, mortgaged or conveyed, or in which
the Administrative Agent or the Lenders have been granted a Lien, to secure any
Debt of the Guarantor or any such Borrower to any Agent or the Lenders, (f)
release anyone who may be liable in any manner for the payment of any amounts
owed by the Guarantor or any such Borrower to any Agent or Lender, (g) modify or
terminate the terms of any intercreditor or subordination agreement pursuant to
which claims of other creditors of the Guarantor or any such Borrower are
subordinated to the claims of any Agent or Lender or (h) apply any sums by
whomever paid or however realized to any amounts owing by the Guarantor or any
such Borrower to any Agent or Lender on account of the Obligations in such
manner as the Administrative Agent or any Lender shall determine in its
reasonable discretion; then neither the Administrative Agent nor any Lender
shall incur any liability to the Guarantor as a result thereof, and no such
action shall impair or release the obligations of the Guarantor under this
Guaranty.
SECTION 11.6. Reinstatement. The Guarantor agrees that, if any payment
made by any such Borrower or any other Person applied to the Obligations is at
any time annulled, set aside, rescinded, invalidated, declared to be fraudulent
or preferential or otherwise required to be refunded or repaid, or the proceeds
of Collateral are required to be returned by any Agent or Lender to any such
Borrower, its estate, trustee, receiver or any other party, including, without
limitation, the Guarantor, under any Applicable Law or equitable cause, then, to
the extent of such payment or repayment, the Guarantor's liability hereunder
(and any Lien or Collateral securing such liability) shall be and remain in full
force and effect, as fully as if such payment had never been made, and, if prior
thereto, this Guaranty shall have been canceled or surrendered (and if any Lien
or Collateral securing the Guarantor's liability hereunder shall have been
released or terminated by virtue of such cancellation or surrender), this
Guaranty (and such Lien or Collateral) shall be reinstated in full force and
effect, and such prior cancellation or surrender shall not diminish, release,
discharge, impair or otherwise affect the obligations of the Guarantor in
respect of the amount of such payment (or any Lien or Collateral securing such
obligation).
SECTION 11.7. No Subrogation. Until all amounts owing to the Agents and
Lenders on account of the Obligations are paid in full and the Commitments are
terminated, the Guarantor hereby waives any claims or other rights which it may
now or hereafter acquire against any such Borrower that arise from the existence
or performance of the Guarantor's obligations under this Guaranty, including,
without limitation, any right of subrogation, reimbursement, exoneration,
indemnification, any right to participate in any claim or remedy of the
Administrative Agent or the Lenders against any such Borrower or any Collateral
which the Administrative Agent or the Lenders now have or may hereafter acquire,
whether or not such claim, remedy or right arises in equity or under contract,
statute or common law, by any payment made hereunder or otherwise, including
without limitation, the right to take or receive from any such Borrower,
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security on account of such claim or other rights. If any
amount shall be paid to the Guarantor on account of such rights at any time when
all of the Obligations shall not have been paid in full, such amount
<PAGE>
shall be held by the Guarantor in trust for the Administrative Agent, segregated
from other funds of the Guarantor, and shall, forthwith upon receipt by the
Guarantor, be turned over to the Administrative Agent in the exact form received
by the Guarantor (duly indorsed by the Guarantor to the Administrative Agent, if
required) to be applied against the Obligations, whether matured or unmatured,
in such order as set forth herein.
ARTICLE XII
DEFAULT AND REMEDIES
SECTION 12.1. Events of Default. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:
(a) Default in Payment of Principal of Loans and Reimbursement
Obligations. Any Borrower shall default in any payment of principal of any Loan,
Note or Reimbursement Obligation when and as due (whether at maturity, by reason
of acceleration or otherwise);
(b) Other Payment Default. Any Borrower shall default in the payment
when and as due (whether at maturity, by reason of acceleration or otherwise) of
interest on any Loan, Note or Reimbursement Obligation or the payment of any
other Obligation, and such default shall continue unremedied for five (5)
Business Days;
(c) Misrepresentation. Any representation or warranty made or deemed to
be made by any Borrower or any of its Subsidiaries under this Agreement, any
Loan Document or any amendment hereto or thereto, shall at any time prove to
have been incorrect or misleading in any material respect when made or deemed
made;
(d) Default in Performance of Certain Covenants. Any Borrower shall
default in the performance or observance of any covenant or agreement contained
in Sections 7.5(e), 8.12 or 8.15 or Articles IX or X of this Agreement;
(e) Default in Performance of Other Covenants and Conditions. Any
Borrower or Subsidiary thereof shall default in the performance or observance of
any term, covenant, condition or agreement contained in this Agreement (other
than as specifically provided for otherwise in this Section 12.1) or any other
Loan Document and such default shall continue for a period of thirty (30) days
after written notice thereof has been given to such Borrower by the
Administrative Agent;
(f) Hedging Agreement. Any termination payment shall be due by a
Borrower under any Hedging Agreement and such amount is not paid within ten (10)
Business Days of the due date thereof;
<PAGE>
(g) Debt Cross-Default. ACC or any of its Subsidiaries shall (i)
default in the payment of any Debt (other than the Notes or any Reimbursement
Obligation) the aggregate outstanding amount of which Debt is in excess of
$1,000,000 (or the equivalent thereof in any foreign currency) beyond the period
of grace if any, provided in the instrument or agreement under which such Debt
was created; or (ii) default in the observance or performance of any other
agreement or condition relating to any Debt (other than the Notes or any
Reimbursement Obligation) the aggregate outstanding amount of which Debt is in
excess of $1,000,000 (or the equivalent thereof in any foreign currency) or
contained in any instrument or agreement evidencing, securing or relating
thereto or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders of such Debt (or a trustee or agent on behalf of such holder or holders)
to cause, with the giving of notice if required, any such Debt to become due
prior to its stated maturity (any applicable grace period having expired);
(h) Other Cross-Defaults. ACC or any of its Subsidiaries shall default
in the payment when due, or in the performance or observance, of any obligation
or condition of any Material Contract, or any Material Contract shall be
terminated, the breach or termination of which could reasonably be expected to
have a Material Adverse Effect unless, with respect to any such default, but
only as long as, the existence of any such default is being contested by ACC or
such Subsidiary in good faith by appropriate proceedings and adequate reserves
in respect thereof have been established on the books of ACC or such Subsidiary
to the extent required by GAAP;
(i) Change in Control. Any person or group of persons (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended)
other than current management thereof, shall obtain ownership or control in one
or more series of transactions of more than twenty percent (20%) of the common
stock or twenty percent (20%) of the voting power of ACC entitled to vote in the
election of members of the board of directors of ACC or there shall have
occurred under any indenture or other instrument evidencing any Debt in excess
of $1,000,000 (or the equivalent thereof in any foreign currency) any "change in
control" (as defined in such indenture or other evidence of Debt) obligating ACC
to repurchase, redeem or repay all or any part of the Debt or capital stock
provided for therein (any such event, a "Change in Control");
(j) Voluntary Bankruptcy Proceeding. Any Borrower or Subsidiary thereof
shall (i) commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect); (ii) file a petition or proposal or commence any other
proceeding seeking to take advantage of any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or composition
for adjustment of debts; (iii) consent to or fail to contest within sixty (60)
days of the filing thereof any petition filed or proceeding commenced against it
in an involuntary case under such bankruptcy laws or other laws; (iv) apply for
or consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, administrator,
custodian, trustee, or liquidator of itself or of a substantial part of its
property, domestic or foreign; (v) admit in writing its inability to pay its
debts as they become due; (vi) make a general assignment for the benefit of
creditors; or (vii) take any corporate action for the purpose of authorizing any
of the foregoing;
<PAGE>
(k) Involuntary Bankruptcy Proceeding. A case, petition or other
proceeding shall be commenced against any Borrower or Subsidiary thereof in any
court of competent jurisdiction seeking (i) relief under the federal bankruptcy
laws (as now or hereafter in effect) or under any other laws, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, winding up or
adjustment of debts; or (ii) the appointment of a trustee, receiver,
administrator, custodian, liquidator or the like for any Borrower or Subsidiary
thereof or for all or any substantial part of their respective assets, domestic
or foreign, and such case or proceeding shall continue, without dismissal or
stay, for a period of sixty (60) consecutive calendar days, or an order granting
the relief requested in such case, petition or proceeding (including, but not
limited to, an order for relief under such federal bankruptcy laws or other
laws) shall be entered;
(l) Failure of Agreements. Any material provision of this Agreement or
of any other Loan Document shall for any reason cease to be valid and binding on
any Borrower or Subsidiary thereof or any such Person shall so state in writing,
or this Agreement or any other Loan Document shall for any reason cease to
create a valid and perfected first priority Lien on, or security interest in,
any of the Collateral purported to be covered thereby, in each case other than
in accordance with the express terms hereof or thereof;
(m) Termination Event. The occurrence of any of the following events:
(i) ACC or any ERISA Affiliate fails to make full payment when due of all
amounts which, under the provisions of any Pension Plan or Section 412 of the
Code, ACC or any ERISA Affiliate is required to pay as contributions thereto;
(ii) an accumulated funding deficiency in excess of $1,000,000 occurs or exists,
whether or not waived, with respect to any Pension Plan; (iii) a Termination
Event; (iv) a Canadian Termination Event; or (v) ACC or any ERISA Affiliate as
employers under one or more Multiemployer Plan makes a complete or partial
withdrawal from any such Multiemployer Plan and the plan sponsor of such
Multiemployer Plans notifies such withdrawing employer that such employer has
incurred a withdrawal liability requiring payments in an amount exceeding
$1,000,000;
(n) Judgment. A judgment or order for the payment of money which causes
the aggregate amount of all such judgments to exceed $1,000,000 or the
Alternative Currency Amount thereof in any Fiscal Year shall be entered against
ACC or any of its Subsidiaries by any court and such judgment or order shall
continue, without discharge or stay, for a period of thirty (30) days;
(o) Loss of License. Any Communications License, PUC Authorization of
ACC or any Subsidiary thereof shall expire, terminate, be canceled or otherwise
lost or any application therefor be rejected, which event could reasonably be
expected to have a Material Adverse Effect;
SECTION 12.2. Remedies. Upon the occurrence of an Event of Default,
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to the Borrowers:
(a) Acceleration; Termination of Facilities. Declare the principal of
and interest on the Loans, the Notes and the Reimbursement Obligations at the
time outstanding, and all other amounts owed to the Lenders and to the Agents
under this Agreement or any of the other Loan
<PAGE>
Documents (including, without limitation, all L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) and all other Obligations, to be forthwith
due and payable, whereupon the same shall immediately become due and payable
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything in this Agreement or the other Loan Documents to
the contrary notwithstanding, and terminate the Credit Facility and any right of
the Borrowers to request borrowings or Letters of Credit thereunder; provided,
that upon the occurrence of an Event of Default specified in Section 12.1(j) or
(k), the Credit Facility shall be automatically terminated and all Obligations
shall automatically become due and payable.
(b) Letters of Credit. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to the preceding paragraph, require the Borrowers at such
time to deposit in a cash collateral account opened by the Administrative Agent
an amount equal to the aggregate L/C Obligations. Amounts held in such cash
collateral account shall be applied by the Administrative Agent to the payment
of drafts drawn under such Letters of Credit, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay the other Obligations. After all such Letters of
Credit shall have expired or been fully drawn upon, the Reimbursement Obligation
shall have been satisfied and all other Obligations shall have been paid in
full, the balance, if any, in such cash collateral account shall be returned to
such Borrower or such other Person that may be entitled thereto.
(c) Rights of Collection. Exercise on behalf of the Lenders all of its
other rights and remedies under this Agreement, the other Loan Documents and
Applicable Law, in order to satisfy all of the Borrowers' Obligations.
SECTION 12.3. Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of the Agents and the Lenders set forth
in this Agreement is not intended to be exhaustive and the exercise by the
Agents and the Lenders of any right or remedy shall not preclude the exercise of
any other rights or remedies, all of which shall be cumulative, and shall be in
addition to any other right or remedy given hereunder or under the Loan
Documents or that may now or hereafter exist in law or in equity or by suit or
otherwise. No delay or failure to take action on the part of any Agent or Lender
in exercising any right, power or privilege shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or privilege
preclude other or further exercise thereof or the exercise of any other right,
power or privilege or shall be construed to be a waiver of any Event of Default.
No course of dealing between the Borrowers, the Agents and the Lenders or their
respective agents or employees shall be effective to change, modify or discharge
any provision of this Agreement or any of the other Loan Documents or to
constitute a waiver of any Event of Default. In addition, any election of
remedies which results in the denial or impairment of the right of the
Administrative Agent to seek a deficiency judgment against any Borrower referred
to in Section 11.1 shall not impair the Guarantor's obligation to pay the full
amount of the Guaranteed Obligations.
<PAGE>
SECTION 12.4. Consents. The Borrowers acknowledge that certain
transactions contemplated by this Agreement and the other Loan Documents and
certain actions which may be taken by the Agents or the Lenders in the exercise
of their respective rights under this Agreement and the other Loan Documents may
require the consent of a Governmental Authority. If counsel to any Agent
reasonably determines that the consent of a Governmental Authority is required
in connection with the execution, delivery and performance of any of the
aforesaid documents or any documents delivered to the Agents or the Lenders in
connection therewith or as a result of any action which may be taken pursuant
thereto, then the Borrowers, at their sole cost and expense, agree to use their
best efforts to secure such consent and to cooperate with the Agents and the
Lenders in any action commenced by any Agent or Lender to secure such consent.
SECTION 12.5. Judgment Currency. The obligation of the Borrowers to
make payments of the principal of and interest on the Notes and the obligation
of the Guarantor to make payments on the Guaranteed Obligations and the
obligation of any such Person to make payments of any other amounts payable
hereunder or pursuant to any other Loan Document in the currency specified for
such payment shall not be discharged or satisfied by any tender, or any recovery
pursuant to any judgment, which is expressed in or converted into any other
currency, except to the extent that such tender or recovery shall result in the
actual receipt by each of the Administrative Agent and Lenders of the full
amount of the particular Permitted Currency expressed to be payable pursuant to
the applicable Loan Document. The Administrative Agent shall, using all amounts
obtained or received from the Borrowers pursuant to any such tender or recovery
in payment of principal of and interest on the Obligations, promptly purchase
the applicable Permitted Currency at the most favorable spot exchange rate
determined by the Administrative Agent to be available to it. The obligation of
the Borrowers to make payments in the applicable Permitted Currency shall be
enforceable as an alternative or additional cause of action solely for the
purpose of recovering in the applicable Permitted Currency the amount, if any,
by which such actual receipt shall fall short of the full amount of the
Permitted Currency expressed to be payable pursuant to the applicable Loan
Document.
<PAGE>
SECTION 12.6. Adjustments. If any Lender (a "Benefitted Lender") shall
at any time receive any payment of all or part of its Extensions of Credit, or
interest thereon, or if any Lender shall at any time receive any Collateral in
respect to its Extensions of Credit (whether voluntarily or involuntarily, by
set-off or otherwise) in a greater proportion than any such payment to and
Collateral received by any other Lender, if any, in respect of such other
Lender's Loans or other Extensions of Credit, or interest thereon, such
Benefitted Lender shall purchase for cash from the other Lenders such portion of
each such other Lender's Extensions of Credit, or shall provide such other
Lenders with the benefits of any such Collateral, or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such Collateral or proceeds ratably with each of the Lenders;
provided, that if all or any portion of such excess payment or benefits is
thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned to the extent of such
recovery, but without interest. The Borrowers agree that each Lender so
purchasing a portion of another Lender's Extensions of Credit may exercise all
rights of payment (including, without limitation, rights of set-off) with
respect to such portion as fully as if such Lender were the direct holder of
such portion.
ARTICLE XIII
THE AGENTS
SECTION 13.1 Appointment. Each of the Lenders hereby irrevocably
designates and appoints First Union as Administrative Agent and Managing Agent
of such Lender and Fleet as Managing Agent and Documentation Agent of such
Lender under this Agreement and the other Loan Documents and each such Lender
irrevocably authorizes First Union as Administrative Agent and Managing Agent
and Fleet as Managing Agent and Documentation Agent, respectively, for such
Lender, to take such action on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise such powers and perform such duties
as are expressly delegated to each such Agent by the terms of this Agreement and
such other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement or such other Loan Documents, none of the Agents shall have any
duties or responsibilities, except those expressly set forth herein and therein,
or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or the other Loan Documents or otherwise exist against such
Agent. To the extent any provision of this Agreement permits action by any
Agent, such Agent shall, subject to the provisions of Section 13.11 hereof and
of this Article XII, take such action if directed in writing to do so by the
Required Lenders.
SECTION 13.2. Delegation of Duties. Each of the Agents may execute any
of its respective duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. No Agent shall be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
such Agent with reasonable care.
<PAGE>
SECTION 13.3. Exculpatory Provisions. Neither any Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or the
other Loan Documents (except for its or such Person's own gross negligence or
willful misconduct), or (b) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrowers or
any of their Subsidiaries or any officer thereof contained in this Agreement or
the other Loan Documents or in any certificate, report, statement or other
document referred to or provided for in, or received by such Agent under or in
connection with, this Agreement or the other Loan Documents or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or the other Loan Documents or for any failure of the Borrowers or any
of their Subsidiaries to perform its obligations hereunder or thereunder. No
Agent shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement, or to inspect the properties, books or records of
the Borrowers or any of their Subsidiaries.
SECTION 13.4. Reliance by Agents. Each of the Agents shall be entitled
to rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrowers), independent accountants and other experts selected by any Agent.
Each of the Agents may deem and treat the payee of any Note as the owner thereof
for all purposes unless such Note shall have been transferred in accordance with
Section 14.10 hereof. Each of the Agents shall be fully justified in failing or
refusing to take any action under this Agreement and the other Loan Documents
unless it shall first receive such advice or concurrence of the Required Lenders
(or, when expressly required hereby or by the relevant other Loan Document, all
the Lenders) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action
except for its own gross negligence or willful misconduct. Each of the Agents
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement and the Notes in accordance with a request of the Required
Lenders (or, when expressly required hereby, all the Lenders), and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Notes.
SECTION 13.5. Notice of Default. None of the Agents shall be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or a Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that any Agent receives such
a notice, it shall promptly give notice thereof to the Administrative Agent who
shall promptly give notice thereof to the Lenders. The Administrative Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders; provided that unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or
<PAGE>
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
SECTION 13.6. Non-Reliance on Such Agents and Other Lenders. Each
Lender expressly acknowledges that none of the Agents nor any of their
respective officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates has made any representations or warranties to it and
that no act by any Agent hereinafter taken, including any review of the affairs
of the Borrowers or any of its Subsidiaries, shall be deemed to constitute any
representation or warranty by such Agent to any Lender. Each Lender represents
to the Agents that it has, independently and without reliance upon the Agents or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers and their Subsidiaries and made its own decision to make its Loans and
issue or participate in Letters of Credit hereunder and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon any Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrowers and their
Subsidiaries. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by any Agent hereunder or by the other Loan
Documents, no Agent shall have any duty or responsibility to provide any Lender
with any credit or other information concerning the business, operations,
property, financial and other condition or creditworthiness of the Borrowers or
any of their Subsidiaries which may come into the possession of such Agent or
any of its respective officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates.
<PAGE>
SECTION 13.7. Indemnification. The Lenders agree to indemnify the
Administrative Agent and the Managing Agents in their capacities as such and (to
the extent not reimbursed by the Borrowers and without limiting the obligation
of the Borrowers to do so), ratably according to the respective amounts of the
Obligations then owing them, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes
or any Reimbursement Obligation) be imposed on, incurred by or asserted against
any such Agent in any way relating to or arising out of this Agreement or the
other Loan Documents, or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by such Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from such Agent's bad faith,
gross negligence or willful misconduct. The agreements in this Section 13.7
shall survive the payment of the Notes, any Reimbursement Obligation and all
other amounts payable hereunder and the termination of this Agreement.
SECTION 13.8. Each of the Agents in Its Individual Capacity. Each Agent
and its respective Subsidiaries and Affiliates may make loans to, accept
deposits from and generally engage in any kind of business with each Borrower as
though such Agent were not an Agent hereunder. With respect to any Loans made or
renewed by it and any Note issued to it, and with respect to any Letter of
Credit issued by it or participated in by it, each Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any
Lender and may exercise the same as though it were not an Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agents and the Managing
Agents in their individual capacity.
SECTION 13.9. Resignation of Agents; Successor Agents. Each Managing
Agent may resign as such Agent at any time by giving notice thereof to the
Lenders and the Borrowers. If both Managing Agents have resigned, the
Administrative Agent shall serve as a Managing Agent hereunder. Subject to the
appointment and acceptance of a successor as provided below, the Administrative
Agent may resign at any time by giving notice thereof to the Lenders and the
Borrowers. Upon any such resignation, the Required Lenders shall have the right
to appoint a successor Administrative Agent which successor shall have minimum
capital and surplus of at least $500,000,000 and be consented to by the
Borrowers, such consent not to be unreasonably withheld. If no successor
Administrative Agent shall have been so appointed by the Required Lenders and
shall have accepted such appointment within thirty (30) days after the retiring
Administrative Agent's giving of notice of resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which successor shall have minimum capital and surplus of
at least $500,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent such successor
Administrative Agent shall thereupon succeed to and become vested with all
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation or
removal hereunder as Administrative Agent the provisions
<PAGE>
of this Section 13.9 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as Administrative
Agent.
SECTION 13.10 Documentation Agent. The Documentation Agent, in its
capacity as documentation agent, shall have no duties or responsibilities and no
liabilities under this Agreement or any other Loan Document.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1. Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to be
received by a party hereto (i) on the date of delivery if delivered by hand or
sent by telecopy, (ii) on the next Business Day if sent by recognized overnight
courier service and (iii) on the third Business Day following the date sent by
certified mail, return receipt requested. A telephonic notice to any Agent as
understood by such Agent will be deemed to be the controlling and proper notice
in the event of a discrepancy with or failure to receive a confirming written
notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address as to which all the other parties
are notified in writing.
If to any Borrower: ACC Corp.
400 West Avenue
Rochester, New York 14611
Attention: Michael R. Daley,
Executive Vice President
and Chief Financial Officer
Telephone No.: (716) 987-3175
Telecopy No.: (716) 987-3335
With copies to: Nixon, Hargrave, Devans & Doyle
Clinton Square
P.O. Box 1051
Rochester, New York 14603
Attention: James A. Locke III, Esq.
Telephone No.: (716) 263-1000
Telecopy No.: (716) 263-1600
<PAGE>
If to First Union as First Union National Bank
Administrative Agent One First Union Center, TW-10
or Managing Agent: 301 S. College Street
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telephone No.: (704) 374-2698
Telecopy No.: (704) 383-0288
If to Fleet Fleet National Bank
as Managing Agent 75 State Street MABOF10C
or Documentation Boston, Massachusetts 02109
Agent: Attention: Chris Swindell
Telephone No.: (617) 346-5579
Telecopy No.: (617) 346-3777
If to any Lender: The Address set forth on Schedule 1.1
(c) Administrative Agent's Office. The Administrative Agent hereby
designates its office located at the address set forth above, or any subsequent
office which shall have been specified for such purpose by written notice to the
Borrowers and Lenders, as the Administrative Agent's Office referred to herein,
to which payments due are to be made and at which Revolving Credit Loans will be
disbursed and Letters of Credit issued.
SECTION 14.2. Expenses. (a) The Borrowers will pay all reasonable
out-of-pocket expenses of (i) the Managing Agents in connection with the
preparation, execution and delivery of this Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including all
out-of-pocket syndication and due diligence expenses, appraiser's fees, search
fees, title insurance premiums, recording fees, taxes and reasonable fees and
disbursements of counsel, including foreign counsel, for the Managing Agents;
(ii) the Managing Agents in connection with the preparation, execution and
delivery of any waiver, amendment or consent by the Agents or the Lenders
relating to this Agreement or any of the other Loan Documents including
reasonable fees and disbursements of counsel, including foreign counsel, for
such Agents, search fees, appraiser's fees, recording fees and taxes imposed in
connection therewith; and (iii) the Managing Agents in connection with
administering and enforcing their respective rights under the Credit Facility,
including consulting with one or more Persons, including appraisers,
accountants, engineers and attorneys, including foreign attorneys, concerning or
related to the nature, scope or value of any right or remedy of any Agent or any
of the Lenders hereunder or under any of the other Loan Documents, including any
review of factual matters in connection therewith, which expenses shall include
the reasonable fees and disbursements of such Persons.
