-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KZCIoafJyksAQO167XMBqwrLzNW3UN9WsBVmjrqgehPKtu1UccypJp0794f2wFHK E0vOjVBxU1GqUfCetTPq8A== 0000783233-97-000004.txt : 19970328 0000783233-97-000004.hdr.sgml : 19970328 ACCESSION NUMBER: 0000783233-97-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACC CORP CENTRAL INDEX KEY: 0000783233 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 161175232 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14567 FILM NUMBER: 97565193 BUSINESS ADDRESS: STREET 1: 400 WEST AVENUE CITY: ROCHESTER STATE: NY ZIP: 14611 BUSINESS PHONE: 7169873000 MAIL ADDRESS: STREET 1: 400 WEST AVENUE CITY: ROCHESTER STATE: NY ZIP: 14611 FORMER COMPANY: FORMER CONFORMED NAME: AC TELECONNECT CORP DATE OF NAME CHANGE: 19870129 10-K 1 12A:25905 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR FISCAL YEAR ENDED DECEMBER 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 0-14567 ACC CORP. 400 West Avenue Rochester, New York 14611 716-987-3000 Incorporated under the Employer Identification Laws of the State of Delaware Number 16-1175232 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class: Class A Common Stock, par value $.015 per share Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by 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. [ ] Aggregate market value of all Class A Common Stock held by non- affiliates as of March 3, 1997, was $415,525,495. 16,672,121 shares of $.015 par value Class A Common Stock were issued and outstanding as of March 3, 1997. The Index of Exhibits filed with this Report begins at page 54. 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 incorporated by reference 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"). ACC Corp. is a switch-based provider of telecommunications services in the United States, Canada and the United Kingdom. The Company primarily provides long distance telecommunications services to a diversified customer base of businesses, residential customers and educational institutions. As a result of recent regulatory changes, 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 operates an advanced telecommunications network, consisting of seven long distance international and domestic switches located in the U.S., Canada and the U.K., a local exchange switch located in the U.S., leased transmission lines, and network management systems designed to optimize traffic routing. The Company's objective is to grow its long distance telecommunications customer base in its existing markets and to establish itself in deregulating Western European markets that have high density telecommunications traffic, such as Germany, when the Company believes that business and regulatory conditions warrant. The key elements of the Company's business strategy are: (1) to broaden ACC's penetration of the U.S., Canadian and U.K. 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. The Company'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 the Company 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. The Company believes that its ownership of switches reduces its reliance on other carriers and enables the Company 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 the Company 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 $15,000 of monthly usage, selected residential customers and colleges and universities. The Company believes that, in addition to being price-driven, these customers tend to be focused on customer service, more likely to rely on a single carrier for their telecommunications needs and less likely to change carriers than larger commercial customers. The diversity of ACC's targeted customer base enhances network utilization by combining business-driven workday traffic with night and weekend off-peak traffic from student and residential customers. The Company strives to be more cost effective, flexible, innovative and responsive to the needs of its customers than the major carriers, which principally focus their direct sales efforts on large commercial accounts and residential customers. The Company was originally incorporated in New York in 1982 under the name A.C. Teleconnect Corp. and was reincorporated in Delaware in 1987 under the name ACC Corp. As used herein, unless the context otherwise requires, the "Company" and "ACC" refer to ACC Corp. and its subsidiaries, including ACC Long Distance Corp. ("ACC U.S."), ACC TelEnterprises Ltd., the Company's wholly-owned Canadian subsidiary ("ACC Canada"), and ACC Long Distance UK Limited ("ACC U.K."). The Company's principal executive offices are located at 400 West Avenue, Rochester, New York 14611 and its telephone number at that address is (716) 987-3000. In this Report, references to "dollar" and "$" are to United States dollars, references to "Cdn. $" are to Canadian dollars, references to "pound symbol" are to British pounds sterling, the terms "United States" and "U.S." mean the United States of America and, unless the context otherwise requires, its states, territories and possessions and all areas subject to its jurisdiction, and the terms "United Kingdom" and "U.K." mean England, Scotland and Wales. For certain financial information concerning the Company's foreign and domestic operations, see Note 9 to the Consolidated Financial Statements incorporated by reference under Item 8 of this Report. Industry Overview The global telecommunications industry has dramatically changed during the past several years, beginning in the U.S. with AT&T Corp's ("AT&T") divestiture of its 22 regional operating companies ("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 Telecommunications PLC ("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 countries. In addition, since the AT&T divestiture in 1984, competition has heightened in the local exchange market in the U.S. and Canada. The Company 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 approximately $72 billion in annual revenues during 1995, according to Federal Communications Commission ("FCC") estimates. AT&T has remained the largest long distance carrier in the U.S. market, retaining slightly more than 53% of the market, with MCI Telecommunications Corporation ("MCI") and Sprint Corp. ("Sprint") increasing their respective market shares to approximately 18% and 10% of the market during 1995. 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.) ("WorldCom"), Cable & Wireless Communications, Inc., Frontier Corp. and LCI International, constitute the second tier of the industry. 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. Since 1990, competition has existed 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 l.4 billion pounds, 2.1 billion pounds and 2.2 billion pounds, respectively, in revenues during the 12 months ended March 31, 1996, 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 70%, 80% and 92% of the revenues from international, national and local voice telephone services, respectively. Mercury Communications Ltd. ("Mercury"), which owns and operates interexchange 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 and various cable companies, and switched-based resellers such as ACC U.K., AT&T, 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. Switched-based resellers, such as the Company, carry their long distance traffic over transmission lines leased from transmission facilities-based carriers, originate and terminate calls through local exchange systems or "competitive access providers" ("CAPs") such as Teleport Communications Group ("Teleport"), 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 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 the Company, 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 depend on one or more transmission facilities-based carriers or switch-based resellers for transmission and switching facilities. The Company believes that its ownership of switches reduces its reliance on other carriers and enables the Company 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 the Company 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 the Company, (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. During the past several years, regulators in some states and at the federal level have issued rulings which favored competition and promoted the opening of markets to new entrants. These rulings have allowed competitive providers of telecommunications services to offer a number of new services, including, in certain states, a range of local exchange services. In February 1996 legislation was enacted (the "Telecommunications Act of 1996" or the "1996 Act") which was intended to introduce increased competition in U.S. telecommunications markets, especially in local markets. The 1996 Act opens the local services market by requiring local exchange carriers to permit interconnection to their networks and by establishing local exchange carrier obligations with respect to unbundled access, resale, number portability, dialing parity, nondiscriminatory access to rights of way, mutual compensation for termination of calls on other carriers' networks, and other matters. In addition, the legislation codifies local exchange carriers' equal access and nondiscrimination obligations and preempts state regulation that prohibits or has the effect of prohibiting competition for local telecommunication services. 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 services. 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; establish rules requiring incumbent LECs to allow competitors to interconnect; require states to set prices for interconnection and termination of local calls; require incumbent LECs to offer their telecommunications services at retail prices minus 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. The Interconnection Orders also require, among other things, that intraLATA presubscription (pursuant to which LECs must allow customers to choose different carriers for intraLATA toll service without having to dial extra digits) be implemented no later than February 1999. 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 U.S. Court of Appeals. These appeals have been consolidated into proceedings currently pending 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 stayed by the Court. There can be no assurance of how the Interconnection Orders will be implemented or enforced or what effect they will have on competition within the telecommunications industry generally or on the competitive position of the Company specifically. Nonetheless, the Company believes the trend toward increased competition and deregulation of the telecommunications industry will be accelerated by the 1996 Act and subsequent developments. 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, in concept, the reduction of the remaining restrictions on local exchange services in Canada and a proceeding is being conducted to determine the appropriate timetable and terms for implementation of its decision. Business Strategy The Company was an early entrant as an alternative carrier in the U.S., Canada and the U.K. The Company'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 the Company'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 $308.8 million over the three fiscal years ended December 31, 1996, although the Company expects its growth to decrease over time. The Company 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 the Company'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 telecommunications carriers. Through this strategy, the Company will seek to build a broad base of recurring revenues in the U.S., Canada and the U.K. The Company 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. The Company believes that offering local services will enhance its ability to attract and retain long distance customers and reduce the Company's access charges as a percentage of revenues. Enter New Markets. The Company 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, the Company 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 Germany and other countries when the Company believes that business and regulatory conditions warrant. The Company has recently announced that it has formed a German subsidiary in anticipation of deregulation in that marketplace in 1998. Successful entry into the German market, however, will depend upon a number of factors, including negotiation of interconnection agreements with Deutsche Telekom AG and deregulation by governmental authorities. Improve Operating Efficiency. The Company strives to achieve economies of scale and scope in the use of its network, which consists of leased transmission facilities, seven international and domestic switches, a local exchange switch and information systems. In order to enhance the efficiency of the fixed cost elements of its network, the Company seeks to increase its traffic volume and balance business-driven workday traffic with night and weekend off-peak traffic from student and residential customers. The Company 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. The Company seeks to reduce its network cost per billable minute by more than any reduction in revenue per billable minute. The Company also intends to acquire additional switches and upgrade its existing switches to enhance its network in anticipation of growth in the Company's customer base and provide additional telecommunications services. The Company believes that its network switches enable the Company 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 the Company expands its service offerings and its network, the Company 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 the Company's current operations. The Company 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, the Company 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. The Company 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 the Company historically has originated long distance voice services principally in New York and Massachusetts, ACC is currently authorized to originate long distance voice and data services in 45 states. The Company'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. The Company's U.S. business services also include toll-free "800" or "888" services. In addition, the Company currently provides intra-LATA service in certain areas for customers who make a large number of intra-LATA calls. The Company installs automatic dialing equipment to enable customers to place such calls over the Company'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 the Company's customers in such jurisdictions will be able to use the Company's network on a "1 +" basis to complete intra-LATA toll calls. The Company'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. The Company'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. See the Risk Factor discussion of "Increasing Domestic and International Competition" in this Item 1 below. 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. The Company offers its Canadian commercial customers both voice and data telecommunications services. The Company's long distance voice services are offered to its business customers in a nine-level discount structure marketed under the name "Edge." Discounts are based on calling volume and call destination and typically result in savings 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. The Company 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 and Internet access services (including Web design/hosting) and now provides these services in all provinces except Saskatchewan and Newfoundland. ACC originates long distance voice services throughout the U.K. The Company 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 the Company'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 5,000 pounds per month in calls. The Company'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. The Company's standard monthly statement includes a management summary report, a call detail report recording every long distance call and facsimile call, and a pricing breakdown by call destination. Optional calling pattern reports, which are available at no extra cost, include call summaries by account code, area or city code, LATA (for U.S. bound calls), international destination and time-of-day. This information is available to customers in the form of hard copy, magnetic tape or disk. In the U.S., the Company is conducting feasibility studies to identify the market potential and regulatory environment for offering additional services, including video conferencing, paging, international call back, facsimile and frame relay services, and expects to introduce broader Internet access, enhanced travel cards and video conferencing in 1997. In Canada, the Company plans to provide paging services and expand frame relay services in 1997. In the U.K., the Company is also considering additional service offerings, including teleconferencing, voice mail, calling cards, call-back and smart card services and plans to introduce Internet access and prepaid calling cards in 1997. University Program. The Company'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. The Company's sales, marketing and engineering professionals work directly with college and university administrators to design and implement integrated solutions for providing and managing telecommunications equipment and services to meet the current and prospective communications needs of their institutions. As part of its program, the Company often installs telecommunications equipment which, depending upon the circumstances, may include a switch or private branch exchange, voice mail, cabling and, 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, the Company 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. The Company'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. The contracts in the U.S. typically provide the Company with a right of first refusal to provide the institution with any desired additional telecommunications services or enhancements (based on market prices) during the term of the contract. The Company's university contracts in Canada generally provide it with the exclusive right, and in the U.K. the opportunity, to market to the school's students, faculty and administration. Most of the Company's contracts in Canada also provide for exclusive university support for marketing to alumni. These arrangements allow the Company to market its services to these groups through its affinity programs. The Company offers university customers in the U.S., Canada and the U.K. certain customized services. The Company 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, the Company 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 the Company provides a call detail report recording every long distance call. In addition, for university student customers, the Company 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 the Company's university customers in the U.S. are offered operator services, which are available 24 hours per day, seven days per week. The Company also offers its U.S. university customers its "Travel Service Elite" domestic calling card. In addition, the Company sells a prepaid calling card in the U.S., which allows customers to prepay for a predetermined number of "units" representing long distance minutes. The rate at which the units are used is determined by the destination of the calls made by the customer. The Company's sales group targets university customers in the U.S., Canada and in the U.K. In the U.S. university market, the Company 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, the Company has been able to establish relationships with several large universities. The Company 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., the Company has been able to establish long-term relationships with several large universities. The Company believes that, while its marketing approach in the U.K. is similar to that in the U.S., it is able to access larger educational institutions because of its nationwide presence and because transmission facilities-based carriers have not focused on this market. The Company 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. The Company 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., the Company's "Save Plus" program provides customers with competitively priced long distance service. In addition, U.S. customers are provided with a "Phone Home" long distance service through which, by dialing an 800 number plus an access code, callers can call home at competitive rates. In general, the Company's residential services are priced below AT&T's premium rates for similar services. In Canada, the Company offers three different residential service plans. 