(b) The Guarantor agrees that it will reimburse each Agent and Lender
for all expenses (including reasonable attorneys fees and expenses) incurred by
each Agent or Lender in connection with the obligations of the Guarantor under
the Guaranty and any other Loan
<PAGE>
Documents and all expenses (including reasonable attorneys fees and expenses)
incurred by the Administrative Agent, any Agent or any Lender in connection with
the enforcement of the Guaranty.
SECTION 14.3. Set-off. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon and after the occurrence of any Event of Default and during the continuance
thereof, the Lenders and any assignee or participant of a Lender in accordance
with Section 14.10 are hereby authorized by the Borrowers at any time or from
time to time, without notice to the Borrowers or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all deposits (general or special, time or demand, including, but not
limited to, indebtedness evidenced by certificates of deposit, whether matured
or unmatured, excluding government securities required by Applicable Law to be
held as security for worker's compensation and similar claims) and any other
indebtedness at any time held or owing by the Lenders, or any such assignee or
participant to or for the credit or the account of a Borrower against and on
account of the Obligations of such Borrower irrespective of whether or not (a)
the Lenders shall have made any demand under this Agreement or any of the other
Loan Documents or (b) the Administrative Agent shall have declared any or all of
the Obligations to be due and payable as permitted by Section 12.2 and although
such Obligations shall be contingent or unmatured.
SECTION 14.4. Governing Law. This Agreement, the Notes and the other
Loan Documents, unless otherwise expressly set forth therein, shall be governed
by, construed and enforced in accordance with the laws of the State of North
Carolina, without reference to the conflicts or choice of law principles
thereof.
SECTION 14.5. Consent to Jurisdiction. The Borrowers hereby irrevocably
consent to the personal jurisdiction of the state and federal courts located in
Mecklenburg County, North Carolina, in any action, claim or other proceeding
arising out of any dispute in connection with this Agreement, the Notes and the
other Loan Documents, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations. The Borrowers hereby irrevocably
consent to the service of a summons and complaint and other process in any
action, claim or proceeding brought by any Agent or Lender in connection with
this Agreement, the Notes or the other Loan Documents, any rights or obligations
hereunder or thereunder, or the performance of such rights and obligations, on
behalf of itself or its property, in the manner specified in Section 14.1.
Nothing in this Section 14.5 shall affect the right of any Agent or Lender to
serve legal process in any other manner permitted by Applicable Law or affect
the right of any Agent or Lender to bring any action or proceeding against any
Borrower or its properties in the courts of any other jurisdictions.
SECTION 14.6. Binding Arbitration; Waiver of Jury Trial.
(a) Binding Arbitration. If in the reasonable determination of the
Administrative Agent and its counsel, Section 14.6(b) is unenforceable under
North Carolina law unless paired with a binding arbitration provision, then upon
demand of any party made within ninety (90) days after institution of any
judicial proceeding, any dispute, claim or controversy between a Lender (or
<PAGE>
group of Lenders) and a Borrower (or group of Borrowers ) (but not any dispute,
claim or controversy among any Lenders not involving any Borrower) arising out
of, connected with or relating to the Notes or any other Loan Documents
("Dispute"), between or among parties to the Notes or any other Loan Document
shall be resolved by binding arbitration as provided herein. Institution of a
judicial proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, claims brought as class actions, claims arising from Loan
Documents executed in the future, or claims concerning any aspect of the past,
present or future relationships arising out of or connected with the Loan
Documents. Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association, modified to incorporate the discovery rights contained
in the Federal Rules of Civil Procedure and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in Charlotte, North Carolina. The
expedited procedures set forth in Rule 51, et seq. of the Arbitration Rules
shall be applicable to claims of less than $1,000,000. All applicable statutes
of limitation shall apply to any Dispute. A judgment upon the award may be
entered in any court having jurisdiction. The panel from which all arbitrators
are selected shall be comprised of licensed attorneys. The single arbitrator
selected for expedited procedure shall be a retired judge from the highest court
of general jurisdiction, state or federal, of the state where the hearing will
be conducted. Notwithstanding the foregoing, this paragraph shall not apply to
any Hedging Agreement that is a Loan Document.
(b) Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH AGENT,
LENDER AND EACH BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF
ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS.
(c) Preservation of Certain Remedies. Notwithstanding the preceding
binding arbitration provisions, the parties hereto and the other Loan Documents
preserve, without diminution, certain remedies that such Persons may employ or
exercise freely, either alone, in conjunction with or during a Dispute. Each
such Person shall have and hereby reserves the right to proceed in any court of
proper jurisdiction or by self help to exercise or prosecute the following
remedies: (i) all rights to foreclose or otherwise realize against any real or
personal property or other security by exercising a power of sale or other
remedies against such property or security provided for in the Loan Documents or
under Applicable Law or by judicial foreclosure and sale, (ii) all rights of
self help including peaceful occupation of property and collection of rents, set
off, and peaceful possession of property, (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and in filing an involuntary bankruptcy
proceeding, and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
<PAGE>
SECTION 14.7. Reversal of Payments. To the extent any Borrower makes a
payment or payments to the Administrative Agent or other Agent for the ratable
benefit of the Lenders (or the other Agents) or the Administrative Agent or
other Agent receives any payment or proceeds of the Collateral which payments or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state, provincial or
federal law, common law or equitable cause, then, to the extent of such payment
or proceeds repaid, the Obligations or part thereof intended to be satisfied
shall be revived and continued in full force and effect as if such payment or
proceeds had not been received by any Agent.
SECTION 14.8. Injunctive Relief. The Borrowers recognize that, in the
event the Borrowers fail to perform, observe or discharge any of their
obligations or liabilities under this Agreement, any remedy of law may prove to
be inadequate relief to the Lenders. Therefore, the Borrowers agree that the
Lenders, at the Lenders' option, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
SECTION 14.9. Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by ACC
or any Subsidiary thereof to determine compliance with any covenant contained
herein, shall, except as otherwise expressly contemplated hereby or unless there
is an express written direction by the Administrative Agent to the contrary
agreed to by the Borrowers, be performed in accordance with GAAP. In the event
that changes in GAAP shall be mandated by the Financial Accounting Standards
Board, or any similar accounting body of comparable standing, or shall be
recommended by ACC's certified public accountants, to the extent that such
changes would modify such accounting terms or the interpretation or computation
thereof, such changes shall be followed in defining such accounting terms only
from and after the date the Credit and the Lenders shall have amended this
Agreement to the extent necessary to reflect any such changes in the financial
covenants and other terms and conditions of this Agreement.
SECTION 14.10. Successors and Assigns; Participations.
(a) Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, each Agent and the Lenders, all future
holders of the Notes, and their respective successors and assigns, except that
no Borrower shall assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Lender (except pursuant to
any transaction permitted pursuant to Section 10.5 hereof or as a result of a
Change in Control which has been approved pursuant to Section 14.11). Nothing
set forth in the Guaranty shall impair, as between the Borrowers, the Agents and
the Lenders, the obligations of the Borrowers hereunder and under the other Loan
Documents.
(b) Assignment by Lenders. Each Lender may, with the consent of the
Administrative Agent and (unless an Event of Default has occurred and is
continuing) the Borrowers, which consents shall not be unreasonably withheld,
assign to one or more Eligible Assignees all or a portion of its interests,
rights and obligations under this Agreement (including, without limitation,
<PAGE>
all or a portion of the Extensions of Credit at the time owing to it and the
Notes held by it); provided that:
(i) each such assignment shall be of a constant, and not a
varying, percentage of all the assigning Lender's rights and
obligations under this Agreement;
(ii) the Commitment so assigned shall not be less than the lesser
of (i) $5,000,000 or (ii) an amount equal to the entire Commitment of
the assigning Lender at the time of such assignment;
(iii) the parties to each such assignment shall execute and deliver
to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance in the form of Exhibit G
attached hereto (an "Assignment and Acceptance"), together with any
Note or Notes subject to such assignment;
(iv) such assignment shall not, without the consent of the
applicable Borrower, require such Borrower to file a registration
statement with the Securities and Exchange Commission or apply to or
qualify the Revolving Credit Loans or the Notes under the blue sky laws
of any state;
(v) no consent of the Borrowers or the Administrative Agent shall
be required if the assignee of such assignment is an Affiliate of the
assigning Lender;
(vi) the assigning Lender shall pay to the Administrative Agent an
assignment fee of $2,500 upon the execution by such Lender of the
Assignment and Acceptance; provided that no such fee shall be payable
upon any assignment by a Lender to an Affiliate thereof;
(vii) the assignee of each such assignment shall deliver tax forms
in accordance with Sections 5.2(f)(iv) and (v), if applicable; and
(viii) the assignee of each such assignment shall execute and
deliver to the Administrative Agent any such supplements to the
Canadian or German Security Documents and/or additional Canadian or
German Security Documents that may be reasonably required by such Agent
in order that the assignee may become a secured party thereunder.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereby
and (B) the Lender thereunder shall, to the extent provided in such assignment,
be released from its obligations under this Agreement.
<PAGE>
(c) Rights and Duties Upon Assignment. By executing and delivering an
Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
follows:
(i) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document furnished pursuant hereto;
(ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of
the Borrowers or their Subsidiaries or the performance or observance by
the Borrowers and their Subsidiaries of any of their obligations under
this Agreement or any other instrument or document furnished pursuant
hereto;
(iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred to
in Section 6.1(o) and the most recent financial statements delivered to
the Assignor pursuant to Section 7.1 and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon
any Agent, such assigning Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Agreement;
(v) such assignee confirms that it is an Eligible Assignee;
(vi) such assignee appoints and authorizes each Agent to take such
action as agent on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to such Agent
by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement
are required to be performed by it as a Lender.
(d) Register. The Administrative Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders and the amount of the Extensions of
Credit with respect to each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrowers, the Agents and the Lenders may treat each person whose name
is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be
<PAGE>
available for inspection by the Borrowers or Lender at any reasonable time and
from time to time upon reasonable prior notice.
(e) Issuance of New Notes. Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an Eligible Assignee together
with any Note or Notes subject to such assignment and the written consent to
such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed and is substantially in the form of Exhibit G:
(i) accept such Assignment and Acceptance;
(ii) record the information contained therein in the Register;
(iii) give prompt notice thereof to the Lenders and the Borrowers;
and
(iv) promptly deliver a copy of such Assignment and Acceptance to
ACC.
Within five (5) Business Days after receipt of notice, ACC shall execute and
deliver to the Administrative Agent, in exchange for the surrendered Note or
Notes, a new Note or Notes to the order of such Eligible Assignee in amounts
equal to the Commitment assumed by it pursuant to such Assignment and Acceptance
and a new Note or Notes to the order of the assigning Lender in an amount equal
to the Commitment retained by it hereunder. Such new Note or Notes shall be in
an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of the assigned
Notes delivered to the assigning Lender. Each surrendered Note or Notes shall be
canceled and returned to ACC.
(f) Participations. Each Lender may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment and its Extensions of Credit and the Notes held by it); provided
that:
(i) each such participation shall be in an amount not less than
$3,000,000;
(ii) such Lender's obligations under this Agreement (including,
without limitation, its Commitment) shall remain unchanged;
(iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iv) such Lender shall remain the holder of the Notes held by it
for all purposes of this Agreement;
<PAGE>
(v) the Borrowers, the Agents and the other Lenders shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement;
(vi) such Lender shall not permit such participant the right to
approve any waivers, amendments or other modifications to this
Agreement or any other Loan Document other than waivers, amendments or
modifications which would reduce the principal of or the interest rate
on any Loan or Reimbursement Obligation, extend the term or increase
the amount of the Commitment of such participant, reduce the amount of
any fees to which such participant is entitled, extend any scheduled
payment date for principal or, except as expressly contemplated hereby
or thereby, release substantially all of the Collateral; and
(vii) any such disposition shall not, without the consent of the
applicable Borrower, require such Borrower to file a registration
statement with the Securities and Exchange Commission to apply to
qualify the Revolving Credit Loans or the Notes under the blue sky law
of any state.
(g) Disclosure of Information; Confidentiality. The Agents and the
Lenders shall hold all non-public information obtained pursuant to the Loan
Documents in accordance with their customary procedures for handling
confidential information. Any Lender may, in connection with any assignment,
proposed assignment, participation or proposed participation pursuant to this
Section 14.10, disclose to the assignee, participant, proposed assignee or
proposed participant, any information relating to the Borrowers furnished to
such Lender by or on behalf of the Borrowers; provided, that prior to any such
disclosure, each such assignee, proposed assignee, participant or proposed
participant shall agree with the Borrowers or such Lender (which in the case of
an agreement with only such Lender, the Borrowers shall be recognized as third
party beneficiaries thereof) to preserve the confidentiality of any confidential
information relating to the Borrowers received from such Lender. Without
limiting the generality of the above, the Borrowers agree and consent to the
Agents' disclosure of information relating to this transaction to Gold Sheets
and other similar bank trade publications. Such disclosed information will
consist of deal terms and other information customarily found in such
publications.
(h) Certain Pledges or Assignments. Nothing herein shall prohibit any
Lender from pledging or assigning any Note to any Federal Reserve Bank in
accordance with Applicable Law.
(i) Agent Participation to Affiliates. Nothing herein shall prohibit
the Administrative Agent from selling a participation to any of its Affiliates
on terms acceptable to the Administrative Agent.
SECTION 14.11. Amendments, Waivers and Consents; Renewal.
(a) Except as set forth below, any term, covenant, agreement or
condition of this Agreement or any of the other Loan Documents may be amended or
waived by the Lenders (excluding any Hedging Agreement that is a Loan Document,
which may be amended in
<PAGE>
accordance with its terms), and any consent given by the Lenders, if, but only
if, such amendment, waiver or consent is in writing signed by the Required
Lenders (or by the Administrative Agent with the written consent of the Required
Lenders) and delivered to the Administrative Agent and, in the case of an
amendment, signed by the Borrowers; provided, that no amendment, waiver or
consent shall (i) release any Borrower or the Guarantor from its Obligations
hereunder, (ii) increase the amount or extend the time of the obligation of the
Lenders to make Loans or issue or participate in Letters of Credit (including
without limitation pursuant to Section 2.7), (iii) extend the originally
scheduled time or times of payment of any fees due hereunder or the principal of
any Loan or Reimbursement Obligation or the time or times of payment of interest
on any Loan, Letter of Credit or Reimbursement Obligation, (iv) reduce the rate
of interest or fees payable on any Loan or Reimbursement Obligation, (v) permit
any subordination of the principal or interest on any Loan or Reimbursement
Obligation, (vi) extend the expiration date of any Letter of Credit beyond the
Revolving Credit Termination Date, (vii) release any material portion of the
Collateral or release any Security Document (other than the release of assets
specifically permitted to be sold or otherwise transferred pursuant to the terms
hereof and other than as specifically permitted by the applicable Security
Document) (viii) amend the definitions of Alternative Currency or Permitted
Currency or (ix) amend the provisions of this Section 14.11 or the definition of
Required Lenders, without the prior written consent of each Lender. Further, no
amendment, waiver or consent shall waive any Default or Event of Default arising
under Section 12.1(i) or otherwise modify such Section 12.1(i) without the prior
written consent of the Supermajority Lenders. In addition, no amendment, waiver
or consent to the provisions of Article XIII shall be made without the written
consent of the affected Agents.
SECTION 14.12. Performance of Duties. The Borrowers' obligations under
this Agreement and each of the Loan Documents shall be performed by the
applicable Borrower at its sole cost and expense.
SECTION 14.13. Indemnification. The Borrowers agree to reimburse each
Agent and the Lenders for all reasonable costs and expenses, including
reasonable counsel, appraisal, or other expert or consultant fees and
disbursements incurred, and to indemnify and hold each Agent and the Lenders
harmless from and against all losses suffered by such Agent and the Lenders in
connection with (a) the exercise by the Agents or the Lenders of any right or
remedy granted to them under this Agreement or any of the other Loan Documents,
(b) any claim, and the prosecution or defense thereof, arising out of or in any
way connected with this Agreement or any of the other Loan Documents and (c) the
collection or enforcement of the Obligations or any of them; provided, that the
indemnity contained herein shall not apply to the extent that such losses,
claims, damages, liabilities or other expenses result from the gross negligence
or willful misconduct of such indemnified person; and further provided that,
promptly after the receipt by an indemnified person of notice of any pending or
threatened action with respect to which the indemnified person may claim
indemnification under this Agreement (an "Action"), the indemnified person shall
provide written notice thereof to ACC and ACC shall then be entitled, at its
sole and reasonable discretion, to assume the defense of any such Action, with
counsel reasonably satisfactory to the indemnified person. After written notice
to the indemnified person from ACC of its election to assume the defense of such
Action, ACC shall not be liable to such indemnified person for any legal
expenses or fees of other counsel or any other expense incurred
<PAGE>
by such indemnified person in connection with the defense thereof after such
date, except as provided below. The indemnified person shall cooperate with all
reasonable requests of ACC regarding the defense of any such Action.
Notwithstanding ACC's election to assume the defense thereof, however, the
indemnified person shall have the right to employ separate counsel and to
participate in, but not control, the defense of such action, and ACC shall pay
the reasonable fees and expenses of such separate counsel (provided that with
respect to any single Action, ACC shall not be required to bear the fees and
expenses of more than one such counsel in any single jurisdiction) if (a) the
use of counsel chosen by ACC to represent the indemnified person would present a
conflict-of-interest in the reasonable determination of the indemnified person
or such counsel, or (b) the defendants in or target of any such Action include
both the indemnified person and ACC, and the indemnified person reasonably
concluded that there may be legal defenses available to it that differ from or
are in addition to those available to ACC. ACC shall not be liable for any
settlement of any action effected by an indemnified person without ACC's prior
written consent (which shall not be unreasonably withheld).
SECTION 14.14. All Powers Coupled with Interest. All powers of attorney
and other authorizations granted to the Lenders, each Agent and any Persons
designated by such Agent or Lenders pursuant to any provisions of this Agreement
or any of the other Loan Documents shall be deemed coupled with an interest and
shall be irrevocable so long as any of the Obligations remain unpaid or
unsatisfied or the Credit Facility has not been terminated.
SECTION 14.15. Survival of Indemnities. Notwithstanding any termination
of this Agreement, the indemnities to which the Agents and the Lenders are
entitled under the provisions of this Article XIV and any other provision of
this Agreement and the Loan Documents shall continue in full force and effect
and shall protect the Agents and the Lenders against events arising after such
termination as well as before.
SECTION 14.16. Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 14.17. Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 14.18. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns, and all of which taken
together shall constitute one and the same agreement.
SECTION 14.19. ACC as Agent for Other Borrowers. Each Borrower hereby
appoints and authorizes ACC (a) to provide the Administrative Agent with all
notices with respect to Extensions of Credit for the benefit of itself and any
other Borrower and to provide the
<PAGE>
Administrative Agent with and receive therefrom all other notices and
instructions under this Agreement and (b) to take such action on behalf of
itself and such other Borrowers as ACC deems appropriate to obtain Extensions of
Credit and to exercise such other powers as are reasonably incidental to carry
out the purposes of this Agreement (including without limitation acceptance of
service of process for itself and each other Borrower and Subsidiary under
Section 14.5). This appointment shall be irrevocable and coupled with an
interest.
SECTION 14.20. Term of Agreement. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all Obligations
shall have been indefeasibly and irrevocably paid and satisfied in full. No
termination of this Agreement shall affect the rights and obligations of the
parties hereto arising prior to such termination.
SECTION 14.21. Inconsistencies with Other Documents; Independent Effect
of Covenants.
(a) In the event there is a conflict or inconsistency between this
Agreement, the Notes or the other Loan Documents, the terms of this Agreement
shall control; provided, that any provision of the Security Documents which
imposes additional burdens on any Borrower or its Subsidiaries or further
restricts the rights of any Borrower or its Subsidiaries or gives the Lenders
additional rights shall not be deemed to be in conflict or inconsistent with
this Agreement and shall be given full force and effect.
(b) The Borrowers expressly acknowledge and agree that each covenant
contained in Articles VIII, IX or X hereof shall be given independent effect.
Accordingly, the Borrowers shall not engage in any transaction or other act
otherwise permitted under any covenant contained in Articles VIII, IX or X if,
before or after giving effect to such transaction or act, the Borrower shall or
would be in breach of any other covenant contained in Articles VIII, IX or X.
[Signature pages to follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, all as of the day and year first
written above.
[CORPORATE SEAL] ACC CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC LONG DISTANCE CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC NATIONAL TELECOM CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC LONG DISTANCE OF MASSACHUSETTS CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC GLOBAL CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
[CORPORATE SEAL] ACC RADIO CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC NATIONAL LONG DISTANCE CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC SERVICE CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC CREDIT CORP.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC TELENTERPRISES LTD.
By:_________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
[CORPORATE SEAL] ACC LONG DISTANCE U.K., LTD.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] UNITED TELECOM LTD.
By:_________________________________________
Name:___________________________________
Title:__________________________________
[CORPORATE SEAL] ACC TELEKOMMUNIKATION GMBH
By:_________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
FIRST UNION NATIONAL BANK, as
Administrative Agent, Managing Agent,
Swingline Lender, Issuing Lender and Lender
By:_________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
FLEET NATIONAL BANK, as Managing Agent,
Documentation Agent and Lender
By:_________________________________________
Name____________________________________
Title:__________________________________
<PAGE>
CORESTATES BANK NA
By:_________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By:_________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
BANK OF MONTREAL
By:_________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
BANK OF SCOTLAND
By:_________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
Schedule 1.1: Lenders and Commitments
Commitment
Lender Commitment Percentage
First Union National Bank $37,500,000 25.0000000000%
One First Union Center, TW-10
301 S. College Street
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency
Services
Telephone No.: (704) 383-0281
Telecopy No.: (704) 383-0288
Fleet National Bank
One Federal Street
3rd Floor, MA-OF-D03D $37,500,000 25.0000000000%
Boston, Massachusetts 02110
Attention: Christopher A. Swindell
Telephone No.: (617) 346-5579
Telecopy No.: (617) 346-4345
Bank of Montreal
430 Park Avenue $24,000,000 16.0000000000%
15th Floor
New York, New York 10022
Attention: Media/Communications
Telephone No.: (212) 605-1477
Telecopy No.: (212) 605-1621
State Street Bank and Trust Company
225 Franklin Street, Floor 2 $20,000,000 13.3333333333%
Boston, Massachusetts 02110
Attention: James C. Gregg
Telephone No.: (617) 664-3857
Telecopy No.: (617) 664-3708
<PAGE>
Bank of Scotland $24,000,000 16.0000000000%
565 Fifth Avenue
New York, New York 10017
Attention: Annie Chin Tat
Telephone No.: (212) 450-0871
Telecopy No.: (212) 557-9460
CoreStates Bank, N.A. $7,000,000 4.6666666667%
1339 Chestnut
FC 1-8-11-28
Philadelphia, PA 19101
Attention: Ed Kittrell
Telephone No.: (215) 786-4368
Telecopy No.: (215) 786-7721
<PAGE>
Schedule 1.2 : Sublimits
Borrower Sublimit*
ACC Canada and any Additional Borrower $30,000,000
who is a CanadianBorrower
ACC U.K. and any Additional Borrower $50,000,000
which is a U.K.Borrower
ACC Germany and any Additional $20,000,000
Borrower which is a German Borrower
ACC and any Additional Borrower $150,000,000 less
who is a Domestic Borrower outstandings to all
other Borrowers
*The Sublimits may be revised upon the prior written consent of the Required
Lenders.
<PAGE>
EXHIBIT-10.27
SECOND AMENDED AND RESTATED PLEDGE AGREEMENT
THIS SECOND AMENDED AND RESTATED PLEDGE AGREEMENT (the "Pledge
Agreement"), dated as of December 19, 1997 is made by ACC CORP., a Delaware
corporation (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK, a national
banking association (the "Administrative Agent"), as Administrative Agent for
the ratable benefit of itself and the financial institutions (the "Lenders") as
are, or may from time to time become, parties to the Credit Agreement (as
defined below).
STATEMENT OF PURPOSE
The Pledgor has previously executed and delivered to the Administrative
Agent a Pledge Agreement dated as of July 21, 1995, as amended by the Amended
and Restated Pledge Agreement dated as of January 14, 1997 (the "First Amended
and Restated Pledge Agreement").
Pursuant to the Second Amended and Restated Credit Agreement, dated as
of even date herewith (as amended, restated or otherwise modified, the "Credit
Agreement"), between the Pledgor and certain Subsidiaries of the Pledgor as
Borrowers thereunder (collectively, the "Borrowers"), the Lenders and the
Administrative Agent, the Lenders will provide Extensions of Credit to the
Borrowers as more specifically described in the Credit Agreement.