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. The Company 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, the Company offers "Extended Metro Toronto" calling, which provides flat rate calling within areas adjacent to Toronto that are long distance from each other. Customized billing services are also offered to the Company's U.S. and Canadian residential customers. In the U.K., all residential customers use the Company's ACCess 1601 service, which provides savings off the standard rates charged for residential service by British Telecom or Mercury, but requires the customer to dial a four digit access code before dialing the area code and number. International Long Distance Services. The Company offers international products and services to both its existing customer base and to potential customers in the U.S., Canada and the U.K. The Company's international simple resale licenses (the "ISR Licenses") allow the Company 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, all other countries and territories. The Company believes it can compete effectively for international traffic due to the ISR Licenses it has obtained for traffic between the U.S., Canada and the U.K. which allow it 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 international simple resale licenses. The Company has leased fixed cost facilities between these countries and is developing services for customers with high volumes of traffic between and among the U.S., Canada and the U.K. In December 1996, ACC U.K. was awarded an International Facilities License, and expects to receive a Public Telecommunications Operator license, which licenses will enable the Company to build and operate a microwave network in the U.K. and to use the U.K. as a regional hub for international telecommunications traffic. Local Exchange Services. Building on its experience in providing local telephone service to various university customers, the Company 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, the Company provides local telephone service as a reseller in Ontario, Canada, and began providing such service in Quebec in 1996. The Company 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 the Company to serve new local exchange customers even if they are already under contract with a different interexchange carrier for long distance service. Commencing in 1997, the Company plans to expand its local telephone operations to New York City, Albany and Buffalo, New York, and Boston and Springfield, Massachusetts. The Company has only limited experience in providing local telephone services, having commenced providing such services in 1994. 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 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 the Company will be able to lease transmission facilities from local exchange carriers at wholesale rates that will allow the Company to compete effectively with the local exchange carriers or other alternative providers or that the Company will generate positive operating margins or attain profitability in its local telephone service business. Sales and Marketing The Company markets its services in the U.S., Canada and the U.K. through a variety of channels, including ACC's internal sales forces, independent sales agents, co-marketing arrangements and affinity programs, as described below. The Company has a total of approximately 130 internal sales personnel and approximately 200 independent sales agents serving its U.S., Canadian and U.K. markets. Although it has not experienced significant turnover in recent periods, a loss of a significant number of independent sales agents could have a significant adverse effect on the Company's ability to generate additional revenue. The Company maintains a number of sales offices in the Northeastern U.S., Canada, and in London, Manchester and Cambridge, England. In addition, with respect to its university and student customers in each country, the Company 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. The Company 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 the Company's total revenue. United States. The Company 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. The Company'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. The Company also markets its services to other resellers and rebillers. The Company 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 in other states. ACC has obtained authorization to originate long distance voice services in 45 states. Canada. The Company markets its long distance services in Canada through internal sales personnel and independent sales agents, co-marketing arrangements and affinity programs. The Company focuses its direct selling efforts on medium-sized and large business customers. The Company also markets its services to other resellers and rebillers. The Company uses independent sales agents to target small to medium-sized business and residential customers throughout Canada. These independent sales agents market the Company's services under contracts that generally provide for the payment of commissions based on the revenue generated from new customers obtained by the representative. The use of an independent agent network allows the Company 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, the Company has developed several affinity programs designed to attract residential customers within specific target groups, such as clubs, alumni groups and buying groups. The use of affinity programs allows the Company to target groups with a nationwide presence without engaging in costly nationwide advertising campaigns. 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, the Company has developed a co-marketing arrangement with Hudson's Bay Company (a large Canadian retailer) through which the Company's telecommunications services are marketed under the name "The Bay Long Distance Program." United Kingdom. In the U.K., the Company 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. The Company 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 the Company's switch, thereby bypassing the PSTN. The Company 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 the Company'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., the Company utilizes a network of lines leased under volume discount contracts with transmission facilities-based carriers, much of which is fiber optic cable. To maximize efficient utilization, the Company's network in each country is configured with two-way transmission capability that combines over the same network the delivery of both incoming and outgoing calls to and from the Company's switches. 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 the Company's network. The Company evaluates opportunities to install switches in selected markets where the volume of its customer traffic makes such an investment economically viable. Utilization of the Company's switches allows ACC to route customer calls over multiple networks to reduce costs. As of December 31, 1996, the Company operated switches for its call traffic in eight locations and maintained 19 additional points of presence ("POPs") in the U.S., Canada and the U.K. Some of the Company's contracts with transmission facilities- based carriers contain under-utilization provisions. These provisions require the Company to pay fees to the transmission facilities-based carriers if the Company does not meet minimum periodic usage requirements. The Company has not been assessed with 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 the Company on a month-to-month basis, select the Company almost exclusively on the basis of price and are likely to terminate their arrangements with the Company if they can obtain better pricing terms elsewhere. The Company uses projected sales to other resellers in evaluating the trade-offs between volume discounts and minimum utilization rates it negotiates with transmission facilities-based carriers. If sales to other resellers do not meet the Company's projected levels, the Company 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 the Company 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. The Company 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., the Company maintains two long distance switches, one local exchange switch and nine additional points of presence. The Company plans to install local exchange switches in New York City, Albany and Buffalo, New York and Boston and Springfield, Massachusetts during 1997. These switches and POPs provide an interface with the PSTN to service the Company's customers. Lines leased from transmission facilities-based carriers link the Company's U.S. POPs to its switches. ACC U.S. maintains a leased, direct trans-Atlantic link with ACC U.K. that it established in 1994 following the Company's receipt of its ISR License for U.K.-U.S. calls and international private line resale authority in the U.S. The Company is currently negotiating with Mercury for the purchase of an indefeasible rights utilization with respect to such trans-Atlantic link to the U.K. The Company believes that the purchase of such rights will enable it to reduce network costs. In Canada, the Company maintains switches in Toronto, Montreal and Vancouver, together with seven POPs to provide an interface with the Canadian PSTN. The Company also maintains frame relay nodes for switched data in Toronto, Montreal, Vancouver and Calgary. The Company uses transmission lines leased from transmission facilities-based carriers to link its Canadian POPs to its switches. This network is also linked with the Company'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 ("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., the Company maintains switches in London and Manchester, England, and plans to install an additional switch in Bristol, England during 1997. ACC U.K. maintains three additional POPs providing interfaces with the PSTN in the U.K., which are linked to its switches through transmission lines leased from the major transmission facilities-based carriers. This network is also linked with the Company's switches in the U.S. and Canada. Customers can access the Company'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 expects to receive a Public Telecommunications Operator license, which licenses will enable the Company to build and operate a microwave network in the U.K. and to use the U.K. as a regional hub for international telecommunications traffic. Network costs are the single largest expense incurred by the Company. The Company strives to control its network costs and its dependence on other carriers by leasing transmission lines on an economical basis. The Company is also considering ownership of certain transmission facilities as a means of reducing its network costs. The Company has 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., Canada and the U.K. The Company 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 The Company 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 the Company believes its management information system is currently adequate, it has not grown as quickly as the Company's business and substantial investments are needed. The Company is developing and implementing new systems designed to (i) enhance the Company'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 the Company 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 the Company. See the Risk Factor discussion of "Dependence on Effective Information Systems" in this Item 1 below. 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, the Company 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 the Company's 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. Revenues from other resellers accounted for approximately 42%, 12% and 24% of the revenues of ACC U.S., ACC Canada and ACC U.K., respectively, in 1996. With respect to these customers, the Company 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 the Company's markets are significantly larger than the Company, have substantially greater resources than the Company, control transmission lines and larger networks than the Company and have longstanding relationships with the Company's target customers. There can be no assurance that the Company will remain competitive in this environment. Regulatory trends have had, and may have in the future, significant effects on competition in the industry. As the Company expands its 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 like competition in the U.S. markets over time as such non- U.S. markets continue to experience deregulatory influences. See the Risk Factor discussions of "Potential Adverse Effects of Regulation" and "Increasing Domestic and International Competition" and the discussion of "Regulation" all in this Item 1 below. 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 the Company depends largely upon the amount of traffic that it can commit to the transmission facilities-based carrier and the resulting volume discount it can obtain. Subject to contract restrictions and customer brand loyalty, resellers like the Company 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., the Company is authorized to originate long distance service in 45 states (although it currently derives most of its U.S. revenues principally from calls originated in New York and Massachusetts). The Company competes for customers, transmission facilities and capital resources with numerous long distance telecommunications carriers and/or resellers, some of which are substantially larger, have substantially greater financial, technical and marketing resources, and own or lease larger transmission systems than the Company. AT&T is the largest supplier of long distance services in the U.S. inter-LATA market. The Company also competes within its U.S. call origination areas with other national long distance telephone carriers, such as MCI, Sprint and regional companies which resell transmission services. RBOCs from outside Nynex Corp.'s region, including Southwest Bell, have, under the authority contained in the 1996 Act, begun to offer long distance services in Nynex Corp.'s region. In the intra-LATA market, the Company also competes with the local exchange carriers servicing those areas. In its local service areas in New York State, the Company presently competes or in the future will compete with New York Telephone Company ("New York Telephone"), Frontier Corp., AT&T, Citizens Telephone Co., 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 the Company. 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 proposed merger of Cable Wireless PLC and Global One, the recently announced merger of British Telecom and MCI, and other strategic alliances could increase competitive pressures upon the Company. The pending 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 Corp./Bell Atlantic region. 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, RBOCs will be allowed to enter the long distance market upon a showing that certain conditions related to competition have been met, and AT&T, MCI and other long distance carriers, utilities and cable television companies will be allowed to enter the 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. Although the ability of large foreign carriers to compete in the U.S. market will depend upon how the FCC implements this commitment, the WTO accord will likely increase the level of competition in the U.S. local, long distance, and international markets. The Company 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, the Company believes that it competes effectively with other local and long distance telephone carriers and resellers in its service areas. The Company's ability to continue to compete effectively will depend on its continued ability to maintain high quality, market-driven services at prices generally below those charged by its competitors. Canada. In Canada, the Company competes with facilities- based carriers, other resellers and rebillers. The Company'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. The Company also competes against CamNet, Inc., a reseller of telecommunications services. The Company 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. In the U.K. the Company competes with facilities-based carriers and other resellers. The Company's principal competitors in the U.K. are British Telecom, the dominant supplier of telecommunications services in the U.K., and Mercury. The Company also faces competition from emerging licensed public telephone operators (who are constructing their own facilities-based networks) such as Energis and WorldCom, and from other resellers including Esprit and Sprint. The Company believes its services 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. telecommunication markets. It opens the local services market by requiring local exchange carriers to permit interconnection to their networks and by establishing local exchange carrier 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 inconsistent state regulation. 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 distance 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 Corp., 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 pending merger between Nynex Corp. and Bell Atlantic is likely to strengthen the financial resources and competitive capabilities of the new, combined company. 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 and virtual collocation; require the states to set prices for interconnection, unbundled elements, and termination of local calls that are nondiscriminatory and cost-based (using a forward looking methodology which excludes embedded costs but allows a reasonable cost-of-capital profit); 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 to some of these rules are available to LECs which qualify as rural LECs under the 1996 Act. The Interconnection Orders also require that intraLATA presubscription (pursuant to which LECs must allow customers to choose different carriers for intraLATA toll service without having to dial extra digits) be implemented no later than February 1999; that LECs provide new entrants with nondiscriminatory access to directory assistance services, directory listings, telephone numbers, and operator services; and that 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 U.S. Court of Appeals which appeals have been consolidated into proceedings currently pending 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 stayed by the Court. The 1996 Act provided the FCC with expansive authority to effectively deregulate the local and long distance markets. 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. As a result, the FCC has engaged in a number of additional rulemakings designed to effectively 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 of how the 1996 Act or the Interconnection Orders will be implemented or enforced or to what effect they will have on competition within the telecommunications industry generally or on the competitive position of the Company. 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 for 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. Recently that has changed, and following a transition period, which is currently scheduled to conclude in November 1997, non-dominant carriers 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 may become easier, from a regulatory perspective, to obtain such authority for additional markets. The FCC has granted the Company global resale and facilities-based authority. 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. As required by the 1996 Act, a joint board of federal and state regulators was convened to consider possible changes to the FCC's existing universal service support mechanisms -- mechanisms designed to ensure affordable telephone service is available to all consumers, including low-income consumers -- in light of the procompetitive paradigm for local competition established by the 1996 Act. In November 1996 the FCC initiated a proceeding to examine universal service issues, and has received comment on the proposals set forth by the joint board. Any decision is expected to comply with the policy principles for preservation and advancement of universal telephone service set forth in the 1996 Act: quality service, affordable rates, access to advanced services, access to service in rural and high-cost areas, specific and predictable support mechanisms, equitable and non- discriminatory contribution to support mechanisms, and access to advanced telecommunications for schools, health care providers and libraries. An initial decision is expected in May 1997. An issue that may affect the Company is access charge reform. Access charges are charges imposed by 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. As required by the 1996 Act, in December 1996 the FCC issued an order which, among other things, requests comment on a number of access charge reform issues designed to foster efficient pricing of access, competition for access services, and to reflect the development for local services prompted by the 1996 Act. The FCC has also sought comment on whether Internet service providers and other information service providers should be subject to access charges. An initial decision is expected in May 1997. There can be no assurance of 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, the Company may become subject to many of the same obligations to which the RBOCs and other telecommunications providers 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 45 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 New York, have ordered that this disadvantage be removed. The 1996 Act requires local exchange companies to adopt "intra-LATA equal access" as a pre-condition for the local exchange carriers entering into the inter-LATA long distance business and intra-LATA access must be implemented by no later than 1999. Accordingly, it is expected that the dialing disparity for intra- LATA toll calls will be removed in the future. 