The Pledgor is the legal and beneficial owner of the shares of Pledged
Stock (as hereinafter defined) issued by the Domestic Subsidiaries and the
Foreign Subsidiaries, as specified on Schedule 1 attached hereto and
incorporated herein by reference (collectively, the "Issuers").
In connection with the transactions contemplated by the Credit
Agreement and as a condition precedent thereto, the Lenders have requested that
the Pledgor amend and restate the First Amended and Restated Pledge Agreement,
and the Pledgor has agreed to do so pursuant to the terms of this Pledge
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into and make available Loans
pursuant to the Credit Agreement, the Pledgor hereby agrees with the
Administrative Agent for the ratable benefit of itself and Lenders as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein are so used as so defined, and
the following terms shall have the following meanings:
"Code" means the Uniform Commercial Code from time to time in
effect in the State of North Carolina.
<PAGE>
"Collateral" means the Pledged Stock and all Proceeds.
"Foreign Subsidiaries" means the collective reference
to all Subsidiaries that are not Domestic Subsidiaries.
"Pledge Agreement" means this Second Amended and Restated
Pledge Agreement, as further amended, restated or otherwise modified.
"Pledged Stock" means the shares of capital stock of each
Issuer listed on Schedule 1 hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by such Issuer to the Pledgor while this Pledge
Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9-306(1) of the Code on the date hereof and, in any event,
shall include, without limitation, all dividends or other income from
the Pledged Stock, collections thereon, proceeds of sale thereof or
distributions with respect thereto.
"Secured Obligations" means the Obligations of the Pledgor as
defined in the Credit Agreement and any renewals or extensions of any
of such Obligations.
2. Pledge and Grant of Security Interests. The Pledgor hereby delivers
to the Administrative Agent, for the ratable benefit of itself and the Lenders,
all of the Pledged Stock and hereby grants to the Administrative Agent, for the
ratable benefit of itself and the Lenders, a first priority security interest in
such Pledged Stock and all other Collateral, as collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations.
3. Stock Powers. Concurrently with the delivery to the Administrative
Agent of each certificate representing one or more shares of Pledged Stock, the
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank by the Pledgor with, if the Administrative Agent so requests,
signature guaranteed.
4. Representations and Warranties. To induce the Administrative Agent
and the Lenders to execute the Credit Agreement, provide any Extensions of
Credit and accept the security contemplated hereby, the Pledgor hereby
represents and warrants that:
(a) the Pledgor has the corporate power, authority and legal
right to execute and deliver, to perform its obligations under, and to
grant the Lien on the Collateral pursuant to, this Pledge Agreement and
has taken all necessary corporate action to authorize its execution,
delivery and performance of, and grant of the Lien on the Collateral
pursuant to, this Pledge Agreement;
<PAGE>
(b) this Pledge Agreement constitutes a legal, valid and
binding obligation of the Pledgor enforceable against the Pledgor in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(c) the execution, delivery and performance of this Pledge
Agreement will not violate any provision of any Applicable Law or
contractual obligation of the Pledgor and will not result in the
creation or imposition of any Lien on any of the properties or revenues
of the Pledgor pursuant to any Applicable Law or contractual
obligation, except as contemplated hereby;
(d) except as contemplated in Section 11 hereof, no consent or
authorization of, filing with, or other act by or in respect of, any
arbitrator or Governmental Authority and no consent of any other Person
(including, without limitation, any stockholder or creditor of the
Pledgor or any Issuer), is required in connection with the execution,
delivery, performance, validity or enforceability against the Pledgor
of this Pledge Agreement;
(e) no litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the
knowledge of the Pledgor, threatened by or against the Pledgor or
against any of its properties or revenues with respect to this Pledge
Agreement or any of the transactions contemplated hereby;
(f) the shares of Pledged Stock listed on Schedule 1
constitute all the issued and outstanding shares of all classes of the
capital stock of each of the Domestic Subsidiaries and constitute
66.66% of all the issued and outstanding shares of all classes of
capital stock of all Foreign Subsidiaries owned by the Pledgor;
(g) all the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable;
(h) the Pledgor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Stock listed on Schedule 1,
free of any and all Liens or options in favor of, or claims of, any
other Person, except the Lien created by this Pledge Agreement; and
(i) upon delivery to the Administrative Agent of the stock
certificates evidencing the Pledged Stock, the Lien granted pursuant to
this Pledge Agreement will constitute a valid, perfected first priority
Lien on the Pledged Stock and the Proceeds related thereto, enforceable
as such against all creditors of the Pledgor and any Persons purporting
to purchase any of the Pledged Stock from the Pledgor.
<PAGE>
5. Certain Covenants. The Pledgor covenants and agrees with the
Administrative Agent for the ratable benefit of itself and the Lenders that,
from and after the date of this Pledge Agreement until the Secured Obligations
are paid in full and the Commitments are terminated:
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect
thereof, the Pledgor shall accept the same as the agent of the
Administrative Agent, hold the same in trust for the Administrative
Agent and deliver the same forthwith to the Administrative Agent in the
exact form received, duly indorsed by the Pledgor to the Administrative
Agent, if required, together with an undated stock power covering such
certificate duly executed in blank by the Pledgor and with, if the
Administrative Agent so requests, signature guaranteed, to be held by
the Administrative Agent, subject to the terms hereof, as additional
collateral security for the Secured Obligations; PROVIDED, that in no
event shall more than 66.66% of all the issued and outstanding shares
of all classes of capital stock of each of the Foreign Subsidiaries
constitute collateral security hereunder. In addition, any sums paid
upon or in respect of the Pledged Stock upon the liquidation or
dissolution of any Issuer shall be held by the Administrative Agent as
additional collateral security for the Secured Obligations.
(b) Without the prior written consent of the Administrative
Agent, the Pledgor will not (i) vote to enable, or take any other
action to permit, any Issuer to issue any stock or other equity
securities of any nature or to issue any other securities convertible
into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of such Issuer, (ii) sell,
assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Pledged Stock, or (iii) create, incur or
permit to exist any Lien or option in favor of, or any claim of any
Person with respect to, any of the Collateral, or any interest therein,
except for the Lien provided for by this Pledge Agreement. The Pledgor
will defend the right, title and interest of the Administrative Agent
in and to the Collateral against the claims and demands of all Persons
whomsoever.
(c) At any time and from time to time, upon the written
request of the Administrative Agent, and at the sole expense of the
Pledgor, the Pledgor will promptly and duly execute and deliver such
further instruments and documents and take such further actions as the
Administrative Agent may reasonably request for the purposes of
obtaining or preserving the full benefits of this Pledge Agreement and
of the rights and powers herein granted. If any amount payable under or
in connection with any of the Collateral shall be or become evidenced
by any promissory note, other instrument or chattel paper, such note,
instrument or chattel paper shall be immediately delivered to the
<PAGE>
Administrative Agent, duly endorsed in a manner satisfactory to the
Administrative Agent, to be held as Collateral pursuant to this Pledge
Agreement.
(d) The Pledgor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all liabilities with
respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other similar taxes which may be payable or determined
to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Pledge Agreement.
(e) On or prior to the formation or acquisition of any
Subsidiary of the Pledgor, the Pledgor agrees to execute such
amendments and supplements to this Pledge Agreement, including without
limitation the Pledge Agreement Supplement attached hereto, and such
other documents and instruments and to take any and all actions, all as
shall be necessary, in the reasonable judgment of the Administrative
Agent, to pledge the Pledgor's interest therein to the Administrative
Agent for the ratable benefit of itself and the Lenders.
(f) Without the prior written consent of the Administrative
Agent, the Pledgor will not sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option with respect to, or create,
incur or permit to exist any Lien or option in favor of, or any claim
of any Person with respect to, any of the shares of capital stock of
any Foreign Subsidiary owned by the Pledgor but not pledged hereunder,
or any interest therein, except as otherwise permitted pursuant to
Section 10.3 or Section 10.4 of the Credit Agreement.
6. Cash Dividends; Voting Rights. Unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given notice
to the Pledgor of the Administrative Agent's intent to exercise its rights
pursuant to Section 7 below, the Pledgor shall be permitted to receive all cash
dividends paid in accordance with the terms of the Credit Agreement in respect
of the Pledged Stock and to exercise all voting and corporate rights with
respect to the Pledged Stock; PROVIDED, that no vote shall be cast or corporate
right exercised or other action taken which would impair the Collateral or which
would be inconsistent with or result in any violation of any provision of the
Credit Agreement, the Notes, any other Loan Documents or this Pledge Agreement.
7. Rights of the Administrative Agent.
(a) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the Pledgor, (i) the Administrative Agent shall have the right to receive any
and all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Secured Obligations, in the order set forth in Section 10 of the
Security Agreement and (ii) all shares of the Pledged Stock shall be registered
in the name of the Administrative Agent or its nominee, and the Administrative
Agent or its nominee may thereafter exercise (A) all voting, corporate and other
rights pertaining to such shares of the Pledged Stock at any meeting of
shareholders of the applicable Issuer or otherwise and (B) any
<PAGE>
and all rights of conversion, exchange, subscription and any other rights,
privileges or options pertaining to such shares of the Pledged Stock as if it
were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Stock upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of the applicable Issuer, or upon the exercise by the
Pledgor or the Administrative Agent of any right, privilege or option pertaining
to such shares of the Pledged Stock, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Stock with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as it may determine), all without liability except to account for
property actually received by it, but the Administrative Agent shall have no
duty to the Pledgor to exercise any such right, privilege or option and shall
not be responsible for any failure to do so or delay in so doing.
(b) The rights of the Administrative Agent and the Lenders hereunder
shall not be conditioned or contingent upon the pursuit by the Administrative
Agent or any Lender of any right or remedy against the Pledgor or against any
other Person which may be or become liable in respect of all or any part of the
Secured Obligations or against any collateral security therefor, guarantee
therefor or right of offset with respect thereto. Neither the Administrative
Agent nor any Lender shall be liable for any failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so, nor
shall the Administrative Agent be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Pledgor or any other Person or
to take any other action whatsoever with regard to the Collateral or any part
thereof.
8. Remedies. If an Event of Default shall occur and be continuing, with
the consent of the Required Lenders, the Administrative Agent may, and upon the
request of the Required Lenders, the Administrative Agent shall, exercise on
behalf of itself and the Lenders, all rights and remedies granted in this Pledge
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Secured Obligations, and in addition thereto, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing with regard to the scope of the Administrative Agent's remedies,
the Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Pledgor, any Issuer or any
other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange, broker's board or office
of the Administrative Agent or any Lender or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Administrative Agent or any Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the
<PAGE>
Pledgor, which right or equity is hereby waived or released. The Administrative
Agent shall apply any Proceeds from time to time held by it and the net proceeds
of any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
respect thereof or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Administrative Agent and the Lenders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements of counsel thereto, to the payment
in whole or in part of the Secured Obligations, in the order set forth in
Section 10 of the Security Agreement, and only after such application and after
the payment by the Administrative Agent of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Administrative Agent account for the surplus, if any, to the
Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Administrative Agent or
any Lender arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least 10
days before such sale or other disposition. The Pledgor further waives and
agrees not to assert any rights or privileges which it may acquire under Section
9-112 of the Code.
9. Registration Rights; Private Sales.
(a) If the Administrative Agent shall determine to exercise its right
to sell any or all of the Pledged Stock pursuant to Section 8 hereof, and if in
the opinion of the Administrative Agent it is necessary or advisable to have the
Pledged Stock, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Pledgor will cause the applicable Issuer to (i) execute and deliver, and cause
the directors and officers of the applicable Issuer to execute and deliver, all
such instruments and documents, and do or cause to be done all such other acts
as may be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) to use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (iii) to make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to
cause the applicable Issuer to comply with the provisions of the securities or
"Blue Sky" laws of any and all jurisdictions which the Administrative Agent
shall designate and to make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.
(b) The Pledgor recognizes that the Administrative Agent may be unable
to effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to
<PAGE>
agree, among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that, in the event the Administrative
Agent is unable to effect a public sale, any such private sale shall be deemed
to have been made in a commercially reasonable manner. The Administrative Agent
shall be under no obligation to delay a sale of any of the Pledged Stock for the
period of time necessary to permit the applicable Issuer to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if the applicable Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Collateral pursuant to this Section 9 valid and
binding and in compliance with any and all other Applicable Laws. The Pledgor
further agrees that a breach of any of the covenants contained in this Section 9
will cause irreparable injury to the Administrative Agent and the Lenders not
compensable in damages, that the Administrative Agent and the Lenders have no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section 9 shall be specifically
enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to
assert any defenses against an action for specific performance of such covenants
except for a defense that no Event of Default has occurred under the Credit
Agreement.
10. Amendments, etc. With Respect to the Secured Obligations. The
Pledgor shall remain obligated hereunder, and the Collateral shall remain
subject to the Lien granted hereby, notwithstanding that, without any
reservation of rights against the Pledgor, and without notice to or further
assent by the Pledgor, any demand for payment of any of the Secured Obligations
made by the Administrative Agent or any Lender may be rescinded by the
Administrative Agent or such Lender, and any of the Secured Obligations
continued, and the Secured Obligations, or the liability of the Pledgor or any
other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered, or released by the Administrative Agent or any
Lender, and the Credit Agreement, the Notes, any other Loan Documents and any
other documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or part, as the Lenders (or the
Required Lenders, as the case may be) may deem advisable from time to time, and
any guarantee, right of offset or other collateral security at any time held by
the Administrative Agent or any Lender for the payment of the Secured
Obligations may be sold, exchanged, waived, surrendered or released. Neither the
Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any other Lien at any time held by it as security for
the Secured Obligations or any property subject thereto. The Pledgor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Secured Obligations and notice of or proof of reliance by the Administrative
Agent or any Lender upon this Pledge Agreement; the Secured Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Pledge Agreement; and all dealings
<PAGE>
between the Pledgor, on the one hand, and the Administrative Agent and the
Lenders, on the other, shall likewise be conclusively presumed to have been had
or consummated in reliance upon this Pledge Agreement. The Pledgor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Pledgor with respect to any of the Secured
Obligations.
11. Regulatory Approval. The Pledgor will, at its expense, promptly
execute and deliver, or cause the execution and delivery of, all applications,
certificates, instruments, registration statements and all other documents and
papers the Administrative Agent may reasonably request or as may be required by
law in connection with the obtaining of any consent, approval, registration,
qualification or authorization of the FCC, CRTC, DTI, OFTEL, the Regulating
Authority for Telecommunications and Postal Services (Regulierungsbehorde fur
Telekommunikation und Post) and any applicable PUC (collectively, the
"Regulatory Authorities") or of any other Person necessary or appropriate for
the effective exercise of any rights under this Pledge Agreement. Without
limiting the generality of the foregoing, if an Event of Default shall have
occurred and be continuing, the Pledgor shall take any action which the
Administrative Agent may reasonably request in order to transfer and assign to
the Administrative Agent, or to such one or more third parties as the
Administrative Agent may designate, or to a combination of the foregoing, each
Communications License and PUC Authorization. To enforce the provisions of this
Section, upon the occurrence and during the continuance of an Event of Default,
the Administrative Agent is empowered to request the appointment of a receiver
from any court of competent jurisdiction. Such receiver shall be instructed to
seek from the Regulatory Authorities an involuntary transfer of control of each
such Communications License and PUC Authorization for the purpose of seeking a
bona fide purchaser to whom control will ultimately be transferred. The Pledgor
hereby agrees to authorize such an involuntary transfer of control upon the
request of the receiver so appointed and, if the Pledgor shall refuse to
authorize the transfer, its approval may be required by the court. Upon the
occurrence and during the continuance of an Event of Default, the Pledgor shall
further use its best efforts to assist in obtaining approval of the Regulatory
Authorities, if required, for any action or transactions contemplated by this
Pledge Agreement including, without limitation, the preparation, execution and
filing with the Regulatory Authorities of the assignor's or transferor's portion
of any application or applications for consent to the assignment of any
Communications License and PUC Authorizations or transfer of control necessary
or appropriate under the rules and regulations of the Regulatory Authorities for
the approval of the transfer or assignment of any portion of the Collateral,
together with any Communications License and applicable PUC Authorizations. The
Pledgor acknowledges that the assignment or transfer of each Communications
License and applicable PUC Authorizations is integral to the Administrative
Agent's and the Lenders' realization of the value of the Collateral, that there
is no adequate remedy at law for failure by the Pledgor to comply with the
provisions of this Section and that such failure would cause irreparable injury
not adequately compensable in damages, and therefore agrees that each and every
covenant contained in this Section may be specifically enforced, and the Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants.
<PAGE>
12. Limitation on Duties Regarding Collateral. The Administrative
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar securities and property for its own
account. Neither the Administrative Agent, any Lender nor any of their
respective directors, officers, employees or agents shall be liable for failure
to demand, collect or realize upon any of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Pledgor or otherwise.
13. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral constitute irrevocable powers
coupled with an interest.
14. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Paragraph Headings. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
16. No Waiver; Cumulative Remedies. Neither the Administrative Agent
nor any Lender shall by any act (except by a written instrument pursuant to
Section 17 hereof) be deemed to have waived any right or remedy hereunder or to
have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
17. Waivers and Amendments; Successors and Assigns; Governing Law. None
of the terms or provisions of this Pledge Agreement may be amended, supplemented
or otherwise modified except by a written instrument executed by the Pledgor and
the Administrative Agent; PROVIDED that any consent by the Administrative Agent
to any waiver, amendment, supplement or modification hereto shall be subject to
approval thereof by the Lenders or Required Lenders, as applicable, in
accordance with Section 14.11 of the Credit Agreement. This Pledge Agreement
shall be binding upon the successors and assigns of the Pledgor and shall inure
to the benefit of the Administrative Agent and the Lenders and their respective
successors and assigns. This
<PAGE>
Pledge Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of North Carolina.
18. Notices. All notices and communications hereunder shall be given to
the addresses and otherwise in accordance with Section 14.1 of the Credit
Agreement.
19. Irrevocable Authorization and Instruction to Issuers. The Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Administrative Agent in writing that (a) states that an
Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Pledge Agreement, without any other or further
instructions from the Pledgor, and the Pledgor agrees that such Issuer shall be
fully protected in so complying.
20. Authority of Administrative Agent. The Pledgor acknowledges that
the rights and responsibilities of the Administrative Agent under this Pledge
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the
Administrative Agent and the Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Administrative Agent and the Pledgor, the
Administrative Agent shall be conclusively presumed to be acting as agent for
itself and the Lenders with full and valid authority so to act or refrain from
acting, and neither the Pledgor nor any Issuer shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
21. Consent to Jurisdiction. The Pledgor hereby irrevocably consents to
the personal jurisdiction of the state and federal courts located in Mecklenburg
County, North Carolina, in any action, claim or other proceeding arising out of
or any dispute in connection with this Pledge Agreement, any rights or
obligations hereunder, or the performance of such rights and obligations. The
Pledgor hereby irrevocably consents to the service of a summons and complaint
and other process in any action, claim or proceeding brought by the
Administrative Agent or any Lender in connection with this Pledge Agreement, any
rights or obligations hereunder, or the performance of such rights and
obligations, on behalf of itself or its property, in the manner provided in
Section 14.1 of the Credit Agreement. Nothing in this Section 21 shall affect
the right of the Administrative Agent or any Lender to serve legal process in
any other manner permitted by Applicable Law or affect the right of the
Administrative Agent or any Lender to bring any action or proceeding against the
Pledgor or its properties in the courts of any other jurisdictions.
22. Binding Arbitration; Waiver of Jury Trial.
(a) Binding Arbitration. If in the reasonable determination of the
Administrative Agent and its counsel, Section 22(b) is unenforceable under North
Carolina law unless paired with a binding arbitration provision, then upon
demand of any party made within ninety (90)
<PAGE>
days after institution of any judicial proceeding, any dispute, claim or
controversy between a Lender (or group of Lenders) and a Borrower (or group of
Borrowers) (but not any dispute, claim or controversy among any Lenders not
involving any Borrower) arising out of, connected with or relating to this
Pledge Agreement ("Disputes"), between or among parties to this Pledge Agreement
shall be resolved by binding arbitration as provided herein. Institution of a
judicial proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, claims brought as class actions, claims arising from supplements
to this Pledge Agreement executed in the future, or claims concerning any aspect
of the past, present or future relationships arising out of or connected with
this Pledge Agreement. Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association and Title 9 of the U.S. Code. All arbitration
hearings shall be conducted in Charlotte, North Carolina. The expedited
procedures set forth in Rule 51, et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000. All applicable statutes of
limitation shall apply to any Dispute. A judgment upon the award may be entered
in any court having jurisdiction. The panel from which all arbitrators are
selected shall be comprised of licensed attorneys. The single arbitrator
selected for expedited procedure shall be a retired judge from the highest court
of general jurisdiction, state or federal, of the state where the hearing will
be conducted.
(b) Jury Trial. EACH AGENT, LENDER AND THE PLEDGOR HEREBY IRREVOCABLY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM
OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS
AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS
HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
(c) Preservation of Certain Remedies. Notwithstanding the preceding
binding arbitration provisions, the parties hereto preserve, without diminution,
certain remedies that such Persons may employ or exercise freely, either alone,
in conjunction with or during a Dispute. Each such Person shall have and hereby
reserves the right to proceed in any court of proper jurisdiction or by self
help to exercise or prosecute the following remedies: (i) all rights to
foreclose against any real or personal property or other security by exercising
a power of sale granted in this Pledge Agreement or under applicable law or by
judicial foreclosure and sale, (ii) all rights of self help including peaceful
occupation of property and collection of rents, set off, and peaceful possession
of property, (iii) obtaining provisional or ancillary remedies including
injunctive relief, sequestration, garnishment, attachment, appointment of
receiver and in filing an involuntary bankruptcy proceeding, and (iv) when
applicable, a judgment by confession of judgment. Preservation of these remedies
does not limit the power of an arbitrator to grant similar remedies that may be
requested by a party in a Dispute.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to
be duly executed and delivered as of the date first above written.
[CORPORATE SEAL] ACC CORP.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each Issuer of Pledged Stock referred to in the foregoing Pledge
Agreement hereby acknowledges receipt of a copy thereof and agrees to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. Each Issuer agrees to notify the Administrative Agent promptly
in writing of the occurrence of any of the events described in Section 5(a) of
the Pledge Agreement. Each United States Subsidiary further agrees that the
terms of Section 9 of the Pledge Agreement shall apply to it, mutatis mutandis,
with respect to all actions that may be required of it under or pursuant to or
arising out of Section 9 of the Pledge Agreement.
ACC LONG DISTANCE CORP.
By:________________________________
Name:______________________________
Title:_____________________________
ACC NATIONAL TELECOM CORP.
By_________________________________
Name:______________________________
Title:_____________________________
ACC RADIO CORP.
By:________________________________
Name:______________________________
Title:_____________________________
ACC GLOBAL CORP.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
ACC NATIONAL LONG DISTANCE CORP.
By:________________________________
Name:______________________________
Title:_____________________________
ACC CREDIT CORP.
By:________________________________
Name:______________________________
Title:_____________________________
ACC SERVICE CORP.
By:________________________________
Name:______________________________
Title:_____________________________
ACC TELENTERPRISES LTD.
By:________________________________
Name:______________________________
Title:_____________________________
ACC LONG DISTANCE U.K. LTD.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
SCHEDULE 1
To Pledge
Agreement
DESCRIPTION OF PLEDGED STOCK
Domestic Subsidiaries
Issuer Class of Stock Certificate No. No. of Shares
ACC Long
Distance
Corp. Common 1 200
ACC National
Telecom
Corp. Common 1 1
ACC Radio
Corp. Common 1 200
ACC Global
Corp. Common 2 1
ACC National
Long
Distance
Corp. Common 1 1
Common 3 4
ACC Credit Corp. Common 2 1
ACC Service Corp. Common 2 1
<PAGE>
Foreign Subsidiaries
Issuer Class of Stock Certificate No. No. of Shares
ACC Tel-
Enterprises
Ltd. Common C-1 66
ACC Long
Distance
U.K. Ltd. Common 10 2,000,000
Common 7 3,999,401
<PAGE>
PLEDGE AGREEMENT SUPPLEMENT
PLEDGE AGREEMENT SUPPLEMENT, dated as of _______________, 199_ (the
"Supplement"), made by _________, a ________________ corporation (the
"Pledgor"), in favor of First Union National Bank, a national banking
association, as Administrative Agent (in such capacity, the "Administrative
Agent"), under the Credit Agreement (as defined in the Pledge Agreement referred
to below) for the benefit of itself and the Lenders (as so defined).
1. Reference is hereby made to that Pledge Agreement, dated as of
___________ ___, 1996, made by the Pledgor in favor of the Administrative Agent
(as further amended, restated or otherwise modified, the "Pledge Agreement").