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. 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 pre-existing intrastate "equal price per unit of traffic" rule will remain in effect. While the presence of switch interconnections may actually lower the price the Company may pay for local transport services, the ability of carriers that handle large traffic volumes, such as AT&T, to negotiate flat rate direct transport charges may result in the Company paying more per unit of traffic than its competitors for local transport service. The NYPSC has also instituted a proceeding to review the manner in which universal service and other subsidized services are funded, and whether access charges and inter-carrier compensation plans should be restructured. 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 12 upstate New York markets and has applications pending in 11 additional cities. 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 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 NYPSC is currently conducting a proceeding to establish rates for those services under pricing formulas set forth in the new federal legislation. The Company generally intends to provide local service through the resale of unbundled links rather than through the resale of bundled loops. Accordingly, the outcome of the NYPSC proceeding, including decisions regarding the pricing of bundled loops and unbundled links, could affect the Company's competitive standing as a local service provider in relation to larger companies, such as AT&T and MCI, which may initially enter the local service market through resale of bundled loops. Local Telephone Service in Massachusetts. The Massachusetts Department of Public Utilities ("DPU") has initiated a docket (currently in its briefing stages) to determine the format for local competition in that state. The format appears to be similar to the structure developing in New York State. Pending the outcome of this proceeding, the DPU is allowing companies to apply for certification as local exchange carriers and to begin operations under interim agreements. The Company is in the process of applying for certification. 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. Canada 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 a virtual monopoly in 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 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 recently-completed WTO negotiations to terminate Teleglobe Canada's status as the monopoly transmission facilities-based provider of Canada-overseas telecommunications services by October 1, 1998. 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 also 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. As a result, contribution charges payable by resellers were increased. These charges are levied on resellers as a monthly charge on leased access lines. The charges vary for each telephone company based on that company's estimated loss on local services. Contribution charges were reduced by 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. In March 1995, the CRTC decreased the contribution charges required to be paid by alternate long distance service providers to the local telephone companies, and made such decreases retroactive to January 1, 1994. Contribution charges payable to Bell Canada were reduced by 23%, and those payable to BC Tel by 13%. 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. 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 price 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 has subsequently initiated 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 is to be 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, with contribution charges payable to Bell Canada reduced from 1994 levels by 16%, and those payable to BC Tel by 27%; (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. However, the new swipe access tariff, originally scheduled to be implemented in early 1997, has been delayed. During 1996 the CRTC conducted extensive proceedings for local network unbundling and number portability, which examined the barriers to competition in the local telephony market. The CRTC is expected to announce the rules for local competition some time in 1997 for implementation in 1998. 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. In 1996 Stentor requested that the CRTC cease regulating the Stentor companies for long distance services. The CRTC began a public proceeding in 1996 to examine and establish the preconditions for such deregulation. The Company and the other members of the Competitive Telecommunications Alliance have proposed a timetable for deregulating the long distance market. This timetable calls for the implementation of local competition so that competitors can bundle local and long distance services and provide their own customers with one-stop shopping -- currently the almost exclusive preserve of the Stentor companies. Another important proposed prerequisite for deregulation is the construction of a national fibre optic transmission network by competing carriers. The Company cannot predict the timing or the outcome of any of the pending and ongoing proceedings described above, or the impact they may have on the competitive position of ACC Canada. Telecommunications Act. In October 1993, the Telecommunications Act replaced the Railway Act (Canada) as the principal telecommunications regulatory statute in Canada. 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 a license to run its own telecommunications system under the British Telecommunications Act 1981. Both British Telecom and Mercury are licensed under the subsequent Telecommunications Act 1984 to run transmission facilities-based telecommunications systems and provide telecommunications services. See the Risk Factors discussion of "Dependence on Transmission Facilities- Based Carriers and Suppliers" in this Item 1 below. In 1991, the British government established a "multi- operator" policy to replace the duopoly that had existed between British Telecom and Mercury. Under the multi-operator policy, the 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 mandatory price reductions on British Telecom which are expected to continue through August 1997 and this has had, and 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. ACC U.K. was granted an ISR License in September 1992 by the DTI and, for a period of approximately 18 months thereafter, was involved in protracted negotiations with British Telecom concerning the terms and conditions under which it could interconnect its leased line network and switching equipment with British Telecom's network. The ISR License allows the Company to offer domestic and international long distance services via connections to the PSTN of all countries and territories (subject to certain safeguards on non-competitive routes) at favorable leased-line rates, rather than per call international settlement rates. Over time, larger carriers will be able to match the Company's rates because they also have, or are expected to obtain, international simple resale licenses. As of December 31, 1996, the Company believes that over 30 ISR licenses have been issued and there are over 150 licensed public telecommunications operators in the U.K. In December 1996, ACC U.K. was one of 45 recipients of an International Facilities License and expects to receive a Public Telecommunications Operator license, which licenses will enable the Company to build and operate a microwave network in the U.K. and to use the U.K. as a regional hub for international telecommunications traffic. Acquisitions, Investments and Strategic Alliances As the Company expands its service offerings, geographic focus and its network, the Company anticipates that it will seek to acquire assets and businesses of, make investments in or enter into strategic alliances with, companies providing services complementary to ACC's existing business. The Company 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. The Company'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 the Company. While the Company may in the future pursue an active strategic alliance, acquisition or investment policy, no specific strategic alliances, acquisitions or investments are currently in negotiation and the Company has no immediate plans to commence such negotiations. 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 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 business acquisitions must be accounted for as purchases. Most of the businesses that might become attractive acquisition candidates for the Company 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 the Company. In the event the Company consummates additional acquisitions in the future that must be accounted for as purchases, such acquisitions would likely increase the Company's amortization expenses. In connection with acquisitions, investments or strategic alliances, the Company 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 the Company's business and any expenses associated with registering shares of the Company'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 the Company's business, financial condition and results of operations and could cause substantial fluctuations in the Company's quarterly and yearly operating results. See the Risk Factor discussion of "Substantial Indebtedness; Need for Additional Capital" in this Item 1 below and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference under Item 7 of this Report. Employees As of December 31, 1996, the Company had 913 full-time employees worldwide. Of this total, 298 employees were in the U.S., 385 were in Canada and 230 were in the U.K. The Company has never experienced a work stoppage and its employees are not represented by a labor union or covered by a collective bargaining agreement. The Company considers its employee relations to be good. Risk Factors Recent Losses; Potential Fluctuations in Operating Results Although the Company has experienced revenue growth on an annual basis and net income in fiscal 1996, it has incurred net losses and losses from continuing operations during 1994 and 1995. The 1995 net loss of $5.4 million resulted primarily from the expansion of operations in the U.K. (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 U.S. and Canadian long distance subsidiaries of approximately $9.0 million. The 1994 net loss of $11.3 million resulted primarily from operating losses due to expansion in the U.K. (approximately $5.6 million), the recording of the valuation allowance against deferred tax benefits (approximately $3.0 million), implementation of equal access in Canada (approximately $2.2 million) and operating losses due to expansion in local telephone service in the U.S. (approximately $0.9 million). There can be no assurance that revenue growth will continue or that the Company will be able to maintain the profitability it attained in 1996. 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, and when conditions warrant, to deregulating international 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. 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. 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. The Company's sales to other long distance companies have been increasing. Because these sales are at margins that are lower than those derived from most of the Company's other revenues, this increase has in the past and may in the future, reduce the Company's gross margins as a percentage of revenue. In addition, to the extent that these and other long distance carriers are less creditworthy and/or create larger credit balances, such sales may represent a higher credit risk to the Company. 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" incorporated by reference 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 its last five fiscal years, the Company has experienced a working capital deficit. The Company's leverage may adversely affect its ability to raise additional capital. In addition, the Company's indebtedness is expected to require significant repayments over the next five years. 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" incorporated by reference under Item 7 of this Report. Dependence on Transmission Facilities-Based Carriers and Suppliers The Company does not own telecommunications transmission lines. Accordingly, 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, the Company is 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 Mercury 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 additional competitors to the long distance market. In addition, regulatory proposals are pending that may affect the prices charged by the RBOCs and other 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. The Company currently acquires switches used in its North American operations from one vendor. The Company purchases switches from such vendor for its convenience, and switches of comparable quality may be obtained from several alternative suppliers. However, a failure by a supplier to deliver quality products or service products on a timely basis, or the inability to develop alternative sources if and as required, could result in delays which could have a material adverse effect on the Company's business, results of operations and financial condition. 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 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's ability to compete may be adversely affected. 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. 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. However, the general recent trend toward lessened regulation has also given AT&T, the largest long distance carrier in the U.S., as well as the RBOCs, increased pricing flexibility that has permitted it to compete more effectively with smaller interexchange carriers, such as the Company. In addition, the commitments made by the U.S. government in the recently-completed 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., access charges generally are regulated by the FCC and the relevant state PSCs. Under the terms of the AT&T Divestiture Decree, the RBOCs were required to price the "local transport" portion of such access charges on an "equal price per unit of traffic" basis. In November 1993, the FCC implemented new interim rules governing local transport access charges while the FCC considers permanent rules regarding new rate structures for transport pricing and switched access competition. These interim rules have essentially maintained the "equal price per unit of traffic" rule. However, under alternative access charge rate structures being considered by the FCC, local exchange carriers would be permitted to allow volume discounts in the pricing of access charges. More recently, the FCC has commenced a comprehensive review of its regulation of local exchange carrier access charges to better account for increasing levels of local competition. While the outcome of these proceedings is uncertain, if these rate structures are adopted many small interexchange carriers, including the Company, could be placed at a significant cost disadvantage to larger competitors, because access charges for AT&T and other large interexchange carriers could decrease, and access charges for small interexchange carriers could increase. 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 eliminated many of the restrictions which prohibited the RBOCs and GTOCs from providing long-haul, or inter-LATA, toll service, and thus the Company will face additional competition. 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 U. S. Communications Act, local exchange carriers must permit resale of their bundled local services and unbundled network elements. Pricing rules for those services were set forth in the U.S. Communications Act, with states directed to approve specific tariffs. At the end of 1996, the NYPSC 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 centrex, private line and PBX lines. The NYPSC has not yet established permanent rates for unbundled links or other unbundled elements which the Company may seek to resell. If the permanent rates established by the NYPSC do not reduce the rate for the unbundled link to a level below the rate for bundled loops, the Company's ability to compete in the provision of local service may be materially adversely affected. In Canada, the CRTC annually reviews the "contribution charges" (the equivalent of access charges in the U.S.) it has assessed against the access lines leased by Canadian long distance resellers, including the Company, from the local telephone companies in Canada. Increases in these contribution charges could have a material adverse effect on the Company's business, results of operations and 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, generally to the Company's benefit. 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. In the U.K., since the break up of the U.K. telecommunications duopoly consisting of British Telecom and Mercury 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 being introduced by Oftel has a direct and material effect on the ability of the Company to conduct its business. Oftel has imposed mandatory rate reductions on British Telecom in the past, which are expected to continue for the foreseeable future, and this has had and may have, the effect of reducing the prices the Company can charge its customers. In addition, the new access charge control regime to be implemented in 1997 could substantially increase the Company's network costs in the U.K. market, depending upon the levels at which starting charges and price ceilings are set by Oftel. 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. See the discussion "Business-Regulation" above in this Item 1. 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. Revenues from other resellers accounted for approximately 22%, 7% and 9% of the revenues of ACC U.S., ACC Canada and ACC U.K., respectively, in 1995, and 42%, 12% and 24% of the revenues of ACC U.S., ACC Canada and ACC U.K. in 1996. 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, Mercury, AT&T and WorldCom in the U.K. Other U.S. carriers 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, joint ventures such as the proposed merger of Bell Atlantic Corp. and Nynex Corp., the proposed merger of MCI and British Telecom, 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, the proposed merger of Cable Wireless PLC and 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 legislation recently enacted in the U.S., RBOCs will be allowed to enter the long distance market, AT&T, MCI and other long distance carriers will be allowed to enter the local telephone services market, and any entity (including cable television companies and utilities) will be 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 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. 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" incorporated by reference under Item 7 of this Report and the discussion "Business -- Competition" above in this Item 1. 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 and other services in 1995 and 1996 were $13.6 million and $26.3 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 companies that offer such discounts. The local telephone service business requires significant initial investments in capital equipment as well as significant initial promotional and selling expenses. 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. There can be no assurance that the Company will achieve positive cash flow or profitability in its local telephone service business. 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 international markets that have high density telecommunications traffic, when the Company believes that business and regulatory conditions warrant. The Company is making preparations to enter the emerging German market in anticipation of deregulation in 1998, and has recently established a German subsidiary, ACC Telekommunikation GmbH. There can be no assurance, however, 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 only limited experience in providing telecommunications service outside the United States, Canada and the U.K. The Company is making preparations to enter the emerging German market in anticipation of deregulation in 1998. There can be no assurance, however, 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, and when conditions warrant, to deregulating international 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. Dependence on Effective Information Systems To complete its billing, the Company must record and process massive amounts of data quickly and accurately. While the Company believes its management information system is currently adequate, it has not grown as quickly as the Company's business and substantial investments are needed. The Company believes that the successful implementation and integration of new information systems is important to its continued growth, its ability to monitor costs, to bill customers and to achieve operating efficiencies, but there can be no assurance that the Company will not encounter delays or cost-overruns or suffer adverse consequences in implementing the systems. In addition, as the Company's suppliers revise and upgrade their hardware, software and equipment technology, there can be no assurance that the Company will not encounter difficulties in integrating the new technology into the Company's business or that the new systems will be appropriate for the Company's business. See the discussion "Business -- Information Systems" above in this Item 1. 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 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. 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 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 1996. 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" incorporated by reference 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. 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, the stock markets recently have 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" incorporated by reference under Item 7 of this Report. Item 2. PROPERTIES. The Company'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, and for its U.K. headquarters in London, England, as well as office space at various other locations. For additional information regarding these leases, see Notes 8 and 10 to the Company's Consolidated Financial Statements incorporated by reference herein. The Company has eight switching centers worldwide. The Company'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 Syracuse, New York, in Toronto, Ontario, Montreal, Quebec, and Vancouver, British Columbia, and in London and Manchester, England, all of which sites are leased. Branch sales offices are leased by the Company at various locations in the northeastern U.S., Canada and the U.K. The Company also leases equipment and space located at various sites in its service areas. The Company's financing arrangements are secured by substantially all of the Company's assets. The Company'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 the financing arrangements. Item 3. LEGAL PROCEEDINGS. There were no material legal proceedings pending at December 31, 1996 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 Directors and executive officers of the Company and its principal operating subsidiaries as of March 1, 1997: Name Age Position(s) David K. Laniak 61 Chairman of the Board of Directors and Chief Executive Officer Christopher Bantoft 49 President and Managing Director of European Operations Arunas A. Chesonis 34 President and Director Michael R. Daley 35 Executive Vice President and Chief Financial Officer Steve M. Dubnik 34 President of North American Operations Mae H. Squier-Dow 35 President of ACC Long Distance Corp. Michael L. LaFrance 37 Executive Vice President George H. Murray 50 Vice President--Human Resources and Corporate Communications Frank C. Szabo 44 Vice President and Controller John J. Zimmer 38 Vice President and Treasurer David K. Laniak was elected the Company's Chief Executive Officer in October 1995 and Chairman of the Board of Directors in October 1996. Mr. Laniak has been a Director of the Company since February 1989. Prior to joining the Company, Mr. Laniak was Executive Vice President and Chief Operating Officer of Rochester Gas and Electric Corporation, Rochester, New York, where he worked in a variety of positions for more than 30 years. Mr. Laniak also has served from October 1995 through January 1997, and from May 1993 through July 1994, as a Director of ACC TelEnterprises Ltd. 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. 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. 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. Steve M. Dubnik was elected President of North American Operations of the Company in November 1996, and has served as the Chairman of the Board of Directors, President and Chief Executive Officer 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. Mae H. Squier-Dow was elected President of ACC Long Distance Corp. 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. Michael L. LaFrance was elected Executive Vice President of the Company and President of ACC Global Corp. in June 1996. He previously served as President of ACC Long Distance Corp. from April 1994 through June 1996. From May 1992 through May 1994, he served as Executive Vice President and General Manager of Axcess USA Communications Corp., from June 1990 through May 1992, as Director of Regulatory Affairs and Administration of LDDS Communications, Inc. and from February 1987 through June 1990, as Vice President of Comtel-TMC Telecommunications. George H. Murray was elected the Company's Vice President- Human Resources and Corporate Communications in August 1994. For more than five years prior to his joining the Company, he served in various senior management positions with First Federal Savings and Loan of Rochester, New York. 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: Cash Dividends Common Stock Price Declared High Low Per Share 1995: First Quarter $12 53/64 $9 21/64 $0.02 Second Quarter 11 21/64 8 43/64 0.02 Third Quarter 12 53/64 9 43/64 --- Fourth Quarter 16 5/64 10 1/2 --- 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 --- On March 3, 1997, the closing price for the Company's Class A Common Stock in trading on The Nasdaq Stock Market was $27.50 share, as published in The Wall Street Journal. As of March 3, 1997, the Company had approximately 490 holders of record of its Class A Common Stock. 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 . Item 6. SELECTED FINANCIAL DATA. The selected financial data for the five years ended December 31, 1996, appearing in the Company's 1996 Annual Report under the heading "Selected Consolidated Financial Data," is incorporated by reference herein. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of financial condition and results of operations appearing in the Company's 1996 Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated by reference herein. 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 to be held on May 15, 1997 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 the Annual Meeting of Shareholders to be held on May 15, 1997, which is incorporated by reference herein. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by Item 12 of Form 10-K will be set forth under the headings "Securities Owned by Company Management" and "Principal Holders of Common Stock" in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 15, 1997, which is incorporated by reference herein. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 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 the Annual Meeting of Shareholders to be held on May 15, 1997, 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 incorporated by reference from the Company's 1996 Annual Report under the headings "Consolidated Statements of Operations", "Consolidated Balance Sheets", "Consolidated Statements of Changes in Shareholders' Equity", "Consolidated Statements of Cash Flow", "Notes to Consolidated Financial Statements" and "Report of Independent Public Accountants": Consolidated Financial Statements: Consolidated Balance Sheets, December 31, 1995 and 1996 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Independent Public Accountants (b) The following Financial Statements for ACC Corp. Employee Stock Purchase Plan for Plan year ended December 31, 1996 are included herewith as follows: Report of Independent Public Accountants Statement of Financial Condition Statement of Changes in Participants' Equity Notes to Financial Statements 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 (the "Plan") as of December 31, 1996 and 1995, and the related statements of changes in participants' equity for the years then ended. 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, 1996 and 1995, and the results of its changes in participants' equity for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Rochester, New York February 24, 1997 ACC Corp. Employee Stock Purchase Plan Statements of Financial Condition December 31, 1996 and 1995 ASSETS: 1996 1995 Receivable from ACC Corp. $1,627 $683 TOTAL ASSETS $1,627 $683 LIABILITIES AND PARTICIPANTS' EQUITY: Participants' equity $1,627 $683 TOTAL LIABILITIES AND PARTICIPANTS' EQUITY $1,627 $683 The accompanying notes to financial statements are an integral part of these statements. ACC Corp. Employee Stock Purchase Plan Statements of Changes in Participants' Equity For the Years Ended December 31, 1996 and 1995 and For the Period From Adoption (February 8, 1994) to December 31, 19 94 ADDITIONS: 1996 1995 1994 Employee contributions $356,514 $331,256 $155,651 DEDUCTIONS: Stock purchased 343,870 297,027 151,600 Employee withdrawals 11,700 34,103 3,494 Total deductions 355,570 331,130 155,094 NET INCREASE IN PARTICIPANTS' EQUITY 944 126 557 PARTICIPANTS' EQUITY, BEGINNING OF PERIOD 683 557 - PARTICIPANTS' EQUITY, END OF PERIOD $ 1,627 $ 683 $ 557 The accompanying notes to financial statements are an integral part of these statements. 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, 1996, 676,087 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. The Plan will expire on the first to occur of the following: (1) the date as of which participants purchase a number of shares equal to or greater than the number of shares authorized for issuance under the Plan; or (2) the date as of which the Board of Directors of the Company or the Committee terminates the Plan. In either case, all funds accumulated in each participant's plan account but not yet expended to purchase shares will be refunded without interest. If the Plan is terminated by reason of the exercise of rights to purchase a greater number of shares than are authorized for issuance under the Plan, all remaining shares available for issuance will be allocated to participants on a pro- rata basis. 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 July 1, 1994 - July 1, 1994 $ 9.08 13,022 December 31, 1994 December 31, 1994* $ 9.83 6,110 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 *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. (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, 1996, 1995 and 1994 All other schedules are not submitted because they are not applicable, not required or because the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits. The following constitutes the list of exhibits required to be filed as a part of this Report pursuant to Item 601 of Regulation S-K: LIST OF EXHIBITS Exhibit Number Description Location 3-1 First Restated Certificate Incorporated by Reference of Incorporation of ACC 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 Bylaws of ACC Corp., as Incorporated by Reference amended on May 21, 1996 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 Incorporated by Reference Common Stock Certificate 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 Incorporated by Reference 7,500 Shares of Class A to Exhibit 99.4 to the Common Stock dated October Company's Current Report 30, 1995 on Form 8-K filed on February 22, 1996 8-K ("February 22, 1996 8-K") 10-1 Form of Employment Incorporated by Reference Continuation Incentive to Exhibit 99.3 to the Agreement between ACC Corp. Company's February 22, and certain of its Key 1996 8-K Employees 10-2 ACC Corp. Employee Long Term Incorporated by Reference Incentive Plan, as amended to Exhibit 4-1 to the through February 5, 1996 Company's Registration Statement on Form S-8, No. 333-01219, effective February 26, 1996 10-3 Form of ACC Corp. Incorporated by Reference Indemnification Agreement to Exhibit 10-29 to the with its Directors and Company's Report on certain of its Executive Form 10-K for its year Officers ended December 31, 1987 10-4 ACC Corp. Employee Stock Incorporated by Reference Purchase Plan 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 Incorporated by Reference ACC Corp. and David K. to Exhibit 10-2 to the Laniak, dated October 6, Company's September 30, 1995 1995 10-Q 10-6 Salary Continuation and Incorporated by Reference Deferred Compensation to Exhibit 10-3 to the Agreement between ACC Corp. Company's September 30, and Richard T. Aab, dated 1995 10-Q October 6, 1995 10-7 Non-Competition Agreement Incorporated by Reference between ACC Corp. and to Exhibit 10-4 to the Richard T. Aab, dated Company's September 30, October 6, 1995 1995 10-Q 10-8 Release and Settlement Incorporated by Reference Agreement between ACC Corp. to Exhibit 99.2 to the and Francis Coleman, dated Company's February 22, December 29, 1995 1996 8-K 10-9 Software License Agreement Incorporated by Reference dated March 30, 1995 by and to Exhibit 99.5 to the between AMBIX Systems Corp. Company's February 22, and ACC Corp. 1996 8-K 10-10 Software License Agreement Incorporated by Reference dated February 21, 1996 to Exhibit 99.6 to the between AMBIX Acquisition Company's February 22, Corp. and ACC Corp. 1996 8-K 10-11 Bill of Sale from AMBIX Incorporated by Reference Systems Corp. to ACC Corp. to Exhibit 99.7 to the dated February 6, 1996 Company's February 22, 1996 8-K 10-12 Letter Agreement dated Incorporated by Reference April 27, 1995 between the to Exhibit 99.8 to the Special Committee of the Company's February 22, Board of Directors of ACC 1996 8-K Corp. and Richard T. Aab 10-13 Lease dated January 25, 1994 Incorporated by Reference between the Hague to Exhibit 99.9 to the Corporation and ACC Corp., Company's February 22, as modified by a Lease 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 Incorporated by Reference Agreement dated March 1, to Exhibit 99.10 to the 1994 between ACC Long Company's February 22, Distance Inc./Interurbains 1996 8-K ACC Inc. and Coopers & Lybrand relating to the leased premises located at 5343 Dundas Street West, Etobicoke, Ontario, Canada 10-15 Underlease Agreement dated Incorporated by Reference December 23, 1993 between to Exhibit 99.11 to the ACC Long Distance UK Company's February 22, Limited, IBM United Kingdom 1996 8-K Limited, and ACC Corp. relating to the leased premises located on the tenth floor at The Chiswick Centre 414 Chiswick High Road, London, England 10-16 Underlease Agreement dated Incorporated by Reference June 6, 1995 between ACC to Exhibit 99.12 to the Long Distance UK Limited, Company's February 22, IBM United Kingdom Limited, 1996 8-K 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 Incorporated by Reference dated June 3, 1994 between to Exhibit 99.13 to the ACC Long Distance UK Company's February 22, Limited, IBM United Kingdom 1996 8-K 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 Amended and Restated Credit Filed herewith Agreement, dated as of January 14, 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 Incorporated by Reference July 21, 1995 between ACC to Exhibit 99.16 to the Corp. and First Union Company's February 22, National Bank of North 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 Filed herewith Leasehold Mortgage dated January 14, 1997 10-21 Leasehold Mortgage dated Incorporated by Reference July 21, 1995 between ACC to Exhibit 99.16 to the Corp. and First Union Company's February 22, National Bank of North 2996 8-K Carolina relating to the leased premises located at Suite 206, State Tower Building, 109 South Warren 10-22 Street, Syracuse, New York Filed herewith ("Syracuse Leasehold Mortgage") Modification to Syracuse Leasehold Mortgage dated January 14, 1997 10-23 Leasehold Mortgage dated Incorporated by Reference July 21, 1995 between ACC to Exhibit 99.17 to the Corp. and First Union Company's February 22, National Bank of North 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") 10-24 Modification to Additional Filed herewith Syracuse Leasehold Mortgage dated January 14, 1997 10-25 Mortgage of Leasehold Filed herewith Interest, dated as of January 14, 1997, between ACC TelEnterprises Ltd./TelEnterprises ACC LTEE and First Union 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 Filed herewith Interest, dated as of January 14, 1997, between ACC TelEnterprises Ltd./TelEnterprises ACC LTEE and First Union National Bank of North Carolina, as Agent, relating to the leased premises located at 5343 Dundas Street West, Etobicoke, Ontario, Canada 10-27 Amended and Restated Pledge Filed herewith Agreement dated as of January 14, 1997 by ACC Corp. in favor of First Union National Bank of North Carolina as Administrative Agent 10-28 Amended and Restated Pledge Filed herewith Agreement dated as of January 14, 1997 by ACC National Long Distance Corp. in favor of First Union National Bank of North Carolina as Administrative Agent 10-29 Amended and Restated Filed herewith Security Agreement dated as of January 14, 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 Filed herewith Trademark Security Agreement dated as of January 14, 1997 between ACC Corp. and First Union National Bank of North Carolina as Administrative Agent 10-31 License Agreement dated Incorporated by Reference July 1, 1993 between to Exhibit 99.23 to the Hudson's Bay Company and ACC Company's February 22, Long Distance Inc. 1996 8-K 10-32 Employment Agreement between Incorporated by Reference Christopher Bantoft and ACC to Exhibit 10-29 of the Long Distance UK Ltd. dated Company's Report on Form November 16, 1993, as 10-K for its year ended amended December 31, 1995 ("December 31, 1995 10- K") 10-33 Employment Agreement between Incorporated by Reference Steve M. Dubnik and ACC to Exhibit 10-30 of the TelEnterprises Ltd. dated Company's December 31, August 4, 1994 1995 10-K 10-34 ACC Corp. Non-Employee Incorporated by Reference Directors' Stock Option Plan to Exhibit 99.1 to the Company's February 22, 1996 8-K 10-35 Rules of the ACC Corp. 1996 UK Sharesave Scheme dated Filed herewith August 5, 1996 10-36 Net Settlement Agreement Incorporated by Reference dated September 9, 1996 to Exhibit 99.6 to the between Teletek, Inc. and Company's September 17, ACC Long Distance Corp. 1996 8-K 10-37 License Agreement between Incorporated by Reference EDS of Canada Ltd. and ACC to Exhibit 99.7 to the TelEnterprises Ltd. dated Company's September 17, June 24, 1996 1996 8-K 10-38 Amendment to Salary Incorporated by Reference Continuation and Deferred to Exhibit 99.8 to the Compensation Agreement Company's September 17, between ACC Corp. and 1996 8-K Richard T. Aab dated September 13, 1996 10-39 License Granted by the Filed herewith Secretary of State for Trade and Industry to ACC Long Distance UK Ltd. Under Section 7 of the Telecommunications Act 1984 10-40 Leasehold Mortgage dated as Filed herewith of January 14, 1997 by and among ACC National Telecom Corp. and First Union National Bank of North Carolina as Administrative Agent relating to the leased premises located at One Commerce Plaza, Albany, New York 10-41 Leasehold Mortgage dated as Filed herewith of January 14, 1997 by and among ACC Long Distance Corp. and First Union National Bank of North Carolina as Administrative Agent relating to the leased premises located at 69 Delaware Avenue, Buffalo, New York 10-42 Leasehold Mortgage dated as Filed herewith of January 14, 1997 by and among ACC National Telecom Corp. and First Union National Bank of North Carolina as Administrative Agent relating to the leased premises located at 32 Old Slip, New York, New York 10-43 Mortgage of Leasehold Filed herewith Interest, dated as of January 14, 1997, between ACC TelEnterprises Ltd./TelEnterprises ACC LTEE and First Union National Bank of North Carolina as Administrative Agent relating to the leased premises located in Vancouver, British Columbia, Canada 11 Statement re: Computation of See Note 1 to the Notes Per Share Earnings to the Consolidated Financial Statements filed herewith 13 Excerpts from 1996 Annual Filed herewith Report to Shareholders incorporated by reference herein 21 Subsidiaries of ACC Corp. Filed herewith 23 Accountant's Consent re: Filed herewith Incorporation by Reference 27 Financial Data Schedule Filed only with EDGAR filing, per Reg. S-K, Rule 601(c)(1)(v) (b) Reports on Form 8-K. No reports on Form 8-K were filed for the quarter ended December 31, 1996. (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 January 24, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the accompanying index are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Rochester, New York March 27, 1997 /s/ Arthur Andersen LLP SCHEDULE II ACC CORP AND SUBSIDIARIES CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1996, 1995, 1994 (000's)