This Supplement supplements the Pledge Agreement, forms a part thereof and is
subject to the terms thereof. Terms defined in the Pledge Agreement are used
herein as therein defined.
2. The Pledgor hereby confirms and reaffirms the security interest in
the Collateral granted to the Administrative Agent for the ratable benefit of
itself and the Lenders under the Pledge Agreement, and, as additional collateral
security for the prompt and complete payment when due (whether at stated
maturity, by acceleration or otherwise) of the Secured Obligations and in order
to induce the Lenders to make their Loans under the Credit Agreement, the
Pledgor hereby delivers to the Administrative Agent, for the benefit of the
Lenders, [all of the issued and outstanding shares of capital stock of [INSERT
NAME OF NEW DOMESTIC SUBSIDIARY]] or [66.66% of the issued and outstanding
shares of capital stock of [INSERT NAME OF NEW FOREIGN SUBSIDIARY]] (the "New
Issuer") listed below, together with all stock certificates, options, or rights
of any nature whatsoever which may be issued or granted by the New Issuer in
respect to such stock which the Pledge Agreement, as supplemented hereby, is in
force (the "Additional Pledged Stock"; as used in the Pledge Agreement as
supplemented by this Supplement, "Pledged Stock" shall be deemed to include the
Additional Pledged Stock) and hereby grants to the Administrative Agent, for the
ratable benefit of itself and the Lenders, a first priority security interest in
the Additional Pledged Stock and all Proceeds thereof.
3. The Pledgor hereby represents and warrants that the representations
and warranties contained in paragraph 5 of the Pledge Agreement are true and
correct on the date of this Supplement with references therein to the "Pledged
Stock" to include the Additional Pledged Stock, with references therein to the
"Issuer" to include the New Issuer, and with references to the "Pledge
Agreement" to mean the Pledge Agreement as supplemented by this Supplement.
4. The Pledgor shall deliver to the Administrative Agent the
Acknowledgement and Consent attached hereto duly executed by the New Issuer. The
Additional Pledged Stock pledged hereby is as follows which Pledged Stock shall
be deemed part of Schedule 1 thereto:
<PAGE>
DESCRIPTION OF PLEDGED STOCK
Issuer Class of Stock Certificate No. No. of Shares
5. The Pledgor hereby agrees to deliver to the Administrative Agent
such certificates and other documents and take such other action as shall be
reasonably requested by the Administrative Agent in order to effectuate the
terms hereof and the Pledge Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
duly executed under seal and delivered as of the date first above written.
[CORPORATE SEAL] ____________________________________
By__________________________________
Name:_______________________________
Title:______________________________
<PAGE>
ACKNOWLEDGEMENT AND CONSENT OF NEW ISSUER
The undersigned hereby acknowledges receipt of a copy of the foregoing
Supplement and the Pledge Agreement referred to therein (the "Pledge
Agreement"). The undersigned agrees for the benefit of the Administrative Agent
and the Lenders as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in Section 5(a) of the
Pledge Agreement.
[3. The Issuer further agrees that the terms of Section 9 of the Pledge
Agreement shall apply to it, mutatis mutandis, with respect to all actions that
may be required of it under or pursuant to or arising out of Section 9 of the
Pledge Agreement.] [ONLY INCLUDE FOR DOMESTIC SUBSIDIARIES]
[NAME OF NEW ISSUER]
By:_________________________________
Name:____________________________
Title:___________________________
<PAGE>
EXHIBIT-10.29
SECOND AMENDED AND RESTATED SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED SECURITY AGREEMENT (this "Agreement"),
dated as of December __, 1997 by and between ACC CORP., a corporation organized
under the laws of Delaware ("ACC"), certain Domestic Subsidiaries of ACC listed
on the signature pages hereto (the "Subsidiary Grantors" and, collectively with
ACC Corp., the "Grantors") and FIRST UNION NATIONAL BANK, a national banking
association organized under the laws of the United States, as Administrative
Agent (the "Administrative Agent") for the benefit of itself, and the financial
institutions (the "Lenders") as are, or may from time to time become, parties to
the Credit Agreement (as defined below).
STATEMENT OF PURPOSE
ACC and certain of its Subsidiaries have previously executed and
delivered to the Administrative Agent a Security Agreement dated as of July 21,
1995, as amended by the Amended and Restated Security Agreement dated as of
January 14, 1997 (the "First Amended and Restated Security Agreement").
Pursuant to the Second Amended and Restated Credit Agreement dated as
of even date herewith (together with all amendments and other modifications, if
any, from time to time hereafter made thereto, the "Credit Agreement"), between
the Grantors and certain Subsidiaries of ACC as Borrowers thereunder
(collectively, the "Borrowers"), the Lenders and the Administrative Agent, the
Lenders will provide Extensions of Credit to the Borrowers as more specifically
described in the Credit Agreement. In order to induce the Lenders and the
Administrative Agent to enter into the Credit Agreement, and as a condition to
the provision of Extensions of Credit thereunder, the Lenders require that the
Grantors amend and restate the First Amended and Restated Security Agreement in
order to grant a continuing security interest in and to the "Collateral" (as
hereinafter defined) to secure the "Secured Obligations" (as hereinafter
defined).
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions. Terms defined in the Credit Agreement and not
otherwise defined herein, when used in this Agreement, including its preamble
and recitals, shall have the respective meanings provided for in the Credit
Agreement. The following additional terms, when used in this Agreement, shall
have the following meanings:
"Account Debtor" means any Person who is or may become obligated to any
Grantor under, with respect to, or on account of, an Account.
<PAGE>
"Accounts" means all "accounts" (as defined in the UCC) now or
hereafter owned or acquired by any Grantor or in which any Grantor now or
hereafter has or acquires any right or interest, and, in any event, shall also
include, without limitation, all accounts receivable, contract rights, book
debts, notes, drafts and other obligations or indebtedness owing to any Grantor
arising from the sale, lease or exchange of goods or other property by it or
property to be sold, leased or exchanged, or the performance of services by it,
or to be performed (including, without limitation, any such obligation which
might be characterized as an account, contract right or general intangible under
the Uniform Commercial Code in effect in any jurisdiction) and all of any
Grantor's rights in, to and under all purchase orders for goods, services or
other property, and all of any Grantor's rights to any goods, services or other
property represented by any of the foregoing (including returned or repossessed
goods and unpaid sellers' rights of rescission, replevin, reclamation and rights
to stoppage in transit) and all monies due to or to become due to any Grantor
under all contracts for the sale, lease or exchange of goods or other property
or the performance of services by it (whether or not yet earned by performance
on the part of such Grantor), in each case whether now in existence or hereafter
arising or acquired, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts and all collateral security and
guarantees of any kind given by any Person with respect to any of the foregoing.
"Accounts Aging Report" means a detailed aged trial balance of all
Accounts existing as of a specified date, specifying the name, addresses,
account number, face value and dates of invoices of each Account Debtor
obligated on any Accounts so listed, which report may be requested from time to
time by the Administrative Agent.
"Collateral" means the collective reference to:
(i) Accounts;
(ii) Inventory;
(iii) Documents;
(iv) Equipment;
(v) Fixtures;
(vi) Instruments;
(vii) General Intangibles;
(viii) The Collateral Account, all cash deposited therein from
time to time, the investments made pursuant to Section 6 and other
monies and property of any kind of any Grantor in the possession or
under the control of the Administrative Agent or any Lender;
<PAGE>
(ix) All books and records (including, without limitation,
customer lists, credit files, computer programs, printouts and other
computer materials and records) of any Grantor pertaining to any of the
Collateral;
(x) All other goods and personal property of any Grantor,
whether tangible or intangible; and
(xi) All products and Proceeds of all or any of the Collateral
described in clauses (i) through (x) hereof.
"Collateral Account" means a cash collateral account established by the
Grantors with the Administrative Agent, in the name and under the exclusive
dominion and control of the Administrative Agent, pursuant to Section 6.
"Copyright License" means any written agreement now or hereafter in
existence granting to any Grantor any right to use any Copyright.
"Copyrights" means, collectively, all of the following now owned or
hereafter created or acquired by any Grantor: (a) all copyrights, rights and
interests in copyrights, works protectable by copyright, copyright registrations
and copyright applications; (b) all renewals of any of the foregoing; (c) all
income, royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing or with respect to any of the foregoing, including,
without limitation, damages or payments for past or future infringements of any
of the foregoing; (d) the right to sue for past, present and future
infringements of any of the foregoing; and (e) all rights corresponding to any
of the foregoing throughout the world.
"Documents" means all "documents" (as defined in the UCC) or other
receipts covering, evidencing or representing goods or services, now or
hereafter owned or acquired by any Grantor or in which any Grantor now or
hereafter has or acquires any right or interest.
"Equipment" means all "equipment" (as defined in the UCC) of any
Grantor, wherever located, and all other machinery, equipment and goods (other
than Inventory) of any Grantor used or bought for use primarily in the business
of such Grantor, including all accessions, additions, attachments, improvements,
substitutions and replacements thereto and therefor, in all such cases whether
now owned or hereafter acquired by any Grantor or in which any Grantor now has
or hereafter acquires any right or interest.
"Financing Statements" means the Uniform Commercial Code Form UCC-1
Financing Statements executed by each Grantor with respect to the Collateral and
to be filed in the jurisdictions satisfactory to the Administrative Agent
pursuant to Section 5.2(c) of the Credit Agreement.
<PAGE>
"Fixtures" means all "fixtures" (as defined in the UCC) of any Grantor,
whether now owned or hereafter acquired, or in which any Grantor now has or
hereafter acquires any right or interest.
"General Intangibles" means all "general intangibles" (as defined in
the UCC) now or hereafter owned or acquired by any Grantor or in which any
Grantor now or hereafter has or acquires any right or interest, and, in any
event, shall mean and include, without limitation, all rights to
indemnification, and all rights, title and interest which any Grantor may now or
hereafter have in or under all contracts (other than contracts described in the
definition of Accounts), agreements (including without limitation the Versatel
Security Documents), permits, licenses (which contracts, agreements, permits and
licenses may be pledged pursuant to the terms thereof) causes of action,
franchises, tax refund claims, customer lists, Intellectual Property, license
royalties, goodwill, trade secrets, data bases, business records and all other
intangible property of every kind and nature.
"Instruments" means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC), including, without limitation,
instruments, chattel paper and letters of credit evidencing, representing,
arising from or existing in respect of, relating to, securing or otherwise
supporting the payment of, any of the Accounts, including (but not limited to)
promissory notes, drafts, bills of exchange and trade acceptances, now or
hereafter owned or acquired by any Grantor or in which any Grantor now or
hereafter has or acquires any right or interest.
"Intellectual Property" means, collectively, (a) all systems software
and applications software, including, but not limited to, screen displays and
formats, program structures, sequence and organization, all documentation for
such software, including, but not limited to, user manuals, flowcharts,
programmer's notes, functional specifications, and operations manuals, all
formulas, processes, ideas and know-how embodied in any of the foregoing, and
all program materials, flowcharts, notes and outlines created in connection with
any of the foregoing, whether or not patentable or copyrightable, (b) concepts,
discoveries, improvements and ideas, (c) any useful information relating to the
items described in clause (a) or (b), including know-how, technology,
engineering drawings, reports, design information, trade secrets, practices,
laboratory notebooks, specifications, test procedures, maintenance manuals,
research, development, manufacturing, marketing, merchandising, selling,
purchasing and accounting, (d) Patents, Patent rights and Patent applications,
Copyrights and Copyright applications, Trademarks, Trademark rights, trade
names, trade name rights, service marks, service mark rights, applications for
registration of Trademarks, trade names and service marks, and Trademark, trade
name and service mark registrations and Patent Licenses, Trademark Licenses and
Copyright Licenses, and (e) other licenses to use any of the items described in
the foregoing clauses (a), (b), (c) and (d) or any other similar items of any
Grantor necessary for the conduct of its business.
"Inventory" means all "inventory" (as defined in the UCC) now or
hereafter owned or acquired by any Grantor or in which any Grantor now or
hereafter has or acquires any right or interest, wherever located and, in any
event, shall mean and include, without limitation, all raw materials, inventory
and other materials and supplies, work-in-process, finished goods, all
<PAGE>
accessions thereto, documents therefor and any products made or processed
therefrom and all substances, if any, commingled therewith or added thereto.
"Patent License" means any written agreement now or hereafter in
existence granting to any Grantor any right to use any invention on which a
Patent is in existence.
"Patents" means, collectively, all of the following now owned or
hereafter created or acquired by any Grantor: (a) all patents and patent
applications including all patentable inventions; (b) all reissues, divisions,
continuations, renewals, extensions and continuations-in-part of any of the
foregoing; (c) all income, royalties, damages or payments now or hereafter due
and/or payable under any of the foregoing or with respect to any of the
foregoing, including, without limitation, damages or payments for past or future
infringements of any of the foregoing; (d) the right to sue for past, present
and future infringements of any of the foregoing; and (e) all rights
corresponding to any of the foregoing throughout the world.
"Perfection Certificate" means a certificate dated as of even date
herewith, setting forth the corporate names, chief executive office or principal
place of business in each state and other current locations of Collateral of
each Grantor and such other information as the Administrative Agent deems
pertinent to the perfection of security interests, completed and supplemented
with the schedules and attachments contemplated thereby to the satisfaction of
the Administrative Agent, and duly certified by the chief executive or chief
financial officer of each Grantor so authorized to act.
"Permitted Investments" means investments described in Section 10.4 of
the Credit Agreement.
"Permitted Liens" means all such Liens respecting the Collateral
permitted pursuant to Section 10.3 of the Credit Agreement.
"Proceeds" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, Collateral,
including, without limitation, all claims of any Grantor against third parties
for loss of, damage to or destruction of, or for proceeds payable under, or
unearned premiums with respect to, policies of insurance in respect of, any
Collateral, and any condemnation or requisition payments with respect to any
Collateral and the following types of property acquired with cash proceeds:
Accounts, Inventory, Documents, Fixtures, Instruments, General Intangibles and
Equipment.
"Secured Obligations" means, with respect to each Grantor, the
Obligations of such Grantor as defined in the Credit Agreement and any renewals
or extensions of any of such Obligations.
<PAGE>
"Security Interests" means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
"Trademark License" means any written agreement now or hereafter in
existence granting to any Grantor any right to use any Trademark.
"Trademarks" means, collectively, all of the following now owned or
hereafter created or acquired by any Grantor: (a) all Trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and labels on
which any of the foregoing have appeared or appear, all registrations and
recordings thereof, and all applications in connection therewith, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof or any other country or any political subdivision of any thereof,
including without limitation any thereof referred to on Schedule I hereto; (b)
all reissues, extensions and renewals of any of the foregoing; (c) all income,
royalties, damages and payments now or hereafter due and/or payable under any of
the foregoing or with respect to any of the foregoing, including, without
limitation, damages or payments for past or future infringements of any of the
foregoing; (d) the right to sue for past, present and future infringements of
any of the foregoing; and (e) all rights corresponding to any of the foregoing
throughout the world.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of North Carolina; provided that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-perfection
of the Security Interests in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than North Carolina, "UCC"
means the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection.
"Versatel Security Documents" means the loan and security documents
between ACC and [Versatel] executed pursuant to Section 10.4 of the Credit
Agreement.
SECTION 2. The Security Interests.
(a) In order to secure the Credit Agreement in accordance with the
terms thereof, and to secure the payment and performance of all of the Secured
Obligations, each Grantor hereby grants to the Administrative Agent, for the
ratable benefit of itself and the Lenders, a continuing security interest in and
to all of such Grantor's estate, right, title and interest in and to all
Collateral whether now or hereafter owned or acquired by such Grantor or in
which such Grantor now has or hereafter has or acquires any rights, and wherever
located.
(b) The Security Interests are granted as security only and shall not
subject the Administrative Agent or any Lender to, or transfer to the
Administrative Agent or any Lender, or
<PAGE>
in any way affect or modify, any obligation or liability of any Grantor
with respect to any of the Collateral or any transaction in connection
therewith.
(c) A first priority lien on approximately 66.66% of the outstanding
capital stock of ACC Telekommunikation GMBH shall be granted by ACC Credit Corp.
and ACC Service Corp. as pledgors in favor of the Lenders pursuant to a Pledge
Agreement dated on or about the date hereof governed by the laws of the Federal
Republic of Germany. Such Pledge Agreement shall govern the rights and remedies
of the Administrative Agent and Lenders with respect to such capital stock.
SECTION 3. Representations and Warranties. Each Grantor represents and
warrants as follows:
(a) Such Grantor has the corporate power and authority and the legal
right to execute and deliver, to perform its obligations under, and to grant the
Security Interests in the Collateral pursuant to, this Agreement and has taken
all necessary corporate action to authorize its execution, delivery and
performance of, and grant of the Security Interests in the Collateral pursuant
to, this Agreement.
(b) This Agreement constitutes a legal, valid and binding obligation of
such Grantor enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally.
(c) The execution, delivery and performance of this Agreement will not
violate any provision of any Applicable Law or contractual obligation of such
Grantor and will not result in the creation or imposition of any Lien on any of
the properties or revenues of such Grantor pursuant to any Applicable Law or
contractual obligation of such Grantor, except as contemplated hereby.
(d) No consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder or creditor of such
Grantor), is required in connection with the execution, delivery, performance,
validity or enforceability of this Agreement.
(e) No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of such
Grantor after due inquiry, threatened by or against such Grantor or against any
of its properties or revenues with respect to this Agreement or any of the
transactions contemplated hereby.
(f) Such Grantor has good and marketable title to all of its respective
Collateral, free and clear of any Liens other than the Permitted Liens.
<PAGE>
(g) Such Grantor has not performed or failed to perform any acts that
would prevent or hinder the Administrative Agent from enforcing any of the terms
of this Agreement. Other than financing statements or other similar or
equivalent documents or instruments with respect to Permitted Liens, no
financing statement, mortgage, security agreement or similar or equivalent
document or instrument covering all or any part of the Collateral of such
Grantor is on file or of record in any jurisdiction. No Collateral of such
Grantor is in the possession of any Person (other than such Grantor) asserting
any claim thereto or security interest therein, except that the Administrative
Agent or its designee may have possession of the Collateral as contemplated
hereby.
(h) All of the information set forth in the Perfection Certificate with
respect to such Grantor is true and correct as of the date hereof.
(i) Such Grantor has, contemporaneously herewith, delivered to the
Administrative Agent possession of all originals of all negotiable Instruments,
documents and chattel paper constituting Collateral currently owned or held by
such Grantor, if any (duly endorsed in blank, if requested by the Administrative
Agent).
(j) With respect to any Intellectual Property of Grantor the loss,
impairment or infringement of which might have a Material Adverse Effect:
(i) such Intellectual Property is subsisting and has not been
adjudged invalid or unenforceable, in whole or in part;
(ii) such Intellectual Property is valid and enforceable;
(111) such Grantor has made all necessary filings and recordations
to protect its interest in such Intellectual Property,
including, without limitation, recordations of all of its
interests in the Patents and Trademarks included in such
Intellectual Property in the United States Patent and
Trademark Office and its claims to the Copyrights included
in such Intellectual Property in the United States Copyright
Office;
(iv) such Grantor is the exclusive owner of the entire and
unencumbered right, title and interest in and to such
Intellectual Property and no claim has been made that the
use of such Intellectual Property does or may violate the
asserted rights of any third party; and
(v) such Grantor has performed and will continue to perform all
acts and has paid and will continue to pay all required fees
and taxes to maintain each and every such item of
Intellectual Property in full force and effect.
(k) The Financing Statements executed by such Grantor are in
appropriate form and when filed in the offices specified in the Perfection
Certificate, the Security Interests will constitute valid and perfected security
interests in the Collateral of such Grantor, prior to all other
<PAGE>
Liens and rights of others therein except for the Permitted Liens (to the
exten that a security interest therein may be perfected by filing pursuant
to the UCC) and all filings and other actions necessary or desirable to perfect
and protect such Security Interests have been duly taken.
(l) The Inventory, Fixtures and Equipment of such Grantor are insured
in accordance with the requirements hereof and of the Credit Agreement.
SECTION 4. Further Assurances; Covenants.
(a) General.
(i) Each Grantor agrees not to change the location of its
chief executive office or principal place of business in any state
unless it shall have given the Administrative Agent thirty (30) days
prior written notice thereof, executed and delivered to the
Administrative Agent all financing statements and financing statement
amendments which the Administrative Agent may request in connection
therewith. Each Grantor agrees not to change the locations where it
keeps or holds any Collateral or any records relating thereto from the
applicable location described in the Perfection Certificate unless such
Grantor shall have given the Administrative Agent thirty (30) days
prior written notice of such change of location and executed and
delivered to the Administrative Agent all financing statements and
financing statement amendments which the Administrative Agent may
request in connection therewith; provided, that such Grantor may keep
Inventory at, or in transit to, any location described in the
Perfection Certificate. Each Grantor agrees not to, in any event,
change the location of any Collateral if such change would cause the
Security Interests in such Collateral to lapse or cease to be
perfected.
(ii) Each Grantor agrees not to change its name, identity or
corporate structure in any manner unless it shall have given the
Administrative Agent thirty (30) days prior written notice thereof,
executed and delivered to the Administrative Agent all financing
statements and financing statement amendments which the Administrative
Agent may request in connection therewith.
(iii) Each Grantor will, from time to time, at its expense,
execute, deliver, file and record any statement, assignment,
instrument, document, agreement or other paper and take any other
action (including without limitation any filings of financing or
continuation statements under the UCC) that from time to time may be
necessary, or that the Administrative Agent may reasonably request, in
order to create, preserve, upgrade in rank (to the extent required
hereby), perfect, confirm or validate the Security Interests or to
enable the Administrative Agent and the Lenders to obtain the full
benefits of this Agreement, or to enable the Administrative Agent to
exercise and enforce any of its rights, powers and remedies hereunder
with respect to any of the Collateral (other than any filings with the
United States Patent and Trademark Office or the United States
Copyright Office). Prior to the irrevocable payment in full of the
Secured Obligations,
<PAGE>
each Grantor hereby authorizes the Administrative
Agent, upon the failure of such Grantor to so do within three Business
Days after receipt of notice from the Administrative Agent, to execute
and file financing statements, financing statement amendments or
continuation statements without such Grantor's signature appearing
thereon. Each Grantor agrees that a carbon, photographic, photostatic
or other reproduction of this Agreement or of a financing statement is
sufficient as a financing statement. Each Grantor shall pay the costs
of, or incidental to, any recording or filing of the Financing
Statements and any other financing statements, financing statement
amendments or continuation statements concerning the Collateral.
(iv) If any Collateral exceeding in value $500,000 in the
aggregate is at any time in the possession or control of any
warehouseman, bailee (other than a carrier transporting Inventory to a
purchaser in the ordinary course of business), or any Grantor's agents
or processors, such Grantor shall notify in writing such warehouseman,
bailee, agent or processor of the Security Interests created hereby,
shall obtain such warehouseman's, bailee's, agent's or processor's
agreement in writing to hold all such Collateral for the Administrative
Agent's account subject to the Administrative Agent's instructions, and
shall cause such warehouseman, bailee, agent or processor to issue and
deliver to the Administrative Agent warehouse receipts, bills of lading
or any similar documents relating to such Collateral in the
Administrative Agent's name and in form and substance acceptable to the
Administrative Agent.
(v) Each Grantor will cause the Administrative Agent, for the
ratable benefit of itself and the Lenders, to be named as loss payee on
each insurance policy covering risks relating to any of its Inventory,
Fixtures and Equipment, as reasonably requested by the Administrative
Agent. Each Grantor will deliver to the Administrative Agent, upon
request of the Administrative Agent, the insurance policies for such
insurance. Each such insurance policy shall include effective waivers
by the insurer of subrogation, provide that all insurance proceeds
shall be adjusted with and payable to the Administrative Agent and
provide that no cancellation or termination thereof shall be effective
until at least thirty (30) days have elapsed after receipt by the
Administrative Agent of written notice thereof. Each Grantor shall
arrange for appropriate certifications that the requirements of this
Section 4(a)(v) have been satisfied, to be made to the Administrative
Agent and each insured party, as soon as practicable, by each insurer
or its authorized representative with respect thereto.
(vi) Each Grantor will, promptly upon request, provide to the
Administrative Agent all information and evidence the Administrative
Agent may reasonably request concerning the Collateral, and in
particular the Accounts, to enable the Administrative Agent to enforce
the provisions of this Agreement.
(vii) Each Grantor will comply in all material respects with
all Applicable Laws applicable to the Collateral or any part thereof or
to the operation of such Grantor's business.