Balance Charged Net Balance at to Costs Charged Accounts at Beginning and to Other Written End of of Period Expenses Accounts Off Period 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 YEAR ENDED DECEMBER 31, 1994 Allowance for doubtful accounts $1,008 $2,345 - ($2,318) $1,035 Valuation allowance for deferred tax assets $603 $6,851 - - $7,454 ______________________________ (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. 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 27, 1997 By: /s/ David K. Laniak David K. Laniak, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons, on behalf of the Company and in the capacities and on the dates indicated. Dated: March 27, 1997 By: /s/ David K. Laniak David K. Laniak, Chief Executive Officer and a Director Dated: March 27, 1997 By: /s/ Michael R. Daley Michael R. Daley, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 27, 1997 By: /s/ Hugh F. Bennett Hugh F. Bennett, Director Dated: March 27, 1997 By: /s/ Arunas A. Chesonis Arunas A. Chesonis, President and a Director Dated: March 27, 1997 By: /s/ Willard Z. Estey Willard Z. Estey,Director Dated: March ____, 1997 By: Richard T. Aab, Director Dated: March ____, 1997 By: Daniel D. Tessoni,Director Dated: March 27, 1997 By: /s/ Robert M. VanDegna Robert M. Van Degna,Director LIST OF EXHIBITS Exhibit Number Description Location 3-1 First Restated Certificate Incorporated by Reference of Incorporation of ACC 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 Bylaws of ACC Corp., as Incorporated by Reference amended on May 21, 1996 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 Incorporated by Reference Common Stock Certificate 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 Incorporated by Reference 7,500 Shares of Class A to Exhibit 99.4 to the Common Stock dated October Company's Current Report 30, 1995 on Form 8-K filed on February 22, 1996 8-K ("February 22, 1996 8-K") 10-1 Form of Employment Incorporated by Reference Continuation Incentive to Exhibit 99.3 to the Agreement between ACC Corp. Company's February 22, and certain of its Key 1996 8-K Employees 10-2 ACC Corp. Employee Long Term Incorporated by Reference Incentive Plan, as amended to Exhibit 4-1 to the through February 5, 1996 Company's Registration Statement on Form S-8, No. 333-01219, effective February 26, 1996 10-3 Form of ACC Corp. Incorporated by Reference Indemnification Agreement to Exhibit 10-29 to the with its Directors and Company's Report on certain of its Executive Form 10-K for its year Officers ended December 31, 1987 10-4 ACC Corp. Employee Stock Incorporated by Reference Purchase Plan 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 Incorporated by Reference ACC Corp. and David K. to Exhibit 10-2 to the Laniak, dated October 6, Company's September 30, 1995 1995 10-Q 10-6 Salary Continuation and Incorporated by Reference Deferred Compensation to Exhibit 10-3 to the Agreement between ACC Corp. Company's September 30, and Richard T. Aab, dated 1995 10-Q October 6, 1995 10-7 Non-Competition Agreement Incorporated by Reference between ACC Corp. and to Exhibit 10-4 to the Richard T. Aab, dated Company's September 30, October 6, 1995 1995 10-Q 10-8 Release and Settlement Incorporated by Reference Agreement between ACC Corp. to Exhibit 99.2 to the and Francis Coleman, dated Company's February 22, December 29, 1995 1996 8-K 10-9 Software License Agreement Incorporated by Reference dated March 30, 1995 by and to Exhibit 99.5 to the between AMBIX Systems Corp. Company's February 22, and ACC Corp. 1996 8-K 10-10 Software License Agreement Incorporated by Reference dated February 21, 1996 to Exhibit 99.6 to the between AMBIX Acquisition Company's February 22, Corp. and ACC Corp. 1996 8-K 10-11 Bill of Sale from AMBIX Incorporated by Reference Systems Corp. to ACC Corp. to Exhibit 99.7 to the dated February 6, 1996 Company's February 22, 1996 8-K 10-12 Letter Agreement dated Incorporated by Reference April 27, 1995 between the to Exhibit 99.8 to the Special Committee of the Company's February 22, Board of Directors of ACC 1996 8-K Corp. and Richard T. Aab 10-13 Lease dated January 25, 1994 Incorporated by Reference between the Hague to Exhibit 99.9 to the Corporation and ACC Corp., Company's February 22, as modified by a Lease 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 Incorporated by Reference Agreement dated March 1, to Exhibit 99.10 to the 1994 between ACC Long Company's February 22, Distance Inc./Interurbains 1996 8-K ACC Inc. and Coopers & Lybrand relating to the leased premises located at 5343 Dundas Street West, Etobicoke, Ontario, Canada 10-15 Underlease Agreement dated Incorporated by Reference December 23, 1993 between to Exhibit 99.11 to the ACC Long Distance UK Company's February 22, Limited, IBM United Kingdom 1996 8-K Limited, and ACC Corp. relating to the leased premises located on the tenth floor at The Chiswick Centre 414 Chiswick High Road, London, England 10-16 Underlease Agreement dated Incorporated by Reference June 6, 1995 between ACC to Exhibit 99.12 to the Long Distance UK Limited, Company's February 22, IBM United Kingdom Limited, 1996 8-K 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 Incorporated by Reference dated June 3, 1994 between to Exhibit 99.13 to the ACC Long Distance UK Company's February 22, Limited, IBM United Kingdom 1996 8-K 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 Amended and Restated Credit Filed herewith Agreement, dated as of January 14, 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 Incorporated by Reference July 21, 1995 between ACC to Exhibit 99.16 to the Corp. and First Union Company's February 22, National Bank of North 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 Filed herewith Leasehold Mortgage dated January 14, 1997 10-21 Leasehold Mortgage dated Incorporated by Reference July 21, 1995 between ACC to Exhibit 99.16 to the Corp. and First Union Company's February 22, National Bank of North 2996 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 Filed herewith Leasehold Mortgage dated January 14, 1997 10-23 Leasehold Mortgage dated Incorporated by Reference July 21, 1995 between ACC to Exhibit 99.17 to the Corp. and First Union Company's February 22, National Bank of North 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") 10-24 Modification to Additional Filed herewith Syracuse Leasehold Mortgage dated January 14, 1997 10-25 Mortgage of Leasehold Filed herewith Interest, dated as of January 14, 1997, between ACC TelEnterprises Ltd./TelEnterprises ACC LTEE and First Union 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 Filed herewith Interest, dated as of January 14, 1997, between ACC TelEnterprises Ltd./TelEnterprises ACC LTEE and First Union National Bank of North Carolina, as Agent, relating to the leased premises located at 5343 Dundas Street West, Etobicoke, Ontario, Canada 10-27 Amended and Restated Pledge Filed herewith Agreement dated as of January 14, 1997 by ACC Corp. in favor of First Union National Bank of North Carolina as Administrative Agent 10-28 Amended and Restated Pledge Filed herewith Agreement dated as of January 14, 1997 by ACC National Long Distance Corp. in favor of First Union National Bank of North Carolina as Administrative Agent 10-29 Amended and Restated Filed herewith Security Agreement dated as of January 14, 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 Filed herewith Trademark Security Agreement dated as of January 14, 1997 between ACC Corp. and First Union National Bank of North Carolina as Administrative Agent 10-31 License Agreement dated Incorporated by Reference July 1, 1993 between to Exhibit 99.23 to the Hudson's Bay Company and ACC Company's February 22, Long Distance Inc. 1996 8-K 10-32 Employment Agreement between Incorporated by Reference Christopher Bantoft and ACC to Exhibit 10-29 of the Long Distance UK Ltd. dated Company's Report on Form November 16, 1993, as 10-K for its year ended amended December 31, 1995 ("December 31, 1995 10- K") 10-33 Employment Agreement between Incorporated by Reference Steve M. Dubnik and ACC to Exhibit 10-30 of the TelEnterprises Ltd. dated Company's December 31, August 4, 1994 1995 10-K 10-34 ACC Corp. Non-Employee Incorporated by Reference Directors' Stock Option Plan to Exhibit 99.6 to the Company's September 17, 1996 8-K 10-35 Rules of the ACC Corp. 1996 Filed herewith UK Sharesave Scheme dated August 5, 1996 10-36 Net Settlement Agreement Incorporated by Reference dated September 9, 1996 to Exhibit 99.6 to the between Teletek, Inc. and Company's September 17, ACC Long Distance Corp. 1996 8-K 10-37 License Agreement between Incorporated by Reference EDS of Canada Ltd. and ACC to Exhibit 99.7 to the TelEnterprises Ltd. dated Company's September 17, June 24, 1996 1996 8-K 10-38 Amendment to Salary Incorporated by Reference Continuation and Deferred to Exhibit 99.8 to the Compensation Agreement Company's between ACC Corp. and September 17, 1996 8-K Richard T. Aab dated September 13, 1996 10-39 License Granted by the Filed herewith Secretary of State for Trade and Industry to ACC Long Distance UK Ltd. Under Section 7 of the Telecommunications Act 1984 10-40 Leasehold Mortgage dated as Filed herewith of January 14, 1997 by and among ACC National Telecom Corp. and First Union National Bank of North Carolina as Administrative Agent relating to the leased premises located at One Commerce Plaza, Albany, New York 10-41 Leasehold Mortgage dated as Filed herewith of January 14, 1997 by and among ACC Long Distance Corp. and First Union National Bank of North Carolina as Administrative Agent relating to the leased premises located at 69 Delaware Avenue, Buffalo, New York 10-42 Leasehold Mortgage dated as Filed herewith of January 14, 1997 by and among ACC National Telecom Corp. and First Union National Bank of North Carolina as Administrative Agent relating to the leased premises located at 32 Old Slip, New York, New York 10-43 Mortgage of Leasehold Filed herewith Interest, dated as of January 14, 1997, between ACC TelEnterprises Ltd./TelEnterprises ACC LTEE and First Union National Bank of North Carolina as Administrative Agent relating to the leased premises located in Vancouver, British Columbia, Canada 11 Statement re: Computation of See Note 1 to the Notes Per Share Earnings to the Consolidated Financial Statements filed herewith 13 Excerpts from 1996 Annual Filed herewith Report to Shareholders incorporated by reference herein 21 Subsidiaries of ACC Corp. Filed herewith 23 Accountant's Consent re: Filed herewith Incorporation by Reference 27 Financial Data Schedule Filed only with EDGAR filing, per Reg. S-K, Rule 601(c)(1)(v) EX-10 2 Exhibit 10-18 AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 14, 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 OF NORTH CAROLINA, as Managing Agent and Administrative Agent, and FLEET NATIONAL BANK, as Managing Agent and Documentation Agent TABLE OF CONTENTS ARTICLE I DEFINITIONS SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. General . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 1.3. Other Definitions and Provisions. . . . . . . . . . . . . . . 22 ARTICLE II CREDIT FACILITY SECTION 2.1. Revolving Credit Loans. . . . . . . . . . . . . . . . . . . . 23 SECTION 2.2. Swingline Loans.. . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 2.3. Procedure for Advances of Revolving Credit and Swingline Loans.. . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.4. Repayment of Extensions of Credit . . . . . . . . . . . . . . 27 SECTION 2.5. Notes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 2.6. Permanent Reductions of the Aggregate Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 2.7. Termination of Credit Facility. . . . . . . . . . . . . . . . 31 SECTION 2.8. Use of Proceeds.. . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 2.9. Nature of Obligations; Security.. . . . . . . . . . . . . . . 31 ARTICLE III LETTER OF CREDIT FACILITY SECTION 3.1. L/C Commitment. . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 3.2. Procedure for Issuance of Letters of Credit . . . . . . . . . 32 SECTION 3.3. Fees and Other Charges. . . . . . . . . . . . . . . . . . . . 33 SECTION 3.4. L/C Participations. . . . . . . . . . . . . . . . . . . . . . 33 SECTION 3.5. Reimbursement Obligation of the Borrower. . . . . . . . . . . 35 SECTION 3.6. Obligations Absolute. . . . . . . . . . . . . . . . . . . . . 35 SECTION 3.7. Effect of Application . . . . . . . . . . . . . . . . . . . . 36 ARTICLE IV GENERAL LOAN PROVISIONS SECTION 4.1. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 4.2. Notice and Manner of Conversion or Continuation of Revolving Credit Loans . . . . . . . . . . . . . . . . . . 39 SECTION 4.3. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 4.4. Manner of Payment . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.5. Crediting of Payments and Proceeds. . . . . . . . . . . . . . 42 SECTION 4.6. Nature of Obligations of Lenders Regarding Extensions of Credit; Assumption by Administrative Agent . . . . . . . . . . . . . . . . . . . 43 SECTION 4.7. Regulatory Limitation . . . . . . . . . . . . . . . . . . . . 44 SECTION 4.8. Changed Circumstances . . . . . . . . . . . . . . . . . . . . 44 SECTION 4.9. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 4.10.Capital Requirements . . . . . . . . . . . . . . . . . . . . . 47 SECTION 4.11.Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING SECTION 5.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 5.2. Conditions to Closing and Initial Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 5.3. Conditions to All Extensions of Credit. . . . . . . . . . . . 54 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BORROWERS SECTION 6.1. Representations and Warranties. . . . . . . . . . . . . . . . 55 SECTION 6.2. Survival of Representations and Warranties, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE VII FINANCIAL INFORMATION AND NOTICES SECTION 7.1. Financial Statements and Projections. . . . . . . . . . . . . 64 SECTION 7.2. Officer's Compliance Certificate. . . . . . . . . . . . . . . 65 SECTION 7.3. Accountants' Certificate. . . . . . . . . . . . . . . . . . . 66 SECTION 7.4. Other Reports . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 7.5. Notice of Litigation and Other Matters. . . . . . . . . . . . 66 SECTION 7.6. Accuracy of Information . . . . . . . . . . . . . . . . . . . 68 SECTION 7.7. Revisions or Updates to Schedules . . . . . . . . . . . . . . 68 ARTICLE VIII AFFIRMATIVE COVENANTS SECTION 8.1. Preservation of Corporate Existence and Related Matters . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 8.2. Maintenance of Property . . . . . . . . . . . . . . . . . . . 69 SECTION 8.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 8.4. Accounting Methods and Financial Records. . . . . . . . . . . 69 SECTION 8.5. Payment and Performance of Obligations. . . . . . . . . . . . 70 SECTION 8.6. Compliance With Laws and Approvals. . . . . . . . . . . . . . 70 SECTION 8.7. Environmental Laws. . . . . . . . . . . . . . . . . . . . . . 70 SECTION 8.8. Employee Benefit, Pension and Retirement Laws . . . . . . . . 70 SECTION 8.9. Compliance With Agreements. . . . . . . . . . . . . . . . . . 71 SECTION 8.10.Conduct of Business. . . . . . . . . . . . . . . . . . . . . . 71 SECTION 8.11.Visits and Inspections . . . . . . . . . . . . . . . . . . . . 71 SECTION 8.12.Material Subsidiaries; Additional Collateral . . . . . . . . . 71 SECTION 8.13.Hedging Agreement. . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 8.14.Further Assurances.. . . . . . . . . . . . . . . . . . . . . . 73 SECTION 8.15.Post-Closing Delivery. . . . . . . . . . . . . . . . . . . . . 73 ARTICLE IX FINANCIAL COVENANTS SECTION 9.1. Maximum Leverage Ratio. . . . . . . . . . . . . . . . . . . . 73 SECTION 9.2. Minimum Pro Forma Debt Service Coverage Ratio.. . . . . . . . 74 SECTION 9.3. Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . 74 SECTION 9.4. Capital Expenditures. . . . . . . . . . . . . . . . . . . . . 74 SECTION 9.5. Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE X NEGATIVE COVENANTS SECTION 10.1. Limitations on Debt. . . . . . . . . . . . . . . . . . . 75 SECTION 10.2. Limitations on Contingent Obligations. . . . . . . . . . 75 SECTION 10.3. Limitations on Liens . . . . . . . . . . . . . . . . . . 76 SECTION 10.4. Limitations on Loans, Advances, Investments and Acquisitions . . . . . . . . . . . . . . . . . . . . 77 SECTION 10.5. Limitations on Mergers and Liquidation . . . . . . . . . 79 SECTION 10.6. Limitations on Sale of Assets. . . . . . . . . . . . . . 79 SECTION 10.7. Limitations on Dividends and Distributions.. . . . . . . 80 SECTION 10.8. Limitations on Exchange and Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . 80 SECTION 10.9. Transactions with Affiliates . . . . . . . . . . . . . . 80 SECTION 10.10. Certain Accounting Changes . . . . . . . . . . . . . . . 81 SECTION 10.11. Amendments; Payments and Prepayments of Subordinated Debt . . . . . . . . . . . . . . . . . . . 81 SECTION 10.12. Restrictive Agreements.. . . . . . . . . . . . . . . . . 81 SECTION 10.13. Hedging Agreements.. . . . . . . . . . . . . . . . . . . 81 ARTICLE XI UNCONDITIONAL GUARANTY SECTION 11.1. Guaranty of Obligations. . . . . . . . . . . . . . . . . 81 SECTION 11.2. Nature of Guaranty.. . . . . . . . . . . . . . . . . . . 82 SECTION 11.3. Demand by the Administrative Agent.. . . . . . . . . . . 83 SECTION 11.4. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 11.5. Modification of Loan Documents etc . . . . . . . . . . . 83 SECTION 11.6. Reinstatement. . . . . . . . . . . . . . . . . . . . . . 84 SECTION 11.7. No Subrogation . . . . . . . . . . . . . . . . . . . . . 85 ARTICLE XII DEFAULT AND REMEDIES SECTION 12.1. Events of Default. . . . . . . . . . . . . . . . . . . . 85 SECTION 12.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . 88 SECTION 12.3. Rights and Remedies Cumulative; Non-Waiver; etc. . . . . 89 SECTION 12.4. Consents . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 12.5. Judgment Currency. . . . . . . . . . . . . . . . . . . . 90 SECTION 12.6. Adjustments. . . . . . . . . . . . . . . . . . . . . . . 90 ARTICLE XIII THE AGENTS SECTION 13.1. Appointment. . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 13.2. Delegation of Duties . . . . . . . . . . . . . . . . . . 91 SECTION 13.3. Exculpatory Provisions . . . . . . . . . . . . . . . . . 92 SECTION 13.4. Reliance by Agents . . . . . . . . . . . . . . . . . . . 92 SECTION 13.5. Notice of Default. . . . . . . . . . . . . . . . . . . . 93 SECTION 13.6. Non-Reliance on Such Agents and Other Lenders. . . . . . 93 SECTION 13.7. Indemnification. . . . . . . . . . . . . . . . . . . . . 94 SECTION 13.8. Each of the Agents in Its Individual Capacity. . . . . . 94 SECTION 13.9. Resignation of Agents; Successor Agents. . . . . . . . . 94 SECTION 13.10 Documentation Agent. . . . . . . . . . . . . . . . . . . 95 ARTICLE XIV MISCELLANEOUS SECTION 14.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 95 SECTION 14.2. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 96 SECTION 14.3. Set-off. . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 14.4. Governing Law. . . . . . . . . . . . . . . . . . . . . . 97 SECTION 14.5. Consent to Jurisdiction. . . . . . . . . . . . . . . . . 98 SECTION 14.6. Binding Arbitration; Waiver of Jury Trial. . . . . . . . 98 SECTION 14.7. Reversal of Payments . . . . . . . . . . . . . . . . . . 99 SECTION 14.8. Injunctive Relief. . . . . . . . . . . . . . . . . . . . 100 SECTION 14.9. Accounting Matters . . . . . . . . . . . . . . . . . . . 100 SECTION 14.10. Successors and Assigns; Participations . . . . . . . . . 100 SECTION 14.11. Amendments, Waivers and Consents; Renewal. . . . . . . . 105 SECTION 14.12. Performance of Duties. . . . . . . . . . . . . . . . . . 105 SECTION 14.13. Indemnification. . . . . . . . . . . . . . . . . . . . . 105 SECTION 14.14. All Powers Coupled with Interest . . . . . . . . . . . . 106 SECTION 14.15. Survival of Indemnities. . . . . . . . . . . . . . . . . 106 SECTION 14.16. Titles and Captions. . . . . . . . . . . . . . . . . . . 107 SECTION 14.17. Severability of Provisions . . . . . . . . . . . . . . . 107 SECTION 14.18. Counterparts . . . . . . . . . . . . . . . . . . . . . . 107 SECTION 14.19. ACC as Agent for Other Borrowers . . . . . . . . . . . . 107 SECTION 14.20. Term of Agreement. . . . . . . . . . . . . . . . . . . . 107 SECTION 14.21. Inconsistencies with Other Documents; Independent Effect of Covenants . . . . . . . . . . . . 