<PAGE>
(viii) Each Grantor will pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom, as well as
all claims of any kind (including, without limitation, claims for
labor, materials and supplies) against or with respect to the
Collateral, except that no such charge need be paid if (A) the validity
thereof is being contested in good faith by appropriate proceedings,
(B) such proceedings do not involve any danger of the sale, forfeiture
or loss of or creation of a Lien on any of the Collateral or any
interest therein and (C) such charge is adequately reserved against on
such Grantor's books in accordance with GAAP.
(ix) No Grantor shall
(A) sell, assign (by operation of law or otherwise)
or otherwise dispose of any of the Collateral, except as
permitted by the Credit Agreement; or
(B) create or suffer to exist any Lien or other
charge or encumbrance upon or with respect to any of the
Collateral to secure indebtedness of any Person or entity,
except as permitted by the Credit Agreement.
(b) Accounts, Etc.
(i) Each Grantor shall use all reasonable efforts to cause to
be collected from its Account Debtors, as and when due, any and all
amounts owing under or on account of each Account (including, without
limitation, Accounts which are delinquent, such Accounts to be
collected in accordance with lawful collection procedures) and to apply
forthwith upon receipt thereof all such amounts as are so collected to
the outstanding balance of such Account. The costs and expenses
(including, without limitation, attorney's fees), of collection of
Accounts incurred by such Grantor or the Administrative Agent shall be
borne by such Grantor.
(ii) Upon the occurrence and during the continuance of any
Event of Default, upon request of the Administrative Agent or the
Required Lenders, each Grantor will promptly notify (and each Grantor
hereby authorizes the Administrative Agent so to notify) each Account
Debtor in respect of any Account that such Account has been assigned to
the Administrative Agent hereunder and that any payments due or to
become due in respect of such Account are to be made directly to the
Administrative Agent or its designee.
(iii) Each Grantor will perform and comply in all material
respects with all of its obligations in respect of Accounts and General
Intangibles and the exercise by the Administrative Agent of any of its
rights hereunder shall not release any Grantor from any of its duties
or obligations.
<PAGE>
(iv) No Grantor will (A) amend, modify, terminate or waive any
material provision of any agreement giving rise to an Account in any
manner which could reasonably be expected to materially adversely
affect the value of such Account as Collateral, (B) fail to exercise
promptly and diligently each and every material right which it may have
under each agreement giving rise to an Account (other than any right of
termination) or (C) fail to deliver to the Administrative Agent a copy
of each material demand, notice or document received by it relating in
any way to any agreement giving rise to an Account.
(v) Other than in the ordinary course of business as generally
conducted by such Grantor over a period of time, no Grantor will grant
any extension of the time of payment of any of the Accounts to any one
Account Debtor with an aggregate face amount in excess of $25,000 or
compromise, compound or settle the same for less than the full amount
thereof, release, wholly or partially, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon.
(c) Inventory, Etc. Each Grantor hereby represents, warrants, covenants
and agrees as follows: (i) all Inventory is, and shall be at all times,
located at places of business listed in the Perfection Certificate or
as to which such Grantor has complied with the provisions of Section
4(a)(i) hereof, except Inventory in transit from one such location to
another such location; (ii) no Inventory is, nor shall at any time or
times be, subject to any Lien whatsoever, except for Permitted Liens;
and (iii) no Inventory in aggregate value exceeding $500,000 at any
time is, nor shall at any time or times be, kept, stored or maintained
with a bailee, warehouseman, carrier or similar party (other than a
carrier delivering Inventory to a purchaser in the ordinary course of
such Grantor's business) unless the Required Lenders have given their
prior written consent and Grantor has complied with the provisions of
Section 4(a)(iv) hereof.
(d) Equipment, Etc. Each Grantor will maintain each item of Equipment
in the same condition, repair and working order as when acquired,
ordinary wear and tear and immaterial impairments of value and damage
by the elements excepted, and in accordance with any manufacturer's
manual, and will as quickly as practicable provide all maintenance,
service and repairs necessary for such purpose and will promptly
furnish to the Administrative Agent a statement respecting any material
loss or damage to any of the Equipment.
(e) Intellectual Property.
(i) Each Grantor shall notify the Administrative Agent
promptly (A) of its acquisition after the Closing Date of any Patent,
Patent License, Trademark or Trademark License and (B) if it knows, or
has reason to know of any adverse determination or development
(including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States
Patent and Trademark Office or any court) regarding such Grantor's
ownership of any Patent or Trademark, its right to
<PAGE>
register the same, or to keep and maintain the same. In the event that
any Patent, Patent License, Trademark or Trademark License is
infringed, misappropriated or diluted by a third party, each Grantor
shall notify the Administrative Agent promptly after it learns thereof
and shall, unless such Grantor and the Administrative Agent shall
jointly determine that any such action would be of immaterial economic
value, promptly sue for infringement, misappropriation or dilution and
to recover any and all damages for such infringement, misappropriation
or dilution, and take such other actions as may be appropriate under
the circumstances to protect such Patent, Patent License, Trademark or
Trademark License. In no event shall any Grantor, either itself or
through any agent, employee or licensee, file an application for the
registration of any Patent or Trademark with the United States Patent
and Trademark Office or any similar office or agency in any other
country or any political subdivision thereof, unless simultaneously
therewith it informs the Administrative Agent, and, upon issuance of
such Patent or Trademark, executes and delivers any and all
agreements, instruments, documents and papers the Administrative Agent
may reasonably request to evidence the Security Interests in such
Patent or Trademark and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby. Each Grantor hereby
constitutes the Administrative Agent its attorney-in-fact to execute
and file all such writings for the foregoing purposes, all acts of
such attorney being hereby ratified and confirmed, and such power,
being coupled with an interest, shall be irrevocable until the
Commitments have terminated and the Secured Obligations are paid in
full.
(ii) Each Grantor shall: (A) preserve and maintain in all
material respects rights in the Intellectual Property; and (B) upon and
after the occurrence of an Event of Default, use its best efforts to
obtain any consents, waivers or agreements necessary to enable
Administrative Agent to exercise its remedies with respect to the
Intellectual Property. No Grantor shall abandon any right to file a
Copyright, Patent or Trademark application that is material to the
business of such Grantor nor shall any Grantor abandon any such pending
Copyright, Patent or Trademark application, or Copyright, Copyright
License, Patent, Patent License, Trademark or Trademark License without
the prior written consent of Administrative Agent.
(iii) Each Grantor hereby assigns, transfers and conveys to
Administrative Agent, effective upon the occurrence and during the
continuance of any Event of Default, the nonexclusive right and license
to use all Intellectual Property owned or used by such Grantor,
together with any goodwill associated therewith, all to the extent
necessary to enable Administrative Agent to realize on the Collateral
(including, without limitation, completing production of, advertising
for sale and selling the Collateral) and any successor or assign to
enjoy the benefits of the Collateral. This right and license shall
inure to the benefit of all successors, assigns and transferees of
Administrative Agent and its successors, assigns and transferees,
whether by voluntary conveyance, operation of law, assignment,
transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such
right and license is granted free of charge, without requirement that
any monetary payment whatsoever be made to any Grantor by
Administrative Agent.
<PAGE>
(f) Indemnification. Each Grantor agrees to pay, and to save the
Administrative Agent and the Lenders harmless from, any and all liabilities,
costs and expenses (including, without limitation, legal fees and expenses) (i)
with respect to, or resulting from, any and all excise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral, (ii) with respect to, or resulting from, complying with any
Applicable Law applicable to any of the Collateral or (iii) in connection with
any of the transactions contemplated by this Agreement (except to the extent any
such liabilities, costs and expenses result from the gross negligence or willful
misconduct of the Administrative Agent or Lenders). In any suit, proceeding or
action brought by the Administrative Agent under any Account for any sum owing
thereunder, or to enforce any provisions of any Account, each Grantor will save,
indemnify and keep the Administrative Agent and the Lenders harmless from and
against all expense, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction or liability whatsoever of the Account
Debtor or any other obligor thereunder, arising out of a breach by such Grantor
of any obligation thereunder or arising out of any other agreement, indebtedness
or liability at any time owing to or in favor of such Account Debtor or obligor
or its successors from such Grantor (except to the extent any such expense, loss
or damage results from the gross negligence or willful misconduct of the
Administrative Agent or Lenders). The obligations of each Grantor under this
Section 4(f) shall survive the termination of the other provisions of this
Agreement.
SECTION 5. Reporting and Recordkeeping. Each Grantor respectively
covenants and agrees with the Administrative Agent and the Lenders that from and
after the date of this Agreement and until the Commitments have terminated and
all Secured Obligations have been fully satisfied:
(a) Maintenance of Records Generally. Such Grantor will keep and
maintain at its own cost and expense complete and accurate records of the
Collateral, including, without limitation, a record of all payments received and
all credits granted with respect to the Collateral and all other dealings with
the Collateral. All chattel paper given to such Grantor with respect to any
Accounts will be marked with the following legend: "This writing and the
obligations evidenced or secured hereby are subject to the security interest of
First Union National Bank, as Administrative Agent". For the Administrative
Agent's and the Lenders' further security, such Grantor agrees that upon the
occurrence and during the continuation of any Event of Default, such Grantor
shall deliver and turn over any such books and records directly to the
Administrative Agent or its designee. Such Grantor shall permit any
representative of the Administrative Agent to inspect such books and records in
accordance with Section 8.11 of the Credit Agreement and will provide
photocopies thereof to the Administrative Agent upon its reasonable request.
<PAGE>
(b) Certain Provisions Regarding Maintenance of Records and Reporting
Re: Accounts.
(i) In the event any amounts due and owing in excess of
$500,000 are in dispute between any Account Debtor and such Grantor,
such Grantor shall provide the Administrative Agent with written notice
thereof promptly after such Grantor's learning thereof, explaining in
detail the reason for the dispute, all claims related thereto and the
amount in controversy; provided, that a report of such items provided
within ten (10) days after the end of each fiscal quarter of ACC shall
be deemed to be prompt delivery of such notice.
(ii) Such Grantor will promptly notify the Administrative
Agent in writing if any Account arises out of a contract with the
United States of America, or any department, agency, subdivision or
instrumentality thereof, or of any state (or department, agency,
subdivision or instrumentality thereof) where such state has a state
assignment of claims act or other law comparable to the Federal
Assignment of Claims Act, and will take any action required or
requested by the Administrative Agent or give notice of the
Administrative Agent's Security Interest in such Accounts under the
provisions of the Federal Assignment of Claims Act or any comparable
law or act enacted by any state or local governmental authority.
(c) Further Identification of Collateral. Such Grantor will, if so
requested by the Administrative Agent, furnish to the Administrative Agent
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Administrative Agent
may reasonably request, all in reasonable detail.
(d) Notices. In addition to the notices required by Section 5(b)
hereof, such Grantor will advise the Administrative Agent promptly, in
reasonable detail, (i) of any material Lien or claim made or asserted against
any of the Collateral, (ii) of any material adverse change in the composition of
the Collateral, and (iii) of the occurrence of any other event which could have
a material adverse effect on the Collateral or on the validity, perfection or
priority of the Security Interests.
SECTION 6. Collateral Account.
(a) There is hereby established with the Administrative Agent a
Collateral Account in the name and under the exclusive dominion and control of
the Administrative Agent. There shall be deposited from time to time into such
account the cash proceeds of the Collateral required to be delivered to the
Administrative Agent pursuant to Section 6(b) or any other provision of this
Agreement. Any income received by the Administrative Agent with respect to the
balance from time to time standing to the credit of the Collateral Account,
including any interest or capital gains on investments of amounts on deposit in
the Collateral Account, shall remain, or be deposited, in the Collateral Account
together with any investments from time to time made pursuant to subsection (c)
of this Section 6, shall vest in the Administrative Agent, shall
<PAGE>
constitute part of the Collateral hereunder and shall not constitute payment of
the Secured Obligations until applied thereto as hereinafter provided.
(b) Upon the occurrence and during the continuance of an Event of
Default, if requested by the Administrative Agent, each Grantor shall instruct
all Account Debtors and other Persons obligated in respect of all Accounts to
make all payments in respect of the Accounts either (i) directly to the
Administrative Agent (by instructing that such payments be remitted to a post
office box which shall be in the name and under the exclusive dominion and
control of the Administrative Agent) or (ii) to one or more other banks in any
state in the United States (by instructing that such payments be remitted to a
post office box which shall be in the name and under the exclusive dominion and
control of such bank) under a Lockbox Letter substantially in the form of Annex
I hereto duly executed by each Grantor and such bank or under other
arrangements, in form and substance satisfactory to the Administrative Agent,
pursuant to which such Grantor shall have irrevocably instructed such other bank
(and such other bank shall have agreed) to remit all proceeds of such payments
directly to the Administrative Agent for deposit into the Collateral Account or
as the Administrative Agent may otherwise instruct such bank, and thereafter if
the proceeds of any Collateral shall be received by such Grantor, such Grantor
will promptly deposit such proceeds into the Collateral Account and until so
deposited, all such proceeds shall be held in trust by such Grantor for and as
the property of the Administrative Agent, for the benefit of itself and the
Lenders and shall not be commingled with any other funds or property of such
Grantor. At any time after the occurrence and during the continuance of an Event
of Default, the Administrative Agent may itself so instruct such Grantor's
Account Debtors and each Grantor hereby constitutes and appoints the
Administrative Agent (and the president, any vice president or any assistant
vice president of the Administrative Agent from time to time) as its
attorney-in-fact with full power and authority to so instruct such Grantor's
Account Debtors. All such payments made to the Administrative Agent shall be
deposited in the Collateral Account.
(c) The balance from time to time standing to the credit of the
Collateral Account shall, except upon the occurrence and continuation of an
Event of Default, be distributed to the Grantors upon the order of the Grantors.
If immediately available cash on deposit in the Collateral Account is not
sufficient to make any distribution to the Grantors referred to in the previous
sentence of this Section 6(c), the Administrative Agent shall liquidate as
promptly as practicable such investments as required to obtain sufficient cash
to make such distribution and, notwithstanding any other provision of this
Section 6, such distribution shall not be made until such liquidation has taken
place. Upon the occurrence and continuation of an Event of Default, the
Administrative Agent shall, if so instructed by the Required Lenders, apply or
cause to be applied (subject to collection) any or all of the balance from time
to time standing to the credit of the Collateral Account in the manner specified
in Section 10.
(d) Amounts on deposit in the Collateral Account shall be invested and
reinvested from time to time in Permitted Investments as the Grantors shall
determine, which investments shall be held in the name and be under the control
of the Administrative Agent; provided, that if an Event of Default has occurred
and is continuing, the Administrative Agent may and, if
<PAGE>
instructed by the Required Lenders, shall liquidate any such investments and
apply or cause to be applied the proceeds thereof to the payment of the Secured
Obligations in the manner specified in Section 10 hereof; and provided further,
that (i) each such investment shall mature within thirty (30) days after it is
acquired by the Administrative Agent and (ii) in order to provide the
Administrative Agent, for the ratable benefit of itself and the Lenders, with a
perfected security interest therein, each such investment shall be either:
(A) evidenced by negotiable certificates or Instruments, or if
non-negotiable then issued in the name of the Administrative Agent,
which (together with any appropriate instruments of transfer) are
delivered to, and held by, the Administrative Agent or any agent
thereof (which shall not be any of the Grantors or any of their
Affiliates) in the State of North Carolina; or
(B) in book-entry form and issued by the United States and
subject to pledge under applicable state law and Treasury regulations
and as to which (in the opinion of counsel to the Administrative Agent)
appropriate measures shall have been taken for perfection of the
Security Interests.
(e) Upon the occurrence of any Event of Default, the Administrative
Agent is authorized at any time and from time to time, and during the
continuance thereof, without notice to the Grantors, to set off, appropriate and
apply any and all amounts on deposit in the Collateral Account, and the proceeds
thereof, against all Secured Obligations.
SECTION 7. General Authority.
(a) Each Grantor hereby irrevocably appoints the Administrative Agent
its true and lawful attorney, with full power of substitution, in the name of
such Grantor, the Administrative Agent, the Lenders or otherwise, for the sole
use and benefit of the Administrative Agent and the Lenders, but at such
Grantor's expense, to exercise, at any time from time to time all or any of the
following powers:
(i) to file the Financing Statements and any financing
statements, financing statement amendments and continuation statements
referred to in Sections 4(a)(i), 4(a)(ii), and 4(a)(iii) hereof,
(ii) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due with respect to any
Collateral or by virtue thereof,
(iii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect to any Collateral,
(iv) to sell, transfer, assign or otherwise deal in or with
the Collateral and the Proceeds thereof, as fully and effectually as if
the Administrative Agent were the absolute owner thereof, and
<PAGE>
(v) to extend the time of payment and to make any allowance
and other adjustments with reference to the Collateral;
provided that the Administrative Agent shall not take any of the actions
described in this Section 7 except those described in clause (i) above unless an
Event of Default shall have occurred and be continuing and the Administrative
Agent shall give such Grantor not less than ten (10) days' prior written notice
of the time and place of any sale or other intended disposition of any of the
Collateral, except any Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market. Each
Grantor agrees that any such notice constitutes "reasonable notification" within
the meaning of Section 9-504(3) of the UCC (to the extent such Section is
applicable).
(b) Each Grantor hereby ratifies all that said attorney shall lawfully
do or cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irrevocable.
(c) Each Grantor also authorizes the Administrative Agent at any time
and from time to time, to execute, in connection with the sale provided for in
Section 8 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
SECTION 8. Remedies Upon Event of Default.
(a) If any Event of Default has occurred and is continuing, the
Administrative Agent may exercise on behalf of itself and the Lenders all rights
of a secured party under the UCC (whether or not in effect in the jurisdiction
where such rights are exercised) and, in addition, the Administrative Agent may
(i) withdraw all cash, if any, in the Collateral Account and investments made
with amounts on deposit in the Collateral Account, and apply such monies,
investments and other cash, if any, then held by it as Collateral as specified
in Section 10 hereof and (ii) if there shall be no such monies, investments or
cash or if such monies, investments or cash shall be insufficient to pay all the
Secured Obligations in full, sell the Collateral or any part thereof at public
or private sale, for cash, upon credit or for future delivery, and at such price
or prices as the Administrative Agent may deem satisfactory. The Administrative
Agent or any Lender may be the purchaser of any or all of the Collateral so sold
at any public sale (or, if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of widely distributed
standard price quotations or if otherwise permitted under applicable law, at any
private sale) and thereafter hold the same, absolutely, free from any right or
claim of whatsoever kind. Each Grantor will execute and deliver such documents
and take such other action as the Administrative Agent deems reasonably
necessary or advisable in order that any such sale may be made in compliance
with law. Upon any such sale the Administrative Agent shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold
(without warranty). Each purchaser at any such sale shall hold the Collateral so
sold to it absolutely, free from any claim or right of whatsoever kind,
including any equity or right of
<PAGE>
redemption of any Grantor. To the extent permitted by law, each Grantor hereby
specifically waives all rights of redemption, stay or appraisal which it has or
may have under any law now existing or hereafter adopted. The notice of such
sale shall be given to the applicable Grantor ten (10) days prior to such sale
and (A) in case of a public sale, state the time and place fixed for such sale,
and (B) in the case of a private sale, state the day after which sale may be
consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Administrative Agent
may fix in the notice of such sale. At any such sale the Collateral may be sold
in one lot as an entirety or in separate parcels, as the Administrative Agent
may determine. The Administrative Agent shall not be obligated to make any such
sale pursuant to any such notice. The Administrative Agent may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by the
Administrative Agent until the selling price is paid by the purchaser thereof,
but the Administrative Agent shall not incur any liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may again be sold upon like notice.
The Administrative Agent, instead of exercising the power of sale herein
conferred upon it, may proceed by a suit or suits at law or in equity to
foreclose the Security Interests and sell the Collateral, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction. The Grantors shall remain liable for any deficiency.
(b) For the purpose of enforcing any and all rights and remedies under
this Agreement, the Administrative Agent may if an Event of Default has occurred
and is continuing (i) require each Grantor to, and each Grantor agrees that it
will, at its expense and upon the request of the Administrative Agent, forthwith
assemble all or any part of the Collateral as directed by the Administrative
Agent and make it available at a place designated by the Administrative Agent
which is, in the Administrative Agent's opinion, reasonably convenient to the
Administrative Agent and such Grantor, whether at the premises of such Grantor
or otherwise, (ii) to the extent permitted by applicable law, enter, with or
without process of law and without breach of the peace, any premise where any of
the Collateral is or may be located and, without charge or liability to the
Administrative Agent, seize and remove such Collateral from such premises, (iii)
have access to and use such Grantor's books and records relating to the
Collateral and (iv) prior to the disposition of the Collateral, store or
transfer such Collateral without charge in or by means of any storage or
transportation facility owned or leased by such Grantor, process, repair or
recondition such Collateral or otherwise prepare it for disposition in any
manner and to the extent the Administrative Agent deems appropriate and, in
connection with such preparation and disposition, use without charge any
Trademark, trade name, Copyright, Patent or technical process used by such
Grantor.
(c) Without limiting the generality of the foregoing, if any
Event of Default has occurred and is continuing,
<PAGE>
(i) the Administrative Agent may license, or sublicense,
whether general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any Patents or Trademarks included in the
Collateral throughout the world for such term or terms, on such
conditions and in such manner as the Administrative Agent shall in its
sole discretion determine;
(ii) the Administrative Agent may (without assuming any
obligations or liability thereunder), at any time and from time to
time, enforce (and shall have the exclusive right to enforce) against
any licensee or sublicensee all rights and remedies of any Grantor in,
to and under any Patent Licenses or Trademark Licenses and take or
refrain from taking any action under any thereof, provided, that no
such actions shall result in the failure of such Patent Licenses or
Trademark Licenses to remain in compliance with all Applicable Law, and
each Grantor hereby releases the Administrative Agent and each of the
Lenders from and against any claims arising out of, any lawful action
so taken or omitted to be taken with respect thereto except with
respect to the gross negligence or willful misconduct of the
Administrative Agent or the Lenders; and
(iii) upon request by the Administrative Agent, each Grantor
will execute and deliver to the Administrative Agent a power of
attorney, in form and substance satisfactory to the Administrative
Agent, for the implementation of any lease, assignment, license,
sublicense, grant or option, sale or other disposition of a Patent or
Trademark. In the event of any such disposition pursuant to this
Section, each Grantor shall supply its know-how and expertise relating
to the manufacture and sale of the products bearing Trademarks or the
products or services made or rendered in connection with Patents, and
its customer lists and other records relating to such Patents or
Trademarks and to the distribution of said products, to the
Administrative Agent.
SECTION 9. Limitation on Duty of Administrative Agent in Respect of
Collateral. Beyond reasonable care in the custody thereof, the Administrative
Agent shall have no duty as to any Collateral in its possession or control or in
the possession or control of any agent or bailee or any income thereon or as to
the preservation of rights against prior parties or any other rights pertaining
thereto. The Administrative Agent shall be deemed to have exercised reasonable
care in the custody of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own
property, and the Administrative Agent shall not be liable or responsible for
any loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by the
Administrative Agent in good faith.
SECTION 10. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied by the
Administrative Agent as follows:
first, to payment of the out-of-pocket expenses of such sale
or other realization, including all reasonable out-of-pocket expenses,
liabilities and advances incurred or made
<PAGE>
by the Administrative Agent in connection therewith, and any other
unreimbursed expenses for which the Administrative Agent or any Lender
is to be reimbursed pursuant to Section 14.2 of the Credit Agreement,
or Section 4(f) or 13 hereof or any corresponding provision of any of
the other Loan Documents;
second, to payment of any fees owing to the Administrative
Agent or any Lender under the Credit Agreement in accordance with the
provisions of the Credit Agreement;
third, to ratable payment of accrued but unpaid interest
(including post-petition interest) on the Secured Obligations and any
termination payments due in respect of any Hedging Agreement with any
Lender (pro rata in accordance with all such amounts due);
fourth, to the ratable payment of unpaid principal of the
Secured Obligations;
fifth, to the ratable payment of all other Secured
Obligations, until all Secured Obligations shall have been paid in
full; and
finally, to payment to the applicable Grantors or their
respective successor or assigns, or as a court of competent
jurisdiction may direct, of any surplus then remaining from such
proceeds.
The Administrative Agent may make distribution hereunder in cash or in kind or,
on a ratable basis, in any combination thereof.