107 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 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 Landlord Consent Exhibit K - Form of Modification to Leasehold Mortgage Exhibit L - Form of Joinder Agreement Exhibit M - Form of Intercompany Subordination Agreement Exhibit N - Form of U.K. Guaranty Agreement SCHEDULES Schedule 1 - Lenders and Commitments Schedule 1.2 - Sublimits Schedule 1.3 - Canadian Security Documents Schedule 6.1(a) - Jurisdictions of Organization and Qualification Schedule 6.1(b) - Subsidiaries and Capitalization Schedule 6.1(i) - ERISA Plans Schedule 6.1(l) - Material Contracts Schedule 6.1(m) - Labor and Collective Bargaining Agreements Schedule 6.1(t) - Debt and Contingent Obligations Schedule 6.1(u) - Litigation Schedule 10.3 - Existing Liens Schedule 10.4 - Existing Loans, Advances and Investments AMENDED AND RESTATED CREDIT AGREEMENT, dated as of the 14th day of January, 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 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 Original 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, 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 Global Corp." means ACC Global Corp., a corporation organized under the laws of Delaware, and its successors. "ACC LEC" means ACC National Telecom Corp., a corporation organized under the laws of Delaware, and its successors. "ACC Mass." means ACC Long Distance of Massachusetts Corp., a corporation organized under the laws of Delaware, 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 Amended and Restated Pledge Agreement of even date executed by ACC National 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 Pledge Agreement" means the 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 Radio" means ACC Radio Corp., a corporation organized under the laws of New York, and its successors. "ACC U.K." means ACC Long Distance U.K., Ltd., a corporation organized under the laws of the United Kingdom, and its successors. "ACC U.S." means ACC Long Distance Corp., a corporation organized under the laws of New York, 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 Million Dollars ($100,000,000). "Agreement" means this Amended and Restated Credit Agreement, as further amended, restated or otherwise modified from time to time. "Alternative Currency" means Sterling or Canadian Dollars, or both such currencies, as the context requires. "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 and U.K. 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 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 Royal Bank of Canada from time to time or commonly known to be its Canadian Dollar base 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 the whole 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 Base Rate shall be a "Canadian Base Rate Loan." "Canadian Borrowers" means the collective reference to all Borrowers and Additional Borrowers organized under the laws of Canada or any province thereof. "Canadian Dollars" means dollars in the lawful 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 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 issued by the FCC, CRTC, DTI or OFTEL 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 Interest Agreement" means the Contingent Interest Agreement dated July 21, 1995 between ACC, First Union and Fleet, as amended, restated or otherwise modified. "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. "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. "Documentation Agent" means Fleet in its capacity as Documentation Agent hereunder. "Dollars" or "$" means, unless otherwise qualified, dollars in lawful currency of the United States. "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 and Additional 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. "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. "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. "First Union" means 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. "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 and any PUC. "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 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 Amended and Restated Subordination Agreement of even date substantially in the form of Exhibit M, 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 Amended and Restated Joinder Agreement substantially in the form of Exhibit L executed by each Material Subsidiary in accordance with Section 8.12, as amended, restated or otherwise modified. "Landlord Consents" means the Landlord Agreements substantially in the form of Exhibit J or any similar agreement delivered by or on behalf of a Borrower and executed by the owner of the parcels of real property with respect to which a Mortgage or other Security Document has been executed in favor of the Administrative Agent for the benefit of itself and the Lenders, as any such Agreement may be amended, restated or otherwise modified. "L/C Commitment" means the lesser of (a) Eight Million Dollars ($8,000,000) 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. "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 Dollars in minimum amounts of at least $5,000,000 (or the Alternative Currency Amount thereof with respect to a borrowing to be made in an Alternative Currency) for a period equal to the applicable Interest Period appearing on Telerate Page 3750 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 Telerate Page 3750, "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. "Loan Documents" means, collectively, this Agreement, the Notes, the Applications, the Letters of Credit, the Contingent Interest Agreement, 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, 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 $500,000 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 $1,000,000. "Mortgage" means a Leasehold Mortgage delivered pursuant to the Original Credit Agreement (as modified by the Modification to Leasehold Mortgage substantially in the form of Exhibit K) 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 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 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 and Exhibit A-2 hereto with respect to the U.K. Borrowers, (b) the separate Revolving Credit Notes made by the applicable Borrower or Borrowers payable to the order of each Lender, substantially in the form of Exhibit A-3 hereto with respect to the Canadian Borrowers, (c) the separate Swingline Note and (d) 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 5.2(f)(i). "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. "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, (e) the obligations of the U.K. Borrowers as guarantors pursuant to the U.K. Guaranty Agreement and (f) 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 and (iii) amortization and depreciation and other similar non- cash 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 (the "Original Lenders"), 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. "Original Letters of Credit" means letters of credit issued pursuant to the Original Credit Agreement. "Other Taxes" shall have the meaning assigned thereto in Section 4.11(b). "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. "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 sixty-six and two-thirds percent (66-2/3%) of the Revolving Credit Loans and L/C Obligations, or if no 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%). "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 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 Landlord Consents, the Mortgages, the Canadian Security Documents, the U.K. Security Documents, the U.K. Guaranty Agreement 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 that they will incur debts or liabilities beyond their ability to pay such debts or liabilities as they mature. "Sterling" means pounds sterling in the lawful currency of the United Kingdom. "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. "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. "Swingline Note" means the separate Note made by the Domestic Borrowers payable to the order of the Swingline Lender, substantially in the form of Exhibit A-4 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 4.11(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 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 and Additional Borrowers organized under the laws of the United Kingdom or any political subdivision thereof. "U.K. Guaranty Agreement" means the U.K. Guaranty Agreement of even date executed by ACC U.K. and any other U.K. Borrowers in favor of the Administrative Agent for the benefit of itself and the Lenders substantially in the form of Exhibit N, as amended, restated or otherwise modified. "U.K. Security Documents" means the collective reference to the Amended and Restated Debenture of even date executed by ACC U.K. in favor of the Administrative Agent for the benefit of itself and the Lenders, the Pledge Agreement of even date governed by English law and signed by ACC Corp. in favor of the Administrative Agent for the benefit of itself and the Lenders, and any other agreement or writing 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. "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. "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. (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 and Revolving Credit Loans to the Canadian Borrowers shall be denominated in Canadian Dollars. 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. (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 (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. (London 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. (London 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 such proceeds to a deposit account of the applicable Borrower or Borrowers maintained with the Administrative Agent or by wire transfer from such deposit account to another account as may be requested by such Borrower or Borrowers by prior written notice to the Administrative Agent. 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 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 such proceeds to an account of the applicable Borrower maintained with the Administrative Agent's Correspondent or by wire transfer from such deposit account to another account as may be requested by such Borrower by prior written notice to the Administrative Agent. (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 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 4.9. (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 (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 4.9 hereof. (e) Limitation on Repayment of LIBOR Rate Loans. No Borrower may repay any LIBOR Rate Loan (including, without limitation, any 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 4.9. 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 Notes. 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. (b) Quarterly Reduction. The Aggregate Commitment shall be permanently reduced according to the following schedule: Aggregate Date Commitment Dec. 31, 1998 $92,000,000 Mar. 31, 1999 84,000,000 June 30, 1999 76,000,000 Sep. 30, 1999 68,000,000 Dec. 31, 1999 60,000,000 Mar. 31, 2000 52,000,000 June 30, 2000 44,000,000 Sep. 30, 2000 36,000,000 Dec. 31, 2001 27,000,000 Mar. 31, 2001 18,000,000 June 30, 2001 9,000,000 Sep. 30, 2001 -0- (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. (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 $250,000 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 that insurance proceeds are to be reinvested in 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 4.9. 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) September 30, 2001, (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 and Canadian Borrowers, shall be several and not joint and several. The obligations of the Canadian Borrowers under the Note or Notes executed thereby and the other Obligations of such Borrowers shall be joint and several to the fullest extent permitted by Canadian Law as set forth in the applicable Joinder Agreement or Joinder Agreements joining such Canadian Subsidiary or Subsidiaries to this Agreement as Canadian Borrowers. The Obligations of the Canadian Borrowers in relation to the Domestic Borrowers and the U.K. Borrowers shall be several and not joint and several. 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, and denominated in Sterling for the account of the U.K. 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 Original 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 the Revolving Credit Termination Date 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. 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, the Issuing Lender shall process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accor- dance 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 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 or Sterling, 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 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. 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 Sections 4.1(d) and 4.8, Loans denominated in Canadian Dollars shall bear interest at the Canadian Base Rate, and Loans denominated in Sterling shall bear interest at the Sterling Base Rate. However, the LIBOR Rate 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 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 five (5) Interest Periods outstanding at any time and with respect to Revolving Credit Loans denominated in an Alternative Currency, there shall be no more than two (2) 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 0.500% 2.000% to 1.0. Greater than 2.5 to 1.0 0.125% 1.625% but less than or equal to 3.0 to 1.0. Greater than 2.0 to 1.0 but -0- 1.375% less than or equal to 2.5 to 1.0 Less than or equal to -0- 1.000% 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. (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, (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 convert on such date to Base Rate Loans if denomiated in Dollars, Sterling Bse Rate Loans if denominated in Sterling and Canadian Base Rate Loans if denominated in Canadian Dollars, and each shall bear interest, thereafter at a rate equal to two percent (2%) in excess of the rate then applicable to Base Rate Loans, or Canadian Base Rate Loans, as applicable, 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 March 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 or Canadian Dollars shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed, and (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. (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 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 or U.K. 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 deemed a Sterling Base Rate Loan or a Canadian Base Rate Loan, as applicable. 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 2.5 to 1.00 0.500% Less than or equal to 2.5 to 1.0, but greater than 2.0 to 1.0 0.375% Less than or equal to 0.250% 2.0 to 1.0 The commitment fee shall be payable in arrears on the last Business Day of each calendar quarter during the term of this Agreement commencing March 31, 1997 and on the Revolving Credit 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 August 15, 1996, 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 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 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. 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 4.8. 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 not being quoted via Telerate Page 3750 or offered to the Administrative Agent or such Lender for such Interest Period, (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) or (iii) it has become otherwise materially impractical for the Administrative Agent or any Lender, as applicable, to make such Loan in an Alternative Currency, 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, 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, or Canadian 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 or Canadian 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: (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 4.8(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. SECTION 4.9. 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 4.10. 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 4.11. 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 4.11(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 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 4.11) 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 4.11(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 4.11, 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 4.11) 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 4.11 shall survive the payment in full of the Obligations and the termination of the Commitments. 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 January 14, 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 Landlord Consents; (ix) the Canadian Security Documents; (x) the U.K. Security Documents; (xi) the Intercompany Subordination Agreement; and (xii) the U.K. Guaranty 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. (b) Closing Certificates; etc. (i) Compliance Certificate of the Borrowers. The Administrative Agent shall have received a certificate from the chief executive officer or chief financial officer 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 required tax returns and owe no 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 and United Kingdom 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 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 and any Canadian Security Document, together with an appropriate undated stock power for each certificate duly executed in blank by the registered owner thereof. (iii) Lien Searches. The Administrative Agent shall have received the results of a Lien search of all 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. (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 executive officer or chief financial officer 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, 1996. (iii) Payment at Closing. (A) There shall have been paid by the Borrowers to the Administrative Agent the outstanding portion of the underwriting fee payable pursuant to the fee letter referred to in Section 4.3(b); (B) there shall have been paid by the Borrowers to each of First Union and Fleet the Contingent Interest Payment under the Contingent Interest Agreement (the Trigger Date thereunder being hereby deemed to be January 14, 1997 and (C) 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). (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 written notice in the form attached hereto as Exhibit F (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) ACC U.K. Charter Amendment. The constitutional documents of ACC U.K. shall have been amended in a manner reasonably satisfactory to the Administrative Agent such that the directors of ACC U.K. shall not have the discretion to refuse to register any transfer of the shares of capital stock of ACC U.K. in order to remove any obstacles to the full performance of ACC under the ACC Pledge Agreement. (iii) 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. (iv) 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. (v) Canadian Termination/Release Documents. The Borrowers shall have delivered to the Administrative Agent all documents necessary to effect the release and termination of the Canadian Note Documents and Canadian Subsidiary Security Documents, as such terms are defined in the Original Credit Agreement. (vi) Canadian Amalgamation Documents. The Borrowers shall have delivered to the Administrative Agent all documentation and other evidence satisfactory thereto demonstrating the acquisition of all of the shares of ACC TelEnterprises Ltd. by ACC Acquisition Corp. prior to the first amalgamation described below; the amalgamation of ACC TelEnterprises Ltd. and ACC Acquisition Corp., with ACC TelEnterprises Ltd. as the survivor; and the amalgamation of Metrowide Communications Inc., ACC Long Distance Inc., ACC TelEnterprises Ltd. and others, with ACC TelEnterprises Ltd. as the survivor (and defined in this Agreement as "ACC Canada"). (g) Refinancing. On the Closing Date hereunder, (i) all loans under the Original Credit Agreement ("Existing Loans") made by any Original 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 Original Credit Agreement) rights of such Original Lender shall be terminated, (ii) all outstanding Existing Loans shall be Revolving Credit Loans hereunder 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 Original Letters of Credit 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 Original Credit Agreement due to but excluding the Closing Date and all other amounts, costs and expenses then owing to any of the Original Lenders and/or any Agent, as agent under the Original Credit Agreement, in each case to the satisfaction of such Agent or Original 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 Original Credit Agreement and (vi) all outstanding promissory notes issued by the Borrowers to the Original Lenders under the Original Credit Agreement shall be promptly returned to the Administrative Agent who shall forward such notes to the Borrower. 