SECTION 11. Concerning the Administrative Agent. The provisions of
Article XIII of the Credit Agreement shall inure to the benefit of the
Administrative Agent in respect of this Agreement and shall be binding upon the
parties to the Credit Agreement in such respect. In furtherance and not in
derogation of the rights, privileges and immunities of the Administrative Agent
therein set forth:
(a) The Administrative Agent is authorized to take all such
action as is provided to be taken by it as Administrative Agent
hereunder and all other action incidental thereto. As to any matters
not expressly provided for herein, the Administrative Agent may request
instructions from the Lenders and shall act or refrain from acting in
accordance with written instructions from the Required Lenders (or,
when expressly required by this Agreement or the Credit Agreement, all
the Lenders) or, in the absence of such instructions, in accordance
with its discretion.
(b) The Administrative Agent shall not be responsible for the
existence, genuineness or value of any of the Collateral or for the
validity, perfection, priority or enforceability of the Security
Interests, whether impaired by operation of law or by reason of any
action or omission to act on its part (other than any such action or
inaction constituting gross negligence or willful misconduct. The
Administrative Agent shall
<PAGE>
have no duty to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement by any Grantor.
SECTION 12. Appointment of Collateral Agents. At any time or times, in
order to comply with any legal requirement in any jurisdiction or in order to
effectuate any provision of the Loan Documents, the Administrative Agent may
appoint another bank or trust company or one or more other Persons, either to
act as collateral agent or agents, jointly with the Administrative Agent or
separately, on behalf of the Administrative Agent and the Lenders with such
power and authority as may be necessary for the effectual operation of the
provisions hereof and specified in the instrument of appointment (which may, in
the discretion of the Administrative Agent, include provisions for the
protection of such collateral agent similar to the provisions of Section 11
hereof).
SECTION 13. Expenses. In the event that any Grantor fails to comply
with the provisions of the Credit Agreement, this Agreement or any other Loan
Document, such that the value of any Collateral or the validity, perfection,
rank or value of the Security Interests are thereby diminished or potentially
diminished or put at risk, the Administrative Agent if requested by the Required
Lenders may, but shall not be required to, effect such compliance on behalf of
such Grantor, and such Grantor shall reimburse the Administrative Agent for the
reasonable costs thereof on demand. All insurance expenses and all reasonable
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral, any and all excise, stamp, intangibles, transfer,
property, sales, and use taxes imposed by any state, federal, or local authority
or any other Governmental Authority on any of the Collateral, or in respect of
the sale or other disposition thereof, shall be borne and paid by the Grantors;
and if any Grantor fails promptly to pay any portion thereof when due, the
Administrative Agent or any Lender may, at its option, but shall not be required
to, pay the same and charge such Grantor's account therefor, and such Grantor
agrees to reimburse the Administrative Agent or such Lender therefor on demand.
All sums so paid or incurred by the Administrative Agent or any Lender for any
of the foregoing and any and all other sums for which any Grantor may become
liable hereunder and all costs and expenses (including reasonable attorneys'
fees, legal expenses and court costs) incurred by the Administrative Agent or
any Lender in enforcing or protecting the Security Interests or any of their
rights or remedies thereon shall be payable by the Grantors on demand and shall
bear interest (after as well as before judgment) until paid at the rate then
applicable to Base Rate Loans under the Credit Agreement and shall be additional
Secured Obligations hereunder.
SECTION 14. Notices. All notices, communications and distributions
hereunder shall be given or made in accordance with Section 14.1 of the Credit
Agreement.
SECTION 15. Waivers, Non-Exclusive Remedies. No failure on the part of
the Administrative Agent or any Lender to exercise, and no delay in exercising
and no course of dealing with respect to, any right under the Credit Agreement,
this Agreement or any other Loan Document shall operate as a waiver thereof or
hereof; nor shall any single or partial exercise by the Administrative Agent or
any Lender of any right under the Credit Agreement, this Agreement or any other
Loan Document preclude any other or further exercise thereof, and the exercise
of
<PAGE>
any rights in this Agreement, the Credit Agreement and the other Loan Documents
are cumulative and are not exclusive of any other remedies provided by law. This
Agreement is a Loan Document executed pursuant to the Credit Agreement.
SECTION 16. Successors and Assigns. This Agreement is for the benefit
of the Administrative Agent and the Lenders and their successors and assigns (as
permitted by the Credit Agreement), and in the event of an assignment of all or
any of the Secured Obligations, the rights hereunder, to the extent applicable
to the indebtedness so assigned, may be transferred with such indebtedness. This
Agreement shall be binding on each Grantor and its successor and assigns;
provided, that such Grantor may not assign any of its rights or obligations
hereunder without the prior written consent of the Administrative Agent and the
Lenders.
SECTION 17. Changes in Writing. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by each Grantor and the Administrative Agent with the
consent of the Required Lenders (or, when expressly required by this Agreement
or the Credit Agreement, all of the Lenders).
SECTION 18. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW
PRINCIPLES THEREOF.
SECTION 20. Consent to Jurisdiction. Each Grantor hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Mecklenburg County, North Carolina, in any action, claim or other proceeding
arising out of or any dispute in connection with this Agreement, any rights or
obligations hereunder, or the performance of such rights and obligations. Each
Grantor hereby irrevocably consents to the service of a summons and complaint
and other process in any action, claim or proceeding brought by the
Administrative Agent or any Lender in connection with this Agreement, any rights
or obligations hereunder, or the performance of such rights and obligations, on
behalf of itself or its property, in the manner provided in Section 14.1 of the
Credit Agreement. Nothing in this Section 20 shall affect the right of the
Administrative Agent or any Lender to serve legal process in any other manner
permitted by Applicable Law or affect the right of the Administrative Agent or
any Lender to bring any action or proceeding against any Grantor or its
properties in the courts of any other jurisdictions.
SECTION 21. Binding Arbitration; Waiver of Jury Trial.
<PAGE>
(a) Binding Arbitration. If in the reasonable determination of the
Administrative Agent and its counsel, Section 21(b) is unenforceable under North
Carolina law unless paired with a binding arbitration provision, then upon
demand of any party made within ninety (90) days after institution of any
judicial proceeding, any dispute, claim or controversy between a Lender (or
group of Lenders) and a Borrower (or group of Borrowers) (but not any dispute,
claim or controversy among any Lenders not involving any Borrower) arising out
of, connected with or relating to this Agreement ("Disputes"), between or among
parties to this Agreement shall be resolved by binding arbitration as provided
herein. Institution of a judicial proceeding by a party does not waive the right
of that party to demand arbitration hereunder. Disputes may include, without
limitation, tort claims, counterclaims, claims brought as class actions, claims
arising from supplements to this Agreement executed in the future, or claims
concerning any aspect of the past, present or future relationships arising out
of or connected with this Agreement. Arbitration shall be conducted under and
governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association and Title 9 of the
U.S. Code. All arbitration hearings shall be conducted in Charlotte, North
Carolina. The expedited procedures set forth in Rule 51, et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted.
(b) Jury Trial. EACH AGENT, LENDER AND THE PLEDGOR HEREBY IRREVOCABLY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM
OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS
AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS
HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
(c) Preservation of Certain Remedies. Notwithstanding the preceding
binding arbitration provisions, the parties hereto preserve, without diminution,
certain remedies that such Persons may employ or exercise freely, either alone,
in conjunction with or during a Dispute. Each such Person shall have and hereby
reserves the right to proceed in any court of proper jurisdiction or by self
help to exercise or prosecute the following remedies: (i) all rights to
foreclose against any real or personal property or other security by exercising
a power of sale granted in this Agreement or under applicable law or by judicial
foreclosure and sale, (ii) all rights of self help including peaceful occupation
of property and collection of rents, set off, and peaceful possession of
property, (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and in
filing an involuntary bankruptcy proceeding, and (iv) when applicable, a
judgment by confession of judgment. Preservation of these remedies does not
limit the power of an arbitrator to grant similar remedies that may be requested
by a party in a Dispute.
<PAGE>
SECTION 22. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Administrative
Agent and the Lenders in order to carry out the intentions of the parties hereto
as nearly as may be possible; and (b) the invalidity or unenforceability of any
provisions hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 23. Headings. The various headings of this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provisions hereof.
SECTION 24. Counterparts. This Agreement may be executed by
the parties hereto in several counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but one and the
same agreement.
[Signature Pages Follow]
<PAGE>
R155170.1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers, all as of the day and
year first written above.
[CORPORATE SEAL] ACC CORP.
By:______________________________
Name:____________________________
Title:___________________________
[CORPORATE SEAL] ACC LONG DISTANCE CORP.
By:______________________________
Name:____________________________
Title:___________________________
[CORPORATE SEAL] ACC NATIONAL TELECOM CORP.
By:______________________________
Name:____________________________
Title:___________________________
[CORPORATE SEAL] ACC LONG DISTANCE OF MASSACHUSETTS CORP.
By:______________________________
Name:____________________________
Title:___________________________
[CORPORATE SEAL] ACC RADIO CORP.
By:______________________________
Name:____________________________
Title:___________________________
[CORPORATE SEAL] ACC GLOBAL CORP.
By:______________________________
Name:____________________________
<PAGE>
Title:___________________________
[CORPORATE SEAL] ACC NATIONAL LONG DISTANCE CORP.
By:______________________________
Name:____________________________
Title:___________________________
[CORPORATE SEAL] ACC CREDIT CORP.
By:______________________________
Name:____________________________
Title:___________________________
[CORPORATE SEAL] ACC SERVICE CORP.
By:______________________________
Name:____________________________
Title:___________________________
Administrative Agent:
[CORPORATE SEAL] FIRST UNION NATIONAL BANK,
as Administrative Agent
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
Schedule I
to
Security Agreement
Trademark Registrations
Mark Reg. No. Date Goods
Flying ACC 1,371,741 11/19/85 Telecom.
Services
Design 1,607,689 7/24/89 Telecomm.
Services
Trademark Applications
Mark Serial No. Goods
ACC &
Design (fed) 74/607003 Telecomm.
Services
Digitrunk 74/499613 Telecomm.
Services
Trademark Licenses
None
<PAGE>
R155170.1
ANNEX I
(to Security Agreement)
[FORM OF LOCKBOX LETTER]
_______________, 19___
[Name and Address of Lockbox Bank)
Re: [GRANTOR]
Ladies and Gentlemen:
We hereby notify you that effective __________, 19__, we have
transferred exclusive ownership and control of our lock-box account(s) no[s].
_____________________ (the "Lockbox Account[s]") maintained with you under the
terms of the [Lockbox Agreement] attached hereto as Exhibit A (the "Lockbox
Agreement[s]") to First Union National Bank, as Agent (the "Agent").
We hereby irrevocably instruct you to make all payments to be made by
you out of or in connection with the Lockbox Account(s) (i) to the Agent for
credit to account no. __________ maintained by it at its office at
________________________ or (ii) as you may otherwise be instructed by the
Agent.
We also hereby notify you that the Agent shall be irrevocably entitled
to exercise any and all rights in respect of or in connection with the Lockbox
Account(s), including, without limitation, the right to specify when payments
are to be made out of or in connection with the Lockbox Account(s).
All funds deposited into the Lockbox Account(s) will not be subject to
deduction, set-off, banker's lien or any other right in favor of any other
person than the Agent, except that you may set-off against the Lockbox
Account(s) the face amount of any check deposited in and credited to such
Lockbox Account(s) which is subsequently returned for any reason. Your
compensation for providing the service contemplated herein shall be mutually
agreed between you and us from time to time and we will continue to pay such
compensation.
<PAGE>
Please confirm your acknowledgment of and agreement to the foregoing
instructions by signing in the space provided below.
Very truly yours,
________________________________________
By:____________________________________
Name:__________________________________
Title:__________________________________
Acknowledged and agreed
to as of this _____ day of
__________________, 19___.
[LOCKBOX BANK]
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
R155170.1
ANNEX II
(to Security Agreement)
SECURITY AGREEMENT SUPPLEMENT
SECURITY AGREEMENT SUPPLEMENT, dated as of _____________________, (the
"Supplement"), made by [INSERT NAME OF NEW SUBSIDIARY], a __________________
(the "New Grantor"), in favor of First Union National Bank, as Administrative
Agent (in such capacity, the "Administrative Agent") under the Credit Agreement
(as defined in the Security Agreement referred to below) for the ratable benefit
of itself and the Lenders (as so defined).
1. Reference is hereby made to the Second Amended and Restated Security
Agreement dated as of December [__], 1997, made by ACC Corp. and certain
Subsidiaries of ACC Corp. (collectively, the "Grantors"), in favor of the
Administrative Agent (as amended, supplemented or otherwise modified as of the
date hereof, the "Security Agreement"). This Supplement supplements the Security
Agreement, forms a part thereof and is subject to the terms thereof. Capitalized
terms used and not defined herein shall have the meanings given thereto or
referenced in the Security Agreement.
2. In order to secure the Credit Agreement, in accordance with the
terms thereof, and to secure the payment and performance of all of the Secured
Obligations, the New Grantor hereby grants to the Administrative Agent, for the
ratable benefit of itself and the Lenders, a continuing security interest in and
to all of the New Grantor's estate, right, title and interest in and to all
Collateral whether now or hereafter owned or acquired by the New Grantor or in
which the New Grantor now has or hereafter has or acquires any rights, and
wherever located (the "New Collateral").
3. The Security Interests are granted as security only and shall not
subject the Administrative Agent or any Lender to, or transfer to the
Administrative Agent or any Lender, or in any way affect or modify, any
obligation or liability of the New Grantor with respect to any of the New
Collateral or any transaction in connection therewith.
4. The New Grantor hereby agrees that it is a party to the Security
Agreement as if a signatory thereto on the Closing Date of the Credit Agreement,
and the New Grantor shall comply with all of the terms, covenants, conditions
and agreements and hereby makes each representation and warranty, in each case
set forth therein. The New Grantor agrees that "Collateral" as used therein
shall include all New Collateral pledged pursuant hereto and the Security
Agreement and "Security Agreement" or "Agreement" as used therein shall mean the
Security Agreement as supplemented hereby.
5. Attached hereto are (i) a Perfection Certificate in the form of the
Perfection Certificate delivered to the Administrative Agent on the Closing Date
and (ii) updated Schedules
<PAGE>
to the Security Agreement revised to include all required information with
respect to the New Grantor.
6. The New Grantor hereby acknowledges it has received a copy of the
Security Agreement and that it has read and understands the terms thereof.
7. The New Grantor hereby agrees that it shall deliver to the
Administrative Agent such UCC Financing Statements and all other certificates or
other documents and take such action as the Administrative Agent shall
reasonably request in order to effectuate the terms hereof and the Security
Agreement.
IN WITNESS WHEREOF, the undersigned hereby causes this Supplement to be
executed and delivered as of the date first above written.
[CORPORATE SEAL] [INSERT NAME OF NEW SUBSIDIARY]
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
EXHIBIT-10.44
DATED OCTOBER 9, 1997
LASMO (ULX) LIMITED
- to -
ACC LONG DISTANCE U.K. LIMITED
- and -
ACC CORP.
----------------------------------
AGREEMENT
FOR LEASE RELATING TO
Premises situate on the Ground to Fourth Floors
And 45 car parking spaces
Of the Building known as
Adelaide House
626 Chiswick High Road, London W4
-----------------------------------
Nabarro Nathanson
50 Stratton Street
London W1X 6NX
Tel: 0171 493 9933
<PAGE>
PARTICULARS
1. DATE 1997
2. LANDLORD LASMO (ULX) LIMITED whose registered
office is at 101 Bishopsgate, London EC2M
3XH (Company Registration Number 936223).
3. TENANT ACC LONG DISTANCE U.K. LIMITED whose
registered office is at 414 Chiswick
High Road, Longin W4 5TF (Company
Registration Number 2671855).
4. SURETY ACC CORP (a company incorporated in
Delaware USA) of 39 State Street,
Rochester, New York 14614 USA.
5. PREMISES Premises situate on the Ground to
Fourth Floors and 45 car parking spaces
of the Building known as Adelaide House,
626 Chiswick High Road, London W4 as
described in the Lease.
6. COMPLETION DATE As defined in clause 1.9.
7. LEASE An underlease of the Premises in
the form of the draft attached to this
Agreement.
8. SUPERIOR LEASE A Lease dated 17 March 1989 and made
between Markheath Properties Limited (1)
and the Landlord (under its former name,
Ultramar Exploration Limited) (2) and
Ultramar PLC (3).
9. LANDLORD'S London Borough of Hounslow Title
REGISTERED TITLE Number:AGL8895
Class of Title: Absolute
10. DISCLOSED DOCUMENTS The documents referred to in the First
Schedule to this Agreement.
11. LANDLORD'S SOLICITORS Nabarro Nathanson
50 Stratton Street
LONDON W1X 6NX
Ref: J1/AAS/L1718:7
12. TENANT'S SOLICITORS Hobson Audley Hopkins & Wood
7 Pilgrim Street LONDON EC4V
6DR Ref: SJJS/ER/JC/ACCB-10 52854
13. INTEREST Interest at the rate of four per cent per
annum above Midland Bank PLC Base
Rate from time to time in force.
14. LANDLORD'S SURVEYORS means Stewart Watson & Co of
10 Devonshire Road, London EC2M 4RH or
such other firm or person as the Landlord
may from time to time appoint to perform
the functions of its surveyor under this
Agreement.
15. TENANT'S APPROVED means the plans elevations sections and
DRAWINGS specification of the Tenant's Works
approved by the Landlord's Surveyors
pursuant to clause 11.
16. TENANT'S WORKS means the works of which brief details
are set out in the Second Schedule to
this Agreement and in more detail shown
in the Tenant's Approved Drawings.
<PAGE>
CONTENTS
Clause Subject matter Page
1. Interpretation 1
2. Agreement for Lease 2
3. Completion of the Lease 3
4. Vacant Possession 3
5. Landlord's Title 3
6. Matters Affecting the Premises 4
7. National Conditions 4
8. Acknowledgments 5
9. Landlord's Consent 6
10. Application for Exclusion Order 6
11. Approval of Tenant's Works 7
12. Carrying out the Tenant's Works 7
13. Inspection and Rectification of the Tenant's Works 12
14. Completion and Approval of the Tenant's Works 13
15. Status of Tenant Pending Completion 14
16. Commencement of License Fees 14
17. Further Provisions Relating to Completion of the Lease 15
18. VAT 16
19. Default of Tenant 17
20. Arbitration 19
21. Non Assignment 20
22. Guarantee 20
23. No Publicity 21
24. Jurisdiction 21
25. Non-Merger 21
26. Notices 21
27. Rental Rebate 22
28. Right of First Refusal and Option to Lease in Relation
to Sixth and Seventh Floors 24
29. Landlord's Works to Create Office on Ground Floor 30
SCHEDULE 1 DISCLOSED DOCUMENTS
SCHEDULE 2 TENANT'S WORKS
<PAGE>
1. INTERPRETATION
1.1 The Particulars constitute part of this Agreement and the expressions
contained in the Particulars are incorporated as definitions.
1.2 The National Conditions of Sale (Twentieth Edition) as set out on pages
2 and 3 of the printed form of contract published by the Solicitors'
Law Stationery Society Plc ("National Conditions") (except as varied by
or inconsistent with this Agreement) are incorporated.
1.3 The clause headings in this Agreement are for ease of reference only
and are not to be used for the purposes of construing this Agreement.
1.4 Obligations undertaken by more than one person are joint and several
obligations.
1.5 This Agreement may only be varied in writing signed by or on behalf of
the parties to it.
1.6 Where the word "today" is used this means the date of this Agreement as
written above.
1.7 "Superior Landlord" means the person who at the relevant time is
entitled to receive the rent under the Superior Lease and includes the
person who at the relevant time is entitled to receive the rent under
any lease superior to the Superior Lease.
1.8 "Conditions" means:
1.8.1 The Consent being issued in accordance with clause 9; and
1.8.2 The Court Order being obtained in accordance with clause 10; and
1.8.3 The Tenant procuring for the benefit of the Landlord an opinion of
Counsel qualified to practice in the State of Delaware confirming
that this Agreement and also the Lease when granted have been duly
and properly executed by the Surety and will be
<PAGE>
enforceable against and binding upon the Surety in accordance with
the Law of Delaware and the constitution of the Surety Such
opinion shall be in a form reasonably approved by the Landlord
(such approval not to be unreasonably withheld) and the Tenant
shall use all reasonable endeavors to procure such an opinion.
1.9 "Completion Date" means five working days after the date upon which all
of the Conditions have been satisfied.
1.10 Words and expressions used in this Agreement and not defined herein
shall bear the same meaning ascribed to them in the Lease.
2. AGREEMENT FOR LEASE
2.1 Subject to satisfaction of the Conditions and the provisions of this
Agreement the Landlord will grant and the Tenant and the Surety will
accept the Lease on the Completion Date.
2.2 If either of the conditions set out in the clause 1.8.1 or 1.8.2 hereof
have not been satisfied within three months after today's date then at
any time afterwards (but not after such conditions have been fulfilled)
either party (not itself being in breach of its obligations hereunder)
may rescind this Agreement on the terms set out in National Condition
10(2) and if the condition set out in clause 1.8.3 hereof has not been
satisfied within three months after today's date then at any time
afterwards (but not after such condition has been satisfied) the
Landlord may rescind this Agreement on the terms set out in National
Condition 10(2).
<PAGE>
3. COMPLETION OF THE LEASE
3.1 The Lease will be completed before 1 pm on the Completion Date.
Completion will take place at the Landlord's Solicitors' offices or
where they reasonably require. If the Landlord's Solicitors agree to
complete by post it will be at the Tenant's risk.
3.2 Any monies due to the Landlord on completion will be paid by direct
credit transfer (which the Landlord's Solicitors must receive as
cleared funds by 1 pm on the day of completion) for the credit of a
bank account of a London Clearing Bank specified by the Landlord's
Solicitors or by any other method reasonably requested by the
Landlord's Solicitors.
3.3 The Lease will be prepared in original and counterpart and the original
will be executed by the Landlord and the counterpart will be executed
by the Tenant and the Surety. The executed counterpart Lease will be
handed over to the Landlord's Solicitors on completion.
3.4 The provisions of clause 17 shall apply.
4. VACANT POSSESSION
Vacant possession of the Premises will be given on satisfaction of
the Conditions.
5. LANDLORD'S TITLE
Title to the Premises will comprise office copies of the filed plan and
entries appearing on the Registered Title which the Tenant's Solicitors
are authorized to inspect.
6. MATTERS AFFECTING THE PREMISES
The Lease will be granted subject to and with the benefit of all and any
of the following in existence before the actual time of completion:
<PAGE>
6.1 the matters contained or referred to in the entries appearing on the
Registered Title save for any financial charges;
6.2 all matters capable of registration as Local Land Charges or otherwise
whether registered or not;
6.3 all notices served and proposals requirements or agreements made by or
(as the case may be) with any competent authority or arising under
statute;
6.4 all matters in the nature of overriding interests as set out in section
70(1) of the Land Registration Act 1925 as amended; and
6.5 all matters disclosed or which might reasonably be expected to be
disclosed by searches and enquiries made by the Tenant or which a
prudent tenant ought to make.
7. NATIONAL CONDITIONS
The National Conditions are varied as follows:
7.1 "Working Day" means a day on which Clearing Banks in the City of London
are (or would be but for a strike, lock-out or other stoppage affecting
a particular bank or banks generally) open during banking hours.
7.2 National Conditions 5(3) will not apply.
7.3 Proviso (I) to National Condition 5(5) is deleted and the following
is substituted:
"(i) for the purposes of conditions 6, 7 and 8 only, if completion
takes place later than 1 pm then the date of actual completion
will be deemed to be the next Working Day after the day on which
completion has taken place".
<PAGE>
7.4 National Condition 11(5) will not apply.
7.5 National Conditions 15(2), 15(3), 15(4), 21(2) and 21(3) will not
apply.
7.6 The Landlord will be deemed ready and willing to complete for the
purpose of National Condition 22 even though any financial charge still
affects the Premises at the time of service of a notice.
8. ACKNOWLEDGEMENTS
The Tenant confirms that:
8.1 it has inspected the Premises;
8.2 it has not been induced to enter into this Agreement by or in reliance
upon any oral or written statement by the Landlord or anyone else on
its behalf, except the Landlord's Solicitors' written replies to the
written enquiries made by the Tenant's Solicitors prior to the date
hereof; and
8.3 no error or omission will annul the grant of the Lease or entitle the
Tenant to compensation; and
8.4 title to the Premises has been deduced in full and copies of the
Disclosed Documents and the Registered Title have been supplied to the
Tenant's Solicitors. The Tenant will be deemed to accept the Lease with
full knowledge of the Landlord's title to the Premises and the matters
subject to which the Lease is granted and will raise no objections or
requisitions about it.
<PAGE>
9. LANDLORD'S CONSENT
9.1 The Landlord will use all reasonable endeavours to obtain the formal
consent of the Superior Landlord to the grant of the Lease to the
tenant (the "Consent").
9.2 The Tenant and the Surety will forthwith supply any information and
references required by the Superior Landlord and will:
9.2.1 enter into any reasonable covenants with the Superior Landlord
which it may be entitled to require under the terms of the
Superior Lease; and
9.2.2 provide such reasonable guarantees as may be required by the
Superior Landlord for the performance of the Tenant's and the
Surety's obligations under clause 9.2.1.
10. APPLICATION FOR EXCLUSION ORDER
10.1 Immediately following exchange of this Agreement, the Landlord shall
lodge an originating application signed by the Landlord's Solicitors
and the Tenant's Solicitors with the Mayors & City of London Court and
the Tenant shall use all reasonable endeavours to assist the Landlord
in obtaining a Court Order (defined below) as soon as possible after
the date hereof.
10.2 For the purpose of this Agreement, the expression "Court Order" shall
mean an order of the Court under the provisions of section 38(4) of the
Landlord and Tenant Act 1954 (as amended by section 5 of the Law of
Property Act 1969) authorizing the exclusion of sections 24-28
inclusive of the Landlord and Tenant Act 1954 in relation to the Lease.
<PAGE>
11. APPROVAL OF THE TENANT'S WORKS
11.1 The Tenant shall within two weeks after the date of this Agreement,
submit to the Landlord for approval plans elevations sections a
programme and a full specification of the Tenant's Works prepared by
the Tenant at its own expense.
11.2 The Tenant shall also supply:
11.2.1 such other information relating to the Tenant's Works as the
Landlord's Surveyors may reasonably require; and
11.2.2 copies of all approvals consents permissions and licenses of every
competent authority or other person which are appropriate to
enable the Tenant lawfully to carry out the Tenant's Works.
11.3 The Tenant's Works shall not subsequently be varied without the
Landlord's and the Superior Landlord's prior written approval which
shall not on the part of the Landlord be unreasonably withheld or
delayed and, if given, the Tenant's Approved Drawings shall be amended
as necessary.
11.4 The Landlord will use all reasonable endeavours to assist the Tenant in
obtaining the consent of the Superior Landlord and the Superior
Landlord's surveyor to the Tenant's Works.
12. CARRYING OUT THE TENANT'S WORKS
12.1 After receiving written confirmation from the Landlord or the
Landlord's Surveyors that the material submitted under clause 11.1 has
been approved by both the Landlord and the Superior Landlord (which
written confirmation may be dealt with by way of a formal
<PAGE>
license for alterations or otherwise), the Tenant shall (but only after
giving written notice to the Landlord's Surveyors) within four weeks
(save for force majeure) start carrying out the Tenant's Works and
shall then proceed with the Tenant's Works and complete them as
quickly as reasonably possible.
12.2 The Tenant's Works shall be carried out:
12.2.1 in accordance with the Tenant's Approved Drawings;
12.2.2 in accordance with the terms of all appropriate approvals consents
permissions and licenses and otherwise in compliance with the
requirements of all competent authorities;
12.2.3 in compliance with all relevant legislation;
12.2.4 in a good and workmanlike manner and with materials and substances
which accord with the best current building practice; and
12.2.5 to the reasonable satisfaction both of the Landlord's Surveyors
and any surveyor appointed by the Superior Landlord.
12.2.6 the Tenant shall pay the reasonable professional fees and expenses
of the Superior Landlord in connection with the approval of the
Tenant's Works and all matters arising under clauses 11-14
(inclusive) of this Agreement, such payment(s) to be made within
seven days of written demand.
12.3 In the course of carrying out the Tenant's Works, the Tenant shall:
<PAGE>
12.3.1 as far as shall be reasonably practicable not interfere with any
works being carried out anywhere else in the vicinity of the
Premises or the Building;
12.3.2 cause as little damage injury nuisance or inconvenience as
possible to the Landlord or other owner or occupier of other
property in the vicinity of the Premises or the Building;
12.3.3 as far as shall be reasonably practicable not (without the consent
of the Landlord) store any materials machinery or equipment
elsewhere than inside the Premises;
12.3.4 not impede or interfere with the use by anyone else of other
property near the Premises;
12.3.5 maintain such supports hoardings and coverings as may be
reasonably necessary or which either the Landlord's Surveyors or
any surveyor appointed by the Superior landlord may reasonably
require so as to prevent damage injury nuisance or
inconvenience arising from the Tenant's Works or to preserve the
amenities of other property near the Premises;
12.3.6 maintain, through its contractor or otherwise, such insurances
with such level of cover as the Landlord and/or the Superior
Landlord may approve (such approval on the part of the Landlord
not to be unreasonably withheld or delayed) in respect of the
Tenant's Works and all materials or goods delivered for the
purposes of the Tenant's Works, and in respect of all liability of
the Tenant and the Landlord and the Superior Landlord arising from
the carrying out of the Tenant's Works;
<PAGE>
12.3.7 comply with any lawful and proper requirements of the Superior
Landlord's insurers of the Premises which shall be notified in
writing to the Tenant and pay any increased or other premium which
those insurers may require in respect of the Premises, the
Building or any other property as a result of the carrying out of
the Tenant's Works;
12.3.8 not allow the Premises, or any hoarding scaffolding or other
materials about the Premises, to be used for advertising, except
for notices approved by the Landlord such approval not to be
unreasonably withheld or delayed and (to the extent required under
the terms of the Superior Lease) the Superior Landlord advertising
the names of the Tenant and of its contractors or as may be
required by statute bye-law or other legislation;
12.3.9 comply with any reasonably regulations made by the Landlord's
Surveyors or any surveyor appointed by the Superior Landlord from
time to time governing the carrying out of the Tenant's Works
including (but not limited to) permitted times and means of access
to the Premises and the delivery of materials and equipment which
may be notified in writing to the Tenant; and
12.3.10 allow the Landlord's contractors access at all reasonable times to
the Premises for the purpose of carrying out any remedial or other
works to the Premises or to any other property without liability
to compensate the Tenant for any delay or obstruction to the
Tenant's Works save that where there shall be any material delay
or obstruction to the completion of the Tenant's Works which is
directly attributable to the Landlord exercising its right of
access to the Premises under this clause 12.3.10 the Tenant's
liability to pay the rent reserved by the lease shall be postponed
in the case of the
<PAGE>
First Initial Rent and the Second Initial Rent for such period as
shall be equal to the length of delay so caused by the Landlord
and the period of any such delay shall be agreed between the
Landlord and the Tenant or in default of agreement shall be
determined by the Expert (as hereinafter defined) in accordance
with clause 20.
12.3.11 It is anticipated that works to be carried out by the Landlord at
the Building may at least in part be carried out at the same time
as the Tenant's Works and accordingly the Landlord and the Tenant
agree to act reasonably towards each other and to cooperate as far
as practicable in the programming and methods of effecting their
respective works and the use of common areas and facilities so
that such respective works can both be carried out as quickly as
possible and without the works of one party seriously impeding or
interfering with the works of the other.
12.4 The Tenant shall fully indemnify the Landlord and the Superior landlord
against damage claims costs and expenses arising out of:
12.4.1 the state and condition of the premises and/or the Building during
and after the carrying out of the Tenant's Works as a result of
the carrying out of the Tenant's Works;
12.4.2 the carrying out of the Tenant's Works;
12.4.3 any entry on, or occupation of, the Premises by the Tenant before
completion of the Lease; or
12.4.4 any breach of or non-compliance by the Tenant with the terms of
this Agreement.
<PAGE>
12.5 Neither the Landlord nor the Superior Landlord shall be under any
liability to effect any insurance in relation to the Tenant's Works, or
any materials, goods, machinery or equipment on or about the Premises
otherwise than under the Lease following its grant.
13. INSPECTION AND RECTIFICATION OF THE TENANT'S WORKS
13.1 Without prejudice to clause 15.2 or 19, the Landlord and/or the
Superior landlord may at any time until the Landlord's Surveyors have
given approval under clause 14.5:
13.1.1 authorise in writing any person to enter on the Premises at any
time to inspect the Tenant's Works and ascertain that the Tenant's
obligations under this Agreement are being complied with; and
13.1.2 give notice to the Tenant requiring it to rectify any defects
found in the Tenant's Works such that the same do not comply with
this Agreement or would otherwise adversely affect the Building or
the Premises ("Defects") and to remove and make
good to their reasonable satisfaction any works carried out by the
Tenant which do not accord with this Agreement.
13.2 If the Tenant fails to comply with any such notice within such
reasonable time as the Landlord and/or the Superior Landlord may
require, the Landlord and/or the Superior Landlord may itself rectify
the Defects and remove and make good any works which do not accord with
this Agreement, and the cost of doing so will be repaid by the Tenant
to the Landlord on demand with Interest in respect of the period from
the date that the incurring of any such cost shall be notified to the
Tenant to the date of payment by the Tenant.
<PAGE>
14. COMPLETION AND APPROVAL OF THE TENANT'S WORKS
14.1 The Tenant shall use its best endeavours to complete the Tenant's Works
within ten weeks of receiving the confirmation referred to in clause
12.1.
14.2 Not later than completion of the Tenant's Works, the Tenant shall
supply the Landlord and the Superior Landlord with an itemised schedule
of the cost of the Tenant's Works for the purposes of the insurance of
the Premises and the Building.
14.3 The Tenant shall give written notice to the Landlord and the Superior
Landlord as soon as possible after completion of the Tenant's Works.
14.4 The Landlord's Surveyors shall inspect the Tenant's Works within two
weeks of the notification given by the Tenant in accordance with clause
14.3 of this Agreement.
14.5 Within two weeks of the inspection referred to in clause 14.4 of this
Agreement the Landlord's Surveyors shall either issue a written
approval to that effect (and copies shall be supplied to both the
Landlord and (if required) the Superior Landlord and the Tenant),
or shall advise the Tenant of any con-compliance in respect of the
completion of the Tenant's Works in which case the provisions of
clauses 14.3, 14.4 and 14.5 shall be re-implemented until such time
that approval can be given provided that any dispute between the
parties shall be governed by the provisions of clause 20 of this
Agreement.
14.6 Until such approval has been issued, the Tenant shall not be entitled
to enter on or occupy the Premises for any purpose other than carrying
out the Tenant's Works.
<PAGE>
14.7 Issue of the Landlord's Surveyor's approval under clause 14.5 is
without prejudice to the Tenant's obligations under this Agreement with
respect to the carrying out of the Tenant's Works.
15. STATUS OF TENANT PENDING COMPLETION
Until completion of Lease:
15.1 any occupation of the Premises by the Tenant shall be as a licensee and
not a tenant and no relationship of landlord and tenant shall exist
between parties; and
15.2 subject to clause 15.1 the Tenant shall observe and perform the
Tenant's covenants and obligations contained in the Lease (including,
without limitation, those contained in clause 3.2 thereof) and shall
(except where expressly varied by this Agreement) be bound by the
conditions and other provisions of the Lease as if it has been granted
on the date of this Agreement.
16. COMMENCEMENT OF LICENSE FEES
16.1 The Tenant shall pay a license fee (or rent if the Lease has been
completed) at the rate of the First Initial Rent reserved by clause
2.4.1 of the Lease on and from the date which is six months after
the date of this Agreement and at the rate of the Second Initial Rent
reserved by clause 2.4.1 of the Lease on and from the date which is
nine months after the date of this Agreement in both cases at the times
and in the manner specified in the Lease.
16.2 The Tenant shall with effect from the Completion Date or the date the
Tenant is given occupation whichever is earlier pay the sums reserved
as rent payable under the Lease in
<PAGE>
respect of Insurance and service charge at the times and in the
manner specified in the Lease.
17. FURTHER PROVISIONS RELATING TO COMPLETION OF THE LEASE
17.1 On the day being five working days after the satisfaction of all of the
Conditions and (if the Landlord so requires) upon payment by the Tenant
of any outstanding sums payable to the Landlord pursuant to the terms
of this Agreement., the Lease shall be completed in accordance with
clause 3.
17.2 The following dates shall be completed in the Particulars to the Lease:
17.2.1 the date of the Lease (which shall be the Completion Date); and
17.2.2 the First Rent Commencement Date (which shall be the day being six
months from the date of this Agreement); and
17.2.3 the Second Rent Commencement Date (which shall be the day being
nine months from the date of this Agreement); and
17.2.4 the Date of Commencement of the Term (which shall be the quarter
day immediately preceding the date of this Agreement).
17.3 Upon completion of the Lease the Landlord shall pay to the Tenant the
sum of(pound)380,000 plus value added tax which sum represents the
Landlord's contribution towards (i) the cost to the Tenant of carrying
out the Tenant's Works and (ii) the cost to the Tenant of performing
the Tenant's obligations to reinstate the Premises in accordance with
clause 3.28 of the Lease. The Landlord's obligation to pay the value
added tax on such sum shall be conditional upon the Tenant delivering
to the Landlord (on the Completion Date) a valid value added tax
invoice therefor.
18. VAT
18.1 The Tenant agrees in each case subject to the Landlord delivering to
the Tenant a valid value added tax invoice therefor:
18.1.1 to pay the Landlord any value added tax chargeable upon any supply
made by the Landlord to the Tenant by, pursuant to or in
connection with this Agreement so that all consideration for any
such supply is exclusive of value added tax;
18.1.2 to pay and to indemnify the Landlord against any value added tax
chargeable upon any supply (whether made to the Landlord or to a
third person) where pursuant to this Agreement the Tenant is
required to pay the Landlord any sum in respect of any costs fees
expenses or other expenditure or liability (of whatever nature) in
connection with that supply; and
18.1.3 to pay all such value added tax at the same time that the relevant
sum of money or consideration is payable to or receivable by the
Landlord or (if earlier and in relation to supplies made by the
Landlord to the Tenant) at the time that the supply is treated as
taking place for the purposes of the charge to value added tax.
18.2 The Landlord retains absolute discretion (save in the case of manifest
error) (so far as permitted by law) as to whether any supply made by
the Landlord to the Tenant is or is to be an exempt supply or a taxable
supply for the purposes of value added tax.
<PAGE>
19. DEFAULT OF THE TENANT
19.1 Without prejudice to any other rights and remedies which the Landlord
may have for breach of this Agreement, the Landlord may determine this
Agreement and resume sole occupation of the Premises to the exclusion
of the Tenant if:
19.1.1 the Tenant fails to begin carrying out the Tenant's Works within
four weeks of the date of this Agreement or (unless such failure
shall not be due to the fault of the Tenant) the date of obtaining
the Landlord's and Superior Landlord's license for the Tenant's
Works and the Consent at clause 9 whichever shall be the later;
19.1.2 the Tenant fails to pay any license fees or other sums payable to
the Landlord under this Agreement within fourteen days of their
becoming due in the case of license fees and after written demand
in the case of all other sums;
19.1.3 any execution or distress is levied upon any asset of the Tenant
at the Premises and is not discharged within seven days;
19.1.4 the Tenant or the Surety enters into liquidation whether
compulsory or voluntary (not being merely a voluntary liquidation
whilst solvent for the purpose of reconstruction) or has a
receiver or administrator or administrative receiver appointed of
all or any assets (or any application for such appointment is
made) or, in the case of the Surety, any analogous process in the
United States or elsewhere;
19.1.5 the Tenant fails to complete the Tenant's Works by the date being
twelve weeks from the date of this Agreement or (unless such
failure shall not be due to the fault of the Tenant) the date of
obtaining the Landlord's and Superior Landlord's license for the
Tenant's Works and the Consent at clause 9 whichever shall be the
later;
<PAGE>
19.1.6 the Tenant otherwise at any time breaches any material term of
this Agreement and fails to remedy such breach within fourteen
days of receiving written notification of the same from the
Landlord.
19.2 If this Agreement is determined under clause 19.1:
19.2.1 the Tenant shall pay to the Landlord all reasonable and proper
costs and expenses incurred by the Landlord in, and to the extent
the Landlord may require, either removing and dismantling the
Tenant's Works and reinstating the Premises, or completing the
Tenant's Works in circumstances where the Tenant has failed to do
so within two weeks of receiving written notification to do so by
the Landlord.
19.2.2 the Tenant shall indemnify the Landlord against all professional
and other costs and expenses arising out of the determination of
this Agreement;
19.2.3 any wholly or partially completed Tenant's Works and any other
materials plant and equipment at the Premises belonging to the
Tenant shall be removed by the Tenant at the request of the
Landlord and any not so removed within two weeks of such request
shall become the property of the Landlord without any compensation
being payable to the Tenant; and
19.2.4 the Tenant shall indemnify the Landlord in respect of any charge
to tax or any other levy charge or duty or the loss or withholding
of any relief or credit in respect of any tax levy charge or duty
arising out of or resulting from the Tenant's Works or the
<PAGE>
provisions of this Agreement save in relation to the VAT payable
in accordance with the provisions of clause 17.3 hereof.
20. ARBITRATION
20.1 Any dispute or difference which arises between the Landlord and the
Tenant as to the carrying out of the Tenant's Works shall be referred
to the decision of any expert if either the Landlord or the Tenant
gives notice to the other requiring determination of such dispute or
difference.
20.2 Such notice may be given in writing not earlier than one week after the
dispute or difference arose.
20.3 The expert("Expert") in the case of any matter relating to building
obligations shall be CCM Smith of Fuller Horsey and Wills, 52 Bow Lane,
London EC4M 9ET but in any other case shall be appointed by agreement
between the parties or (in default of agreement) on the application of
either the Landlord or the Tenant by the President for the time being
of the Royal Institution of Chartered Surveyors.
20.4 The Expert shall invite the parties to submit to him within such
reasonable time limits as he may direct (having regard to the urgency
of the matter) such written representations
concerning the dispute or difference in question as they may
respectively wish and the Expert shall have such regard (if any) to any
such representations as he shall consider appropriate.
20.5 The Expert shall determine the matter in dispute with the utmost speed
and his decision shall be final and binding on the parties hereto.
<PAGE>
20.6 The fees and expenses of the Expert including the cost of his
appointment shall be in the award of the Expert.
20.7 The Expert shall give to each of the Landlord and the Tenant a notice
in writing stating the results of his determination pursuant to
clause 20.5.
21. NON ASSIGNMENT
Subject to the provisions of clause 27.4 below, the Tenant will not be
entitled to assign charge or deal in any way with the benefit of this
Agreement and the Landlord will only grant the Lease of the Premises as a
whole to the Tenant named in this Agreement.
22. GUARANTEE
In consideration of the Landlord entering into this Agreement with the
Tenant, the Surety, as a primary obligation:
22.1 guarantees to the Landlord that the Tenant will promptly comply with
its obligations under this Agreement, and
22.2 will indemnify the Landlord against all losses damages costs and
expenses arising as a result of any default by the Tenant in complying
with the terms of this Agreement; and
22.3 agrees that no time or indulgence granted to the Tenant by the Landlord
nor any variation of the terms of this Agreement nor any other thing by
virtue of which but for this provision the Surety would have been
released save for the formal release of the Surety by the Landlord will
in any way release the obligations of the Surety to the Landlord under
this clause; and
22.4 agrees to execute the counterpart Lease in accordance with clause 3.3.
<PAGE>
23. NO PUBLICITY
Except insofar as required to comply with Stock Exchange or statutory
requirements:
23.1 The terms and conditions of this Agreement will not be released by any
party to the press or any periodical journal nor will any party make
any public announcement about it without the prior written consent of
all the other parties.
23.2 Each party will treat this Agreement as confidential to it and to its
advisers bankers and (subject to clause 23.3 below) other parties
involved in the grant of the Lease.
23.3 The provisions of clause 27 hereof shall remain confidential to the
parties hereto and their respective professional advisors.
24. JURISDICTION
The proper law of this Agreement and the jurisdiction to which the parties
are subject is that of England and the Tenant and the Surety agree that the
office of the Tenant's Solicitors is an effective address for service of
any notices to be served upon either of them under this Agreement and any
proceedings commenced in the English Courts.
25. NON-MERGER
The provisions of this Agreement will remain in full force and effect
(notwithstanding completion of the Lease) to the extent that they remain to
be observed and performed.
26. NOTICES
26.1 Any demand or notice to be served on the Landlord or the Tenant or the
Surety under this Agreement will be validly served if sent by fax or by
first class post addressed to that party's solicitors.
<PAGE>
26.2 Any demand or notice sent by post will be conclusively treated as
having been served forty-eight (48) hours after posting.
26.3 The provisions for postal service set out above are not to prevent any
other effective form of service.
27. RENTAL REBATE
27.1 With effect from the date upon which the First Initial Rent and the
Second Initial Rent become payable or grant of the Lease whichever
shall be the later and conditional upon the Tenant paying to the
Landlord the Rents and other sums reserved by the Lease on the due
dates therein provided, the Landlord agrees to pay to the Tenant the
following amounts:
27.1.1 For the period commencing from and including the First Rent
Commencement Date up to and including the day immediately prior to
the Second Rent Commencement Date, the annual sum of
(pound)151,545.60 plus value added tax thereon.
27.1.2 For the period commencing from and including the Second Rent
Commencement Date up to and including the day immediately
preceding the Rent Review Date, the annual sum of
(pound)193,603.60 plus value added tax thereon.
27.1.3 For the period commencing from and including the Rent Review Date
up to and including 1 June 2002, the annual sum of
(pound)193,603.60 plus value added tax thereon plus the amount by
which the annual rent amount (being the rent served by clause
2.4.1 of the Lease) which the Tenant is required to pay to the
Landlord under
<PAGE>
and by virtue of the provisions of the Second Schedule to the
Lease exceeds (pound)1,006,305.60 plus value added tax on such
excess.
27.2 The amounts payable by the Landlord to the Tenant pursuant to clause
27.1 above shall be paid by equal quarterly payments within three
working days of the date of receipt by the Landlord of cleared funds
from the Tenant of the full rents due from the Tenant under clause 2.4
of the Lease and to the extent that any payments are due from the
Landlord to the Tenant under clause 27.1 in relation to any period
which is shorter than a quarter, the Landlord shall only be required to
pay the proportionate amount.
27.3 For the avoidance of doubt:
27.3.1 The Tenant agrees to pay in full all Rents and other sums due
under the Lease on the due dates for payment therein provided
without any legal or equitable set off or deduction whatsoever.
27.3.2 The Landlord agrees to pay in full the amounts set out in clause
27.1 hereof on the due dates for payment therein provided without
any legal or equitable set off or deduction whatsoever.
27.4 In the event that the Rent (or a fair and just proportion of it) is
suspended in accordance with clause 5.2 of the Lease then the amounts
payable by the Landlord to the Tenant pursuant to clause 27.1 above
shall be suspended in the same proportion and for the same period of
time.
27.5 If the Tenant assigns the Lease to a third party in accordance with the
provisions of clause 3.17 of the Lease, the Tenant may assign the
benefit of the Landlord's obligations
<PAGE>
under this clause 27 to such assignee provided that written notice
of such assignment is forthwith given to the Landlord.
27.6 The provisions of this clause 27 shall not be binding upon the
Landlord's successors in title.
28. RIGHT OF FIRST REFUSAL AND OPTION TO LEASE IN RELATION TO SIXTH AND
SEVENTH FLOORS
28.1 The Landlord shall not grant a lease of the sixth and seventh floors of
the Building (the "Additional Premises") to a third party before 17
March 1998 without first giving notice to the Tenant (the "Landlord's
Notice") of the terms which have been agreed between the Landlord and
the third party including any terms relating to a rent rebate whether
or not similar to that set out in clause 27 of this Agreement (the
"Rent Rebate").
28.2 Upon receipt of the Landlord's Notice the Tenant may (not later than 14
days after receipt of it) give written notice to the Landlord (the
"Tenant's Notice") that the Tenant and the Surety wish to take up a
lease of the Additional Premises and enter into an Agreement containing
provisions relating to the Rent Rebate (the "Supplemental Deed").
28.3 Subject to clause 28.7 the Landlord hereby grants the Tenant an option
(the "Option") to take a lease of the Additional Premises. The Tenant
may exercise the Option by written notice to the Landlord not later
than 17 March 1998.
<PAGE>
28.4 In the event that the Landlord shall receive the Tenant's Notice or
notice of the exercise of the Option and provided that the Tenant shall
at the date of the Tenant's Notice or of the notice of exercise of the
Option and thereafter until the grant of the Additional Lease (as
hereinafter defined) have paid the Rent and performed and observed in
all material respects the covenants contained in the Lease the Landlord
(but subject to clause 28.5 hereof) shall grant and the Tenant and the
Surety shall take a lease of the Additional Premises (the "Additional
Lease") upon the following terms:
28.4.1 The Additional Premises shall comprise the lettable space
(excluding common areas) situate on the sixth and seventh floors
of the Building together with the right to use 20 car parking
spaces as shall be allocated by the Landlord.
28.4.2 The Additional Lease shall be for a term commencing on the date of
its grant and expiring on 16 March 2004.
28.4.3. The net annual rent payable by the Tenant in respect of the
Additional Premises after allowing for the Rebate referred to in
clause 28.4.6 shall be:
(a) in the event that the Additional Lease is granted pursuant
to receipt of the Tenant's Notice the rent contained in the
Landlord's Notice; or
(b) in the event the Additional Lease is granted pursuant to
exercise of the Option the higher of (1) the Open Market
Rent (as defined in the Second Schedule to the Lease but as
if reference therein to the Demised Premises were reference
to the Additional Premises) as at the date of exercise of
the Option and (2) rent at the rate of (pound)22 per square
foot net internal.
<PAGE>
the first proportionate payment being due on the date of the grant
of the Additional Lease and thereafter on the usual quarter days.
28.4.4 The Additional Lease shall be in the same form as the Lease
subject to the modifications set out in clause 28.10 below.
28.4.5 The annual rent to be reserved in clause 2.4.1 of the Additional
Lease shall be (pound)339,590 being the part of the annual rent
payable pursuant to the Superior Lease which is fairly
attributable to the Additional Premises.
28.4.6 The Landlord the Tenant and the Surety shall enter into a
Supplemental Deed pursuant to which the Landlord shall rebate to
the Tenant the amount (if any) by which the rent reserved in
clause 2.4.1 of the Additional Lease (in accordance with clause
28.4.5 hereof) exceeds the amount payable by the Tenant pursuant
to clause 28.4.3 hereof such deed to be in the same terms (and for
the avoidance of doubt the obligation to pay the rebate to expire
on the same date)(mutatis mutandis) as the provisions of clause 27
hereof.
28.5 The grant of the Additional Lease shall be conditional upon the
following:
28.5.1 obtaining the consent of the Superior Landlord to the grant of the
Additional Lease (and the provisions of clauses 9.1 and 9.2 of
this Agreement shall be deemed to apply to the obtaining of such
consent mutatis mutandis and the Tenant shall pay the Landlord's
and the Superior Landlord's reasonable and proper costs in
connection with the application for such consent);
<PAGE>
28.5.2 obtaining an Order of the Court under the provisions of section
38(4) of the Landlord and Tenant Act 1954 (as amended by section 5
of the Law of Property Act 1969) authorizing the exclusion of
sections 24-28 (inclusive) of the Landlord and Tenant Act 1954 in
relation to the Additional Lease and the parties shall apply for
such Order forthwith following the receipt of the Tenant's Notice
or the exercise of the Option
28.5.3 The Tenant procuring for the benefit of the Landlord an opinion of
Counsel qualified to practice in the State of Delaware confirming
that the agreement for the Additional
<PAGE>
Lease and also the Additional Lease when granted have been duly
and properly executed by the Surety and will be enforceable
against and binding upon the Surety in accordance with the Law of
Delaware and the constitution of the Surety. Such opinion shall be
in a form reasonably approved by the Landlord (such approval not
to be unreasonably withheld).
and the parties hereto agree to use all reasonable endeavours to
satisfy the above conditions.
28.6 The completion of the grant of the Additional Lease (the "Additional
Lease Completion Date") shall be:
28.6.1 in the event that the Additional Lease is to be granted pursuant
to receipt of the Tenant's Notice 14 days after the date upon
which the conditions specified in clause 28.5 above have been
satisfied provided that if within one month of receipt of the
Tenant's Notice (time being of the essence) either such conditions
shall not have been satisfied or the Additional Lease shall not
have been granted then the Landlord (not being in breach of it
obligations under this Agreement) shall be entitled to
<PAGE>
proceed with the grant of a lease to the third party on
terms no less beneficial to the lessee than those set out in the
Landlord's Notice; or
28.6.2 in the event that the Additional Lease is to be granted pursuant
to the exercise of the Option five working days after the date
upon which the conditions specified in clause 28.5 above have been
satisfied provided that if within two months of the date of notice
of exercise of the Option (time being of the essence) either such
conditions shall not have been satisfied or the Additional Lease
shall not have been granted then either party (not being in breach
of its obligations under this Agreement) shall be
entitled to terminate this Agreement in respect of the grant of
their claim by either party against the other.
28.7 In the event that the Landlord shall grant a lease to the third party
in accordance with the provisions of this Agreement then the Option
shall cease to have any further force or effect.
28.8 The following provisions of this Agreement shall apply in relation to
the grant of the Additional Lease and shall be construed as if a
reference therein to the "Lease" the "Premises" and the "Completion
Date" were reference to the "Additional Lease" the "Additional
Premises" and the "Additional Lease Completion Date".
Clauses 3.1, 3.2, 3.3, 4, 6, 7, 8, 18, 19.1.4, 21, 22, 23, 24, 25,
26.
28.9 The Tenant shall accept the Landlord's title as deduced prior to the
date of this Agreement.
<PAGE>
28.10 The Additional Lease shall be in the same form as the Lease but subject
to the following modifications:
28.10.1 The Demised Premises shall be deemed to refer to the Additional
Premises and the Lease shall be amended as appropriate to reflect
this.
28.10.2 The Date of Commencement of Term shall be the date of the grant
of the Additional Lease.
28.10.3 Reference to "First Rent Commencement Date" and "Second Rent
Commencement Date" shall each be replaced with reference to the
"Rent Commencement Date" and this date will be the date of the
Additional Lease.
28.10.4 If the Additional Lease is granted pursuant to the exercise of the
Option but if the Landlord and the Tenant shall have been unable
to agree the Open Market Rent prior to the date of the grant of
the Additional Lease, then the Rent Review Dates shall be the date
of the grant of the Additional Lease and 17 March 1999 but if the
Landlord and the Tenant have agreed the Open Market Rent prior to
the grant of the Additional Lease then the Rent Review Date shall
be 17 March 1999.
28.10.5 The "On Account Payment" (in respect of service charge) shall be
the sum of(pound)70,000 per annum.
28.10.6 Reference to the First Initial Rent and the Second Initial Rent to
be replaced with reference to the Initial Rent.
<PAGE>
28.11 In the event that the Tenant decides at any time that if does not wish
to exercise the Option then the Tenant shall in good faith give written
notice to the Landlord to that effect and shall irrevocably abandon the
Option whereupon the provisions of clause 28.3 shall cease to have
effect.
28.12 The Landlord the Tenant and the Surety shall execute a supplemental
deed upon the grant of the Additional Lease to the effect that:
28.12.1 if the Lease shall determine other than by the effluxion of time
prior to the grant of the Additional Lease then the provisions of
this clause 28 and any contract created pursuant to this clause
shall be null and void and cease to have effect;
28.12.2 if either of the Lease or the Additional Lease is forfeited or
terminated then this will automatically result in the forfeiture
or termination of the other; and
28.12.3 neither the Lease or the Additional Lease may be assigned without
the concurrent assignment of the other to the same assignee.
29. LANDLORD'S WORKS TO CREATE OFFICE ON GROUND FLOOR
29.1 Within four weeks of the Completion Date subject to all necessary
consents having been obtained (which the Landlord shall use all
reasonable endeavours to apply for and obtain) the Landlord shall at
its sole cost and expense construct (on the ground floor of the
Building) a new self contained office (to form part of the Common
Parts) in the position shown for identification purposes only edged
blue on the plan attached to this Agreement for the purposes of housing
security, engineering and other maintenance staff employed by the
Landlord at the Building (the "Landlord Works").
<PAGE>
29.2 The Landlord shall in carrying out such works cause at little
inconvenience disruption and disturbance as reasonably possible to the
carrying out of the Tenant's Works and the least practicable delay in
completion of the Tenant's Works attributable to the Landlord's works
shall not entitle the Landlord to implement the provisions of clause 19
of this Agreement.
IN WITNESS, whereof this Agreement has been executed as a deed the day and year
first above written.
<PAGE>
Diagram of Leased Premises
<PAGE>
-SCHEDULE 1
Disclosed Documents
1. Date Document Parties
17 March 1989 Superior Lease (as the Markheath Properties (1)
same is registered under and Ultramar Exploration
Title Number AGL 8895) Ltd (2) and Ultramar PLC (3)
2. Matter disclosed in the registers of Title Number AGL8895.
<PAGE>
SCHEDULE 2
Tenant's Works
1. GENERALLY
1.1 The works described are to the Ground to Fourth Floor office areas and
do not include common part or lift lobbies.
1.2 The existing common parts (stairs, lobbies, toilets, etc) are to be
refurbished under a separate contract.
1.3 One existing lift will be available for transporting men and material
(large items will need to be carried up or down the stairs).
1.4 Space will be provided in the rear car park for material storage and
rubbish
containers.
1.5 All labour must adhere to the strict security arrangements in place on the
site.
2. PARTITIONS (WORKS TO BE CARRIED OUT BY UNILOCK)
2.1 Dismantle existing partitions and move surplus materials to store.
2.2 Re-erect existing partitions to new layout, replacing plasterboard and
other components as necessary, make good and leave ready for
decorations (by others).
2.3 Provide and fit new glazed partitions, as new layout. Glazed partitions
to be formed with two panes of safety glass with void between as
existing. Re-use existing components wherever possible. Generally the
glazed partitions will not require the insertion of venetian blinds
other than to directors offices from Ground to Third Floor and Fourth
Floor East, and all offices to Fourth Floor West. Allow to re-use
existing blinds generally but for the supply of new blinds to Fourth
Floor West.
2.4 All solid partitions are to have acoustic quilt inserted in the void.
2.5 The existing doors and ironmongery are to be re-used in the new layout
(allow for new ironmongery to match existing and ply faced doors with
vision panels, where necessary). Ironmongery shall only be re-used if
it is fit for its purpose. Unilock will enter into a warranty for the
whole of this section of the works including those materials re-used.
2.6 Wash down existing partition components and wall storage units prior to
completion.
<PAGE>
3. SUSPENDED CEILINGS
3.1 Repair ceilings as necessary Ground to Third Floors.
3.2 Clean existing ceiling where retained.
3.3 Remove existing ceiling to Fourth Floor.
3.4 Provide and fit new 600 x 600 Armstrong Dune Plus ceiling tiles on
exposed 15mm Armstrong White grid to Fourth Floor
3.5 Adjust existing ceiling suspension grid and tiles to accept 600 x 600m
light fittings as required.
4. LIGHTING
4.1 Remove existing lights and provide and fit new 600 x 600mm category two
lighting to ground and First Floors to provide 450 Lux at desk height.
Confirm number of fittings included in Tender Sum.
4.2 Re-use low voltage lights (elsewhere throughout the building) to Fourth
Floor corridor (East and West), boardroom and reception areas.
4.3 All other areas to retain existing fittings, supplement as necessary
from ground and First Floors to provide 450 Lux at desk height. Clean
etc.
4.4 Adjust switching to all lights to suit new partition layouts.
4.5 Ensure Master switching at exit points is till effective after
re-configuration.
5. FLOOR COVERINGS
5.1 The existing raised floor is generally to be retained.
5.2 Floor boxes may be moved to new positions to suit layout. (By others).
5.3 Remove existing carpet tiles throughout.
5.4 Provide and lay carpet tiles (allow p.c. sum of(pound)200.00/m2 -
supply only) to all office areas.
5.5 Provide and lay vinyl flooring with welded joints to tea stations and
dining area (vinyl to be laid on 4mm ply sub-base. Allow p.c. sum of
(pound)200.00/m2 - supply only).
<PAGE>
5.6 Provide and lay Altro D25 flooring with welded joints to shower areas
including all preparation/boarding necessary.
5.7 Provide silicone sealant to perimeter of all vinyl flooring.
6. DECORATIONS
6.1 Remove existing wall covering to under cill panels and isolated
columns, prepare and make good as necessary.
6.2 Emulsion plasterboard panels to partitions.
6.3 Emulsion chipboard under cill panels.
6.4 Emulsion plaster isolated columns.
6.5 Paint with oil paint all existing timber skirtings, framings to under
cill panels, cills and doors, include any timer door frames and
architraves.
7. MECHANICAL SERVICES
7.1 reconfigure controls and wiring to Versatemp units to conform to new
partition layouts (minimum of one control per room - more than one
would be acceptable).
7.2 Check units are working and report any faults.
7.3 Relocate fresh air inlets/grilles to suit new layout.
7.4 Provide hot and cold water supplies, and waste disposal drainage, to
new tea stations.
7.5 Should the Tenant construct a partition over a Versatemp until then the
Tenant will ensure that the casing and the grill of the partition is
adapted to permit the Landlord or his agents or contractors access to
the Versatemp unit in order to carry out maintenance repair removal and
replacement of the Versatemp unit and the Tenant shall restrict the
airflow to the area containing the control if necessary.
8. CANTEEN
Remove remaining canteen equipment, floor coverings, wall finishes etc.
<PAGE>
9. NEW TEA STATIONS
9.1 Install new Tea Station with kitchen units, worktops etc. In each
station allow for the installation of two wall units, two base units,
worktops, sink (taps and waste). Allow a p.c. sum of (pound)800.00 per
station for the supply of these items.
9.2 Install ceramic tiles splashbacks above all worktops 300mm high. Allow
a p.c. sum of(pound)30.00/m2 for the supply only tiles.
9.3 Provide silicone sealant to worktop/tiles, sinks, flooring, etc.
10. WINDOW BLINDS
10.1 Generally retain existing venetian blinds Ground to Third Floors.
10.2 Check blinds are in good working order,overhaul as necessary and clean.
10.3 Remove any existing roller blinds to North Elevation (all floors).
10.4 Provide and fit new venetian blinds to North Elevation Ground to Third
Floors (re-use existing blinds from Fourth Floor and First Floor West
where possible).
10.5 Provide and fit new venetian blinds to all Elevations Fourth Floor and
First Floor West and First Floor West (25mm blades - colour to be
selected).
EXECUTED as a DEED by the )
Landlord in the presence of: )
Director
Director/Secretary
<PAGE>
EXHIBIT-21
EXHIBIT 21
SUBSIDIARIES OF ACC CORP.
State, Province or Country of
Name Incorporation
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 Connecticut Corp.* Delaware
ACC Long Distance of Georgia Corp.* Delaware
ACC Long Distance of Illinois Corp. Delaware
ACC Long Distance of Maine Corp.* Delaware
ACC Long Distance of Massachusetts Corp.* Delaware
ACC Long Distance of New Hampshire 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 UK Ltd. United Kingdom
United Telecom Ltd. ** United Kingdom
Transphone International 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 Radio Corp. New York
ACC Service Corp. Delaware
ACC Telecommunikation Gmb H. Germany
ACC TelEnterprises Ltd. Ontario, Canada
Danbury Cellular Telephone Co. Connecticut
ACC Long Distance France S.A.R.L. France
ACC Long Distance of Australia PTY Ltd. Australia
ACC Cellular Corp. Delaware
ACC Denmark A/S Denmark
Cel Tel Corp. Delaware
United Bluegrass Cellular Corp. Delaware
Network Consultants New York
Vista International Communications New Jersey
- -------------------------------
* A subsidiary of ACC National Long Distance Corp.
** Subsidiary of ACC Long Distance UK Ltd.
<PAGE>
EXHIBIT-23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements No. 333-01219, No. 33-30817, No. 33-36546, No. 33-52174,
No. 33-87056, No. 33-75558, No. 333-06831, No. 333-06833, No. 333-12295,
No. 333-29405 and No. 333-30255.
/s/ Arthur Andersen LLP
Rochester, New York,
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,988
<SECURITIES> 0
<RECEIVABLES> 82,200<F1>
<ALLOWANCES> 5,291
<INVENTORY> 733
<CURRENT-ASSETS> 92,347
<PP&E> 189,249<F2>
<DEPRECIATION> 53,523
<TOTAL-ASSETS> 319,618
<CURRENT-LIABILITIES> 89,793
<BONDS> 90,221<F3>
0
0
<COMMON> 275
<OTHER-SE> 137,441
<TOTAL-LIABILITY-AND-EQUITY> 319,618
<SALES> 327,490<F4>
<TOTAL-REVENUES> 372,613
<CGS> 218,361<F5>
<TOTAL-COSTS> 134,739<F6>
<OTHER-EXPENSES> 4,970<F7>
<LOSS-PROVISION> 3,810<F8>
<INTEREST-EXPENSE> 3,514<F9>
<INCOME-PRETAX> 10,867
<INCOME-TAX> 476
<INCOME-CONTINUING> 10,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,391
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.59
<FN>
<F1>add back allowance
<F2>gross
<F3>long-term debt
<F4>tolls only
<F5>network costs
<F6>total operating expenses
<F7>merger costs
<F8>bad debt expense
<F9>net
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 518
<SECURITIES> 0
<RECEIVABLES> 41,063
<ALLOWANCES> 2,085
<INVENTORY> 292
<CURRENT-ASSETS> 45,726
<PP&E> 83,623
<DEPRECIATION> 26,932
<TOTAL-ASSETS> 123,984
<CURRENT-LIABILITIES> 56,074
<BONDS> 28,050
<COMMON> 129
9,448
0
<OTHER-SE> 26,278
<TOTAL-LIABILITY-AND-EQUITY> 123,984
<SALES> 175,269
<TOTAL-REVENUES> 188,866
<CGS> 114,841
<TOTAL-COSTS> 73,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,284
<INTEREST-EXPENSE> 4,933
<INCOME-PRETAX> (4,825)
<INCOME-TAX> 396
<INCOME-CONTINUING> (5,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,354)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,389
<SECURITIES> 0
<RECEIVABLES> 44,158
<ALLOWANCES> 2,700
<INVENTORY> 417
<CURRENT-ASSETS> 47,883
<PP&E> 88,946
<DEPRECIATION> 29,376
<TOTAL-ASSETS> 128,750
<CURRENT-LIABILITIES> 53,833
<BONDS> 31,719
9,956
0
<COMMON> 132
<OTHER-SE> 29,053
<TOTAL-LIABILITY-AND-EQUITY> 128,750
<SALES> 61,538
<TOTAL-REVENUES> 66,855
<CGS> 41,608
<TOTAL-COSTS> 22,256
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,212
<INTEREST-EXPENSE> 1,524
<INCOME-PRETAX> 1,479
<INCOME-TAX> 324
<INCOME-CONTINUING> 856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 856
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,380
<SECURITIES> 0
<RECEIVABLES> 54,156
<ALLOWANCES> 3,648
<INVENTORY> 431
<CURRENT-ASSETS> 85,804
<PP&E> 93,191
<DEPRECIATION> 32,180
<TOTAL-ASSETS> 171,351
<CURRENT-LIABILITIES> 56,423
<BONDS> 5,948
10,710
0
<COMMON> 245
<OTHER-SE> 93,523
<TOTAL-LIABILITY-AND-EQUITY> 171,351
<SALES> 136,137
<TOTAL-REVENUES> 146,942
<CGS> 94,988
<TOTAL-COSTS> 45,784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,711
<INTEREST-EXPENSE> 2,434
<INCOME-PRETAX> 3,762
<INCOME-TAX> 853
<INCOME-CONTINUING> 2,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,313
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,122
<SECURITIES> 0
<RECEIVABLES> 57,216
<ALLOWANCES> 3,889
<INVENTORY> 392
<CURRENT-ASSETS> 82,566
<PP&E> 98,686
<DEPRECIATION> 35,121
<TOTAL-ASSETS> 173,066
<CURRENT-LIABILITIES> 52,323
<BONDS> 6,884
11,929
0
<COMMON> 247
<OTHER-SE> 96,217
<TOTAL-LIABILITY-AND-EQUITY> 173,066
<SALES> 206,362
<TOTAL-REVENUES> 224,227
<CGS> 143,803
<TOTAL-COSTS> 58,977
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,901
<INTEREST-EXPENSE> 3,908
<INCOME-PRETAX> 6,812
<INCOME-TAX> 1,396
<INCOME-CONTINUING> 4,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,517
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.13
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,035
<SECURITIES> 0
<RECEIVABLES> 55,269<F1>
<ALLOWANCES> 3,795
<INVENTORY> 763
<CURRENT-ASSETS> 61,933
<PP&E> 119,398<F2>
<DEPRECIATION> 38,946
<TOTAL-ASSETS> 204,031
<CURRENT-LIABILITIES> 77,394
<BONDS> 6,007<F3>
0
0
<COMMON> 265
<OTHER-SE> 117,598
<TOTAL-LIABILITY-AND-EQUITY> 204,031
<SALES> 282,497<F4>
<TOTAL-REVENUES> 308,767
<CGS> 193,599<F5>
<TOTAL-COSTS> 100,944<F6>
<OTHER-EXPENSES> 0<F7>
<LOSS-PROVISION> 5,143<F8>
<INTEREST-EXPENSE> 3,874<F9>
<INCOME-PRETAX> 10,859
<INCOME-TAX> 2,185
<INCOME-CONTINUING> 7,765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,765
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.34
<FN>
<F1>Add back allowance
<F2>Gross
<F3>Total long term debt
<F4>Toll only
<F5>Network costs
<F6>Total operating expenses
<F7>Unusual operating expenses
<F8>Bad debt expense from consolidated income statement
<F9>Net
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 58,530<F1>
<ALLOWANCES> 3,670
<INVENTORY> 818
<CURRENT-ASSETS> 62,593
<PP&E> 121,825<F2>
<DEPRECIATION> 41,787
<TOTAL-ASSETS> 210,149
<CURRENT-LIABILITIES> 49,115
<BONDS> 33,824<F3>
0
0
<COMMON> 267
<OTHER-SE> 123,000
<TOTAL-LIABILITY-AND-EQUITY> 210,149
<SALES> 73,840<F4>
<TOTAL-REVENUES> 82,652
<CGS> 48,616<F5>
<TOTAL-COSTS> 28,665<F6>
<OTHER-EXPENSES> 0<F7>
<LOSS-PROVISION> 281<F8>
<INTEREST-EXPENSE> 651<F9>
<INCOME-PRETAX> 4,568
<INCOME-TAX> 516
<INCOME-CONTINUING> 4052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4052
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
<FN>
<F1>Add back allowance
<F2>Gross
<F3>Total long-term debt
<F4>Toll only
<F5>Network costs
<F7>Unusual operating expenses
<F6>Total operating expenses
<F8>Bad debt expenses from consolidated income statement
<F9>Net
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 60,054<F1>
<ALLOWANCES> 3,612
<INVENTORY> 935
<CURRENT-ASSETS> 66,083
<PP&E> 135,964<F2>
<DEPRECIATION> 45,472
<TOTAL-ASSETS> 224,754
<CURRENT-LIABILITIES> 60,000
<BONDS> 33,419<F3>
0
0
<COMMON> 268
<OTHER-SE> 127,881
<TOTAL-LIABILITY-AND-EQUITY> 224,754
<SALES> 154,677<F4>
<TOTAL-REVENUES> 172,153
<CGS> 102,136<F5>
<TOTAL-COSTS> 58,778<F6>
<OTHER-EXPENSES> 0<F7>
<LOSS-PROVISION> 1,163<F8>
<INTEREST-EXPENSE> 1,340<F9>
<INCOME-PRETAX> 9,710
<INCOME-TAX> 1,294
<INCOME-CONTINUING> 8,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,416
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
<FN>
<F1>add back allowance
<F2>gross
<F3>Total long-term debt
<F4>Toll only
<F5>Network costs
<F6>Total operating expenses
<F8>Bad debt expense from consolidated income statement
<F7>Unusual operating expenses
<F9>Net
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 73,072<F1>
<ALLOWANCES> 3,533
<INVENTORY> 1,057
<CURRENT-ASSETS> 79,462
<PP&E> 153,758<F2>
<DEPRECIATION> 49,308
<TOTAL-ASSETS> 276,597
<CURRENT-LIABILITIES> 62,441
<BONDS> 74,388<F3>
0
0
<COMMON> 271
<OTHER-SE> 136,100
<TOTAL-LIABILITY-AND-EQUITY> 276,597
<SALES> 238,596<F4>
<TOTAL-REVENUES> 267,277
<CGS> 156,973<F5>
<TOTAL-COSTS> 92,492<F6>
<OTHER-EXPENSES> 0<F7>
<LOSS-PROVISION> 1,930<F8>
<INTEREST-EXPENSE> 1,941<F9>
<INCOME-PRETAX> 15,703
<INCOME-TAX> 2,379
<INCOME-CONTINUING> 13,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,324
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.76
<FN>
<F1>add back allowance
<F2>gross
<F3>total long-term debt
<F4>tolls only
<F5>network costs
<F6>total operating expenses
<F7>unusual operating expenses
<F8>bad debt expense
<F9>net
</FN>
</TABLE>