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 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 are described on Schedule 6.1(a). (b) Ownership. Each Material Subsidiary and other Subsidiary of ACC is listed on Schedule 6.1(b) and each Material Subsidiary is so designated on such Schedule. 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 are described on Schedule 6.1(b). 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. (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, (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 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 or Canadian 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; (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 or (D) Canadian 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 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 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(m). (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. (o) Financial Statements. The (i) Consolidated balance sheets of ACC and its Subsidiaries as of December 31, 1995, 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, 1996 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, 1995, 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 $250,000. 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. (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. (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) 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. 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 finally and indefeasibly 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 at the address set forth in Section 14.1 hereof 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, retained earnings and cash flows for the fiscal quarter then ended and that portion of 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 prepared by ACC in accordance with GAAP, 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, retained earnings 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 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; (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 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. SECTION 7.7. Revisions or Updates to Schedules. Should any of the information or disclosures provided on any of the Schedules originally attached hereto become outdated or incorrect in any material respect during any fiscal quarter, the Borrowers shall provide promptly to the Administrative Agent (with copies for each Managing Agent) such revisions or updates to such Schedule(s) as may be necessary or appropriate to update or correct such Schedule(s) within forty-five (45) days after the end of such fiscal quarter; provided that subsequent disclosures shall not constitute a cure or waiver of any Default or Event of Default resulting from the matters disclosed. ARTICLE VIII AFFIRMATIVE COVENANTS Until all of the Obligations have been finally and indefeasibly 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, 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 and the United Kingdom with respect to the Canadian Borrowers and the U.K. 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 (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 of ACC or any Subsidiary thereof in full conformity and compliance with all federal and provincial laws and regulations relating to any Canadian 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 furnish to the Administrative Agent upon such Agent's request such additional information about any Canadian Plan as may be reasonably requested by the Administrative Agent. 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, (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 (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 the U.K. Guaranty Agreement, (v) such other documents reasonably requested by the Required Lenders consistent with the terms of this Agreement which provide that such Subsidiary shall become a Borrower bound by all of the terms, covenants and agreements contained in the Loan Documents and that the assets of such Material Subsidiary shall become Collateral for the Obligations and (vi) such other documents as the Required Lenders shall reasonably 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, Leasehold 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 aggregate principal Dollar Amount of the Extensions of Credit is less than $30,000,000, 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 Delivery. Within ninety (90) days after the date hereof, provide a Landlord Consent executed by the landlord (and, with respect to the leased premises located at 32 Old Slip, the landlord's lender) with respect to the leased premises located at (a) 32 Old Slip, New York, New York, (b) One Commerce Plaza, Albany, New York and (c) 69 Delaware Avenue, Buffalo, New York. ARTICLE IX FINANCIAL COVENANTS Until all of the Obligations have been finally and indefeasibly 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), for any calculation period from the Closing Date through September 30, 1997, Operating Cash Flow for the two (2) consecutive fiscal quarters ending on or immediately prior to such date times two (2), and for any calculation period thereafter, 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 through March 31, 1997 3.50 to 1.00 April 1, 1997 through September 30, 1997 3.00 to 1.00 October 1, 1997 through March 31, 1998 2.50 to 1.00 April 1, 1998 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 on 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. (a) As of any date of determination (i) from the Closing Date through and including September 30, 1997, permit the ratio of (A) Operating Cash Flow for the two (2) consecutive fiscal quarters ending on or immediately prior to such date times two (2) to (B) Fixed Charges for the two (2) consecutive fiscal quarters ending on or immediately prior to such date times two (2) to be less than 0.50 to 1.00 and (ii) from October 1, 1997 through and including December 31, 1997, 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 to be less than 0.50 to 1.00; and (b) as of any date of determination after December 31, 1997, permit the ratio of (i) Operating Cash Flow for the period of four (4) consecutive fiscal quarters ending on or immediately prior to such date to (ii) Fixed Charges for the period of four (4) consecutive fiscal quarters ending on or immediately prior to such date to be less than 1.15 to 1.00. SECTION 9.4. Capital Expenditures. During Fiscal Year 1997, make Capital Expenditures in excess of [$56,000,000]. SECTION 9.5. Minimum Net Worth. Permit Consolidated Net Worth at any time to be less than (a) $95,000,000 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 (i) shall be adjusted in a manner satisfactory to the Managing Agents for any payment required under the Contingent Interest Agreement and (ii) 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 finally and indefeasibly 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 (c), (e), (f) and (g) plus the aggregate amount of Debt constituting Contingent Obligations permitted by Sections 10.2(d), and (e) shall not at any time exceed $25,000,000. 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 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(d), (e) and (f) plus the aggregate outstanding principal amount of all Debt outstanding under clauses (c), (e), (f) and (g) of Section 10.1 shall not exceed $25,000,000. 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 which 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 (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) intercompany loans by ACC to: (A) ACC Canada in an aggregate principal amount not to exceed $30,000,000, (B) ACC U.K. in an aggregate principal amount not to exceed $25,000,000 and (C) ACC LEC in an aggregate principal amount not to exceed $15,000,000; provided, that 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 (iii) other existing loans, advances and investments described on Schedule 10.4; (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 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 or by any U.K. Borrower or any U.K. 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 acquired are 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 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 and the governing documentation 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 of four consecutive fiscal quarters ending immediately prior to the date of determination thereof to exceed $25,000,000, 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; (e) loans to employees in the ordinary course of business for travel and other advanced expenses not to exceed $20,000 with respect to any individual employee or $200,000 in the aggregate; and (f) investments by ACC in any Subsidiary organized under the laws of Germany, which Subsidiary shall engage in the long distance reselling business and any business related thereto, not to exceed $5,000,000 in the aggregate; provided that, prior to any such investment ACC shall have delivered to the Managing Agents the business plan of such Subsidiary in form and substance reasonably satisfactory to the Managing Agents. 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 and (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). 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); (e) the disposition by ACC of any equity ownership interest in ACC U.K. in connection with any joint venture investments permitted hereunder which would cause all such dispositions in the aggregate to exceed 20% of such ownership interest as of the Closing Date, as long as the Net Cash Proceeds thereof are used to reduce the Aggregate Commitment in accordance with Section 2.6(c)(ii); and (f) 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. 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 regarding currency risk exposure in the ordinary course of business with aggregate notional amounts not to exceed $75,000,000 and durations not greater than 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. 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 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 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 obliga- tion). 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 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) or 8.12 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; (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; (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 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 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. 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. 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. 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 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. 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 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 If to First Union as First Union National Bank of Administrative Agent North Carolina or Managing Agent: 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 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 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 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. 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. 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, 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; and (vii) the assignee of each such assignment shall execute and deliver to the Administrative Agent any such supplements to the Canadian Security Documents and/or additional Canadian 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. (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 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; (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 agree- ment 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. (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. 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, 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. 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 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 unen- forceable 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 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. 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: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President-Finance [CORPORATE SEAL] ACC LONG DISTANCE CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller [CORPORATE SEAL] ACC NATIONAL TELECOM CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President [CORPORATE SEAL] ACC LONG DISTANCE OF MASSACHUSETTS CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President [CORPORATE SEAL] ACC GLOBAL CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller [CORPORATE SEAL] ACC RADIO CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller [CORPORATE SEAL] ACC NATIONAL LONG DISTANCE CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President [CORPORATE SEAL] ACC TELENTERPRISES LTD. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Assistant Controller [CORPORATE SEAL] ACC LONG DISTANCE U.K., LTD. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Attorney [CORPORATE SEAL] FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Administrative Agent, Managing Agent, Swingline Lender, Issuing Lender and Lender By: /s/ Jim Redman Name: Jim Redman Title: Senior Vice President [CORPORATE SEAL] FLEET NATIONAL BANK, as Managing Agent, Documentation Agent and Lender By:_________________________________ Name:_______________________________ Title:______________________________ [CORPORATE SEAL] STATE STREET BANK AND TRUST COMPANY By:_________________________________ Name:_______________________________ Title:______________________________ [CORPORATE SEAL] BANK OF MONTREAL By:_________________________________ Name:_______________________________ Title:______________________________ EXHIBIT A-1 to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent AMENDED AND RESTATED REVOLVING CREDIT NOTE $___________ ______ __, 1997 FOR VALUE RECEIVED, the undersigned, ACC CORP., a corporation organized under the laws of Delaware, ACC LONG DISTANCE CORP., a corporation organized under the laws of New York, ACC NATIONAL TELECOM CORP., a corporation organized under the laws of Delaware, ACC LONG DISTANCE OF MASSACHUSETTS CORP., a corporation organized under the laws of Delaware, ACC RADIO CORP., a corporation organized under the laws of New York, ACC NATIONAL LONG DISTANCE CORP., a corporation organized under the laws of Delaware, ACC GLOBAL CORP., a corporation organized under the laws of Delaware, and any other Domestic Borrower party to the Amended and Restated Credit Agreement hereinafter referred to (collectively, the "Borrowers"), hereby jointly and severally promise to pay to the order of _________________________ (the "Bank"), at the times, at the place and in the manner provided in such Amended and Restated Credit Agreement, the principal sum of up to ______________________ Dollars ($___________), or, if less, the aggregate unpaid principal amount of all Loans disbursed to such Borrowers by the Lenders under such Amended and Restated Credit Agreement, together with interest at the rates as in effect from time to time with respect to each portion of the principal amount hereof, determined and payable as provided in Article IV of such Amended and Restated Credit Agreement. This Note is a Note referred to in, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of _________ __, 1997 as further amended, restated or otherwise modified (the "Amended and Restated Credit Agreement") by and among ACC Corp. and certain Subsidiaries thereof, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. The Amended and Restated Credit Agreement contains, among other things, provisions for the time, place and manner of payment of this Note, the determination of the interest rate borne by and fees payable in respect of this Note, acceleration of the payment of this Note upon the happening of certain stated events and the mandatory repayment of this Note under certain circumstances. All capitalized terms used herein and not otherwise defined herein shall have the meaning assigned thereto in the Amended and Restated Credit Agreement. The Borrowers agree to pay on demand all costs of collection, including reasonable attorneys' fees, if any part of this Note, principal or interest, is collected after maturity with the aid of an attorney. Diligence, presentment for payment, notice of dishonor, protest and notice of any kind (other than as explicitly required by the Amended and Restated Credit Agreement) are hereby waived. THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA. The Debt evidenced by this Note is senior in right of payment to all Subordinated Debt referred to in the Amended and Restated Credit Agreement. [This Note is an amendment and restatement of, and not a prepayment of, the Revolving Credit Note payable by the Borrowers to the order of the Bank pursuant to the Original Credit Agreement.] /FN Included in Notes of Original Lenders only. IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed under seal by a duly authorized officer as of the day and year first above written. ACC CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC LONG DISTANCE CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC NATIONAL TELECOM CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC LONG DISTANCE OF MASSACHUSETTS CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC RADIO CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ [SIGNATURES CONTINUE ON FOLLOWING PAGE] ACC NATIONAL LONG DISTANCE CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC GLOBAL CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ EXHIBIT A-2 to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent AMENDED AND RESTATED REVOLVING CREDIT NOTE $___________ _____ __, 1997 (or the equivalent thereof described below) FOR VALUE RECEIVED, the undersigned, ACC LONG DISTANCE U.K., LTD., a corporation organized under the laws of the United Kingdom, and any other U.K. Borrower party to the Amended and Restated Credit Agreement hereinafter referred to (collectively, the "Borrowers"), hereby jointly and severally promise to pay to the order of __________________________ (the "Bank"), at the times, at the place and in the manner provided in such Amended and Restated Credit Agreement, the principal sum of up to ______________________ Dollars ($___________), (or the applicable Alternative Currency Amount then outstanding under this Note) or, if less, the aggregate unpaid principal amount of all Loans disbursed to the Borrowers by the Lenders under such Amended and Restated Credit Agreement, together with interest at the rates as in effect from time to time with respect to each portion of the principal amount hereof, determined and payable as provided in Article IV of such Amended and Restated Credit Agreement. This Note is a Note referred to in, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of _____ __, 1997 as further amended, restated or otherwise modified (the "Amended and Restated Credit Agreement") by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. The Amended and Restated Credit Agreement contains, among other things, provisions for the time, place and manner of payment of this Note, the determination of the interest rate borne by and fees payable in respect of this Note, acceleration of the payment of this Note upon the happening of certain stated events and the mandatory repayment of this Note under certain circumstances. All capitalized terms used herein and not otherwise defined herein shall have the meaning assigned thereto in the Amended and Restated Credit Agreement. The Borrowers agree to pay on demand all costs of collection, including reasonable attorneys' fees, if any part of this Note, principal or interest, is collected after maturity with the aid of an attorney. Diligence, presentment for payment, notice of dishonor, protest and notice of any kind (other than as explicitly required by the Amended and Restated Credit Agreement) are hereby waived. THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA. The Debt evidenced by this Note is senior in right of payment to all Subordinated Debt referred to in the Credit Agreement. [This Note is an amendment and restatement of, and not a prepayment of, the Revolving Credit Note payable by the Borrowers to the order of the Bank pursuant to the Original Credit Agreement.] /FN Included in Notes of Original Lenders only. IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed under seal by a duly authorized officer as of the day and year first above written. EXECUTION The Borrower THE COMMON SEAL of ) ACC LONG DISTANCE ) U.K., LTD. was ) hereunto affixed ) to this deed ) in the presence of: ) Director: ____________________________ Full Name: ___________________________ Director/ Secretary: ___________________________ Full Name: ___________________________ EXHIBIT A-3 to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent REVOLVING CREDIT NOTE $___________ _____ __, 1997 (or the equivalent thereof described below) FOR VALUE RECEIVED, the undersigned, ACC TELENTERPRISES LTD., a corporation organized under the laws of Ontario, and any other Canadian Borrower party to the Amended and Restated Credit Agreement hereinafter referred to (the "Borrowers"), hereby jointly and severally (subject to Section 2.9 of the Amended and Restated Credit Agreement) promise to pay to the order of __________________________ (the "Bank"), at the times, at the place and in the manner provided in such Amended and Restated Credit Agreement, the principal sum of up to ______________________ Dollars ($___________), (or the applicable Alternative Currency Amount then outstanding under this Note) or, if less, the aggregate unpaid principal amount of all Loans disbursed to the Borrowers by the Lenders under such Amended and Restated Credit Agreement, together with interest at the rates as in effect from time to time with respect to each portion of the principal amount hereof, determined and payable as provided in Article IV of such Amended and Restated Credit Agreement. This Note is a Note referred to in, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of _____ __, 1997 (as further amended, restated or otherwise modified (the "Amended and Restated Credit Agreement") by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. The Amended and Restated Credit Agreement contains, among other things, provisions for the time, place and manner of payment of this Note, the determination of the interest rate borne by and fees payable in respect of this Note, acceleration of the payment of this Note upon the happening of certain stated events and the mandatory repayment of this Note under certain circumstances. All capitalized terms used herein and not otherwise defined herein shall have the meaning assigned thereto in the Amended and Restated Credit Agreement. The Borrowers agree to pay on demand all costs of collection, including reasonable attorneys' fees, if any part of this Note, principal or interest, is collected after maturity with the aid of an attorney. Diligence, presentment for payment, notice of dishonor, protest and notice of any kind (other than as explicitly required by the Amended and Restated Credit Agreement) are hereby waived. THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA. The Debt evidenced by this Note is senior in right of payment to all Subordinated Debt referred to in the Credit Agreement. IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed under seal by a duly authorized officer as of the day and year first above written. ACC TELENTERPRISES LTD. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ EXHIBIT A-4 to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent SWINGLINE NOTE $ _____________ ___, 1997 FOR VALUE RECEIVED, the undersigned, ACC CORP., a corporation organized under the laws of Delaware, ACC LONG DISTANCE CORP., a corporation organized under the laws of New York, ACC NATIONAL TELECOM CORP., a corporation organized under the laws of Delaware, ACC LONG DISTANCE OF MASSACHUSETTS CORP., a corporation organized under the laws of Delaware, ACC RADIO CORP., a corporation organized under the laws of New York, ACC NATIONAL LONG DISTANCE CORP., a corporation organized under the laws of Delaware and any other Domestic Borrower party to the Amended and Restated Credit Agreement hereinafter referred to (the "Borrowers"), hereby jointly and severally promise to pay to the order of _____________________ (the "Bank"), at the times, at the place and in the manner provided in such Amended and Restated Credit Agreement, the principal sum of up to Three Million Dollars ($3,000,000), or, if less, the aggregate unpaid principal amount of all Swingline Loans disbursed by the Bank under such Amended and Restated Credit Agreement, together with interest at the rates as in effect from time to time with respect to each portion of the principal amount hereof, determined and payable as provided in Article IV of such Amended and Restated Credit Agreement. This Note is the Swingline Note referred to in, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of ____________, 1997 (as amended, restated or otherwise modified, the "Amended and Restated Credit Agreement") by and among ACC Corp. and certain Subsidiaries thereof, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. The Amended and Restated Credit Agreement contains, among other things, provisions for the time, place and manner of payment of this Note, the determination of the interest rate borne by and fees payable in respect of this Note, acceleration of the payment of this Note upon the happening of certain stated events and the mandatory repayment of this Note under certain circumstances. All capitalized terms used herein and not otherwise defined herein shall have the meaning assigned thereto in the Amended and Restated Credit Agreement. The Borrowers agree to pay on demand all costs of collection, including reasonable attorneys' fees, if any part of this Note, principal or interest, is collected after maturity with the aid of an attorney. Diligence, presentment for payment, notice of dishonor, protest and notice of any kind (other than as explicitly required by the Amended and Restated Credit Agreement) are hereby waived. THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA. The Debt evidenced by this Note is senior in right of payment to all Subordinated Debt referred to in the Credit Agreement. IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed under seal by a duly authorized officer as of the day and year first above written. ACC CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC LONG DISTANCE CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC NATIONAL TELECOM CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC LONG DISTANCE OF MASSACHUSETTS CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC GLOBAL CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC RADIO CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ ACC NATIONAL LONG DISTANCE CORP. [CORPORATE SEAL] By: _____________________________ Name:_________________________ Title:________________________ EXHIBIT B to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent NOTICE OF BORROWING First Union National Bank of North Carolina, as Managing Agent and Administrative Agent One First Union Center 301 South College Street, TW-10 Charlotte, North Carolina 28288-0608 Attn: Syndication Agency Services Ladies and Gentlemen: This irrevocable Notice of Borrowing is delivered to you by the undersigned Borrower(s) under Section 2.3(a) of the Amended and Restated Credit Agreement dated as of _____ __, 1997 (as amended, restated or otherwise modified, the "Amended and Restated Credit Agreement"), by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. 1. ACC Corp. on behalf of the [Domestic Borrowers] [Canadian Borrowers] [U.K. Borrowers] hereby requests that the Lenders make a Loan denominated in [Dollars] [Canadian Dollars] [Sterling] in the aggregate principal amount of $___________ (the "Loan"). (Insert applicable Borrowers and Permitted Currency therefor in accordance with Section 2.1 or 2.2(a), as applicable, and a minimum amount in accordance with Section 2.3) 2. ACC Corp. on behalf of the applicable Borrowers hereby requests that the Loan be made on the following Business Day: _____________________. (Complete with a date (A) on or prior to the same Business Day of this notice for each Swingline Loan, (B) at least one Business Day after the date of this notice for each Base Rate Loan denominated in Dollars, (C) at least two Business Days after the date of this notice for each Base Rate Loan denominated in an Alternative Currency, (D) at least three (3) Business Days after the date of this notice for each LIBOR Rate Loan denominated in Dollars and (E) at least four (4) Business Days after the date of this notice for each LIBOR Rate Loan to be denominated in an Alternative Currency.) 3. ACC Corp. on behalf of the applicable Borrowers hereby requests that the Loan be a __________________ Loan. (Complete with either "Revolving Credit" or "Swingline" in accordance with 2.3.) 4. ACC Corp. on behalf of the applicable Borrowers hereby requests that the Loan bear interest at the following interest rate, plus the Applicable Margin, as set forth below: Termination Date for Principal Interest Interest Component Interest Period Period (if of Loan Rate (LIBOR Rate only) applicable) [Base Rate or LIBOR Rate] [One, two, three or six months] 5. The principal amount of all Loans outstanding as of the date hereof (including the requested Loan) does not exceed the maximum amount permitted to be outstanding pursuant to the terms of the Amended and Restated Credit Agreement. 6. All of the conditions applicable to the Loan requested herein as set forth in the Amended and Restated Credit Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Loan. 7. No Default or Event of Default exists, and none will exist upon the making of the Loan requested herein. 8. All capitalized undefined terms used herein have the meanings assigned thereto in the Amended and Restated Credit Agreement. /FN Revolving Credit Loans denominated in Dollars may bear interest at the Base Rate or LIBOR Rate; Revolving credit Loans denominated in an Alternative Currency shall bear interest at the LIBOR Rate; and Swingline Loans shall bear interest at the Base Rate, in each case plus the Applicable margin in accordance with Section 4.1. IN WITNESS WHEREOF, the undersigned has executed this Notice of Borrowing this ____ day of _______, 19__. ACC CORP. By: __________________________________ Name:______________________________ Title:_____________________________ EXHIBIT C to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent NOTICE OF PREPAYMENT First Union National Bank of North Carolina, as Managing Agent and Administrative Agent One First Union Center 301 South College Street, TW-10 Charlotte, North Carolina 28288-0608 Attn: Syndication Agency Services Ladies and Gentlemen: This irrevocable Notice of Prepayment is delivered to you by ____________________________, a corporation organized under the laws of _______________ (the "Borrower"), under Section 2.4(d) of the Amended and Restated Credit Agreement dated as of _____________ ___, 1997 as amended, restated or otherwise modified (the "Amended and Restated Credit Agreement"), by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. 1. ACC Corp. hereby provides notice to the Agent that the [Insert Domestic Borrowers, Canadian Borrowers or U.K. Borrowers, as applicable] shall repay the following [Base Rate Loans] and/or [LIBOR Rate Loans] : ____________________. 2. The [Insert Domestic Borrowers, Canadian Borrowers or U.K. Borrowers, as applicable] shall repay the above referenced Loans on the following Business Day: _______________. 3. All capitalized undefined terms used herein have the meanings assigned thereto in the Amended and Restated Credit Agreement. IN WITNESS WHEREOF, the undersigned has executed this Notice of Prepayment this ____ day of _______, 19__. ACC CORP. [CORPORATE SEAL] By:_____________________________ Name:________________________ Title:_______________________ /FN Complete with an amount in accordance with Section 2.4(d) of the Amended and Restated Credit Agreement. /FN Complete with a Business Day in accordance with Section 2.4(d) of the Amended and Restated Credit Agreement. EXHIBIT D to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent NOTICE OF CONVERSION/CONTINUATION First Union National Bank of North Carolina, as Managing Agent and Administrative Agent One First Union Center, TW-10 301 South College Street Charlotte, North Carolina 28288-0608 Attn: Syndication Agency Services Ladies and Gentlemen: This irrevocable Notice of Conversion/Continuation is delivered to you by ACC Corp. on behalf of [Insert Domestic Borrowers, Canadian Borrowers or U.K. Borrowers, as applicable] under Section 4.2 of the Amended and Restated Credit Agreement dated as of __________ , 1997 (as amended, restated or otherwise modified, the "Amended and Restated Credit Agreement"), by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. /FN This Notice is applicable only to Revolving Credit Loans. 1. This Notice of Conversion/Continuation is submitted for the purpose of: (Check one and complete applicable information in accordance with Section 4.2.) / / Converting a Base Rate Loan into a LIBOR Rate Loan denominated in Dollars (a) The aggregate outstanding principal balance of such Loan is $_______________. (b) The principal amount of such Loan to be converted is $_______________. (c) The requested effective date of the conversion of such Loan is _______________. (d) The requested Interest Period applicable to the converted Loan is _______________. / / Converting a LIBOR Rate Loan denominated in Dollars into a Base Rate Loan (a) The aggregate outstanding principal balance of such Loan is $_______________. (b) The last day of the current Interest Period for such Loan is _______________. (c) The principal amount of such Loan to be converted is $_______________. (d) The requested effective date of the conversion of such Loan is _______________. / / Continuing a LIBOR Rate Loan as a LIBOR Rate Loan (a) Such Loan is denominated in [Insert Permitted Currency] and the Dollar Amount of aggregate outstanding principal balance of such Loan is $_______________. (b) The last day of the current Interest Period for such Loan is _______________. (c) The principal amount of such Loan to be continued is $_______________. (d) The requested effective date of the continuation of such Loan is _______________. (e) The requested Interest Period applicable to the continued Loan is _______________. 2. The principal amount of all Loans outstanding as of the date hereof does not exceed the maximum amount permitted to be outstanding pursuant to the terms of the Amended and Restated Credit Agreement. 3. All of the conditions applicable to the conversion or continuation of the Loan requested herein as set forth in the Amended and Restated Credit Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Loan. 4. No Default or Event of Default exists, and none will exist upon the conversion or continuation of the Loan requested herein. 5. All capitalized undefined terms used herein have the meanings assigned thereto in the Amended and Restated Credit Agreement. IN WITNESS WHEREOF, the undersigned has executed this Notice of Conversion/Continuation this ____ day of __________, 19__. ACC CORP. By: __________________________________ Name:______________________________ Title:_____________________________ EXHIBIT E to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent OFFICER'S COMPLIANCE CERTIFICATE The undersigned, on behalf of ACC Corp., a corporation organized under the laws of Delaware (the "Borrower"), hereby certifies to First Union National Bank of North Carolina, as Managing Agent and Administrative Agent ("First Union"), and Fleet National Bank, as Managing Agent and Documentation Agent ("Fleet"), as follows: 1. This Certificate is delivered to you pursuant to Section 7.2 of the Amended and Restated Credit Agreement dated as of _____ , 1997 (as amended, restated or otherwise modified, the "Amended and Restated Credit Agreement"), by and among the Borrower, and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor ("ACC"), the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Amended and Restated Credit Agreement. 2. I have reviewed the financial statements of ACC and its Subsidiaries dated as of _______________ and for the _______________ period[s] then ended and such statements fairly present the financial condition of ACC and its Subsidiaries, as applicable, as of the dates indicated and the results of their operations and cash flows for the period[s] indicated. 3. I have reviewed the terms of the Amended and Restated Credit Agreement, the Notes and the related Loan Documents and have made, or caused to be made under my supervision, a review in reasonable detail of the transactions and the condition of ACC and its Subsidiaries during the accounting period covered by the financial statements referred to in Paragraph 2 above. Such review has not disclosed the existence during or at the end of such accounting period of any condition or event that constitutes a Default or an Event of Default, nor do I have any knowledge of the existence of any such condition or event as at the date of this Certificate [except, [if such condition or event existed or exists, describe the nature and period of existence thereof and what action the Borrowers have taken, are taking and propose to take with respect thereto]]. 4. Excess Cash Flow, the Applicable Margin and calculations determining such figures are set forth on the attached Schedule 1 and the Borrowers and their Subsidiaries are in compliance with the covenants contained in Article IX of the Amended and Restated Credit Agreement as shown on such Schedule 1 and the Borrowers and their Subsidiaries are in compliance with the other covenants and restrictions contained in Articles VIII and X of the Amended and Restated Credit Agreement. WITNESS the following signature as of the _____ day of _________, 199_. ACC CORP. By: __________________________________ Name:______________________________ Title:_____________________________ Schedule 1 A. Leverage Ratio 1. Total Debt as of the immediately preceding fiscal quarter end 1 _______ 2. Operating Cash Flow for the period of [two (2) quarters ending on such fiscal quarter end times two (2)] or [four (4) consecutive fiscal quarters ending on such fiscal quarter end] (a) Net Income for such period 2(a) _______ (b) Plus: The sum of the following for such period to the extent deducted in the determination of such Net Income: (i) income and franchise taxes, (ii) Interest Expense, and (iii) amortization and depreciation and other non-cash charges 2(b) _______ (c) Less: The sum of the following for such period: (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) included in the determi- nation of Net Income and not realized in the ordinary course of business 2(c) _______ /FN Delete brackets in Schedule 1 in accordance with Article IX of the Amended and Restated Credit Agreement. (d) Add lines 2(a) and 2(b) and subtract line 2(c) 2(d) _______ 3. Leverage Ratio: Divide line 1 by line 2(d) 3 _______ 4. Maximum Ratio Permitted by Section 9.1 as of the date hereof 4 _______ B. Pro Forma Debt Service Coverage Ratio 1. Operating Cash Flow for the period of [two (2) quarters ending on such fiscal quarter end times two (2)] or [four (4) consecutive fiscal quarters ending on such fiscal quarter end](from line 2(d) of Part A) 1 _______ 2. Pro Forma Debt Service: The sum of the following calculated without duplication on a Consolidated pro forma basis for the immediately succeeding period of four (4) consecutive fiscal quarters (a) All payments of principal or similar amounts required to be paid with respect to Total Debt 2(a) _______ (b) Plus: Interest Expense 2(b) _______ (c) Add lines 2(a) and 2(b) 2(c) _______ 3. Pro Forma Debt Service Coverage Ratio: Divide line 1 by line 2(c) 3 _______ 4. Minimum Permitted Ratio per Section 9.2 1.50 to 1.00. /FN Delete brackets in Schedule 1 in accordance with Article IX of the Amended and Restated Credit Agreement. C. Fixed Charge Coverage Ratio 1. Operating Cash Flow for the period of [two (2) quarters ending on such fiscal quarter end times two (2)] or [four (4) consecutive fiscal quarters ending on such fiscal quarter end] (from line 2(d) of Part A) 1 _______ 2. Fixed Charges for such period. (a) All principal payments or similar amounts required to be paid respect to Total Debt during such period 2(a) _______ (b) Plus: Interest Expense required to be paid 2(b) _______ during such period (c) Plus: Total cash dividends or distributions paid or payable by ACC during such period 2(c) _______ (d) Plus: All payments in respect of any retirement, redemption or other acqui- sition of the capital stock of ACC and its Subsidiaries 2(d) _______ consummated during such period (e) Plus: All Capital Expenditures during such period 2(e) _______ (f) Plus: All income and franchise taxes paid or payable in cash during such period 2(f) _______ (g) Add lines 2(a), 2(b), 2(c), 2(d), 2(e) and 2(f) 2(g) _______ /FN Delete brackets in Schedule 1 in accordance with Article IX of the Amended and Restated Credit Agreement. 3. Fixed Charge Coverage Ratio: Divide line 1 by line 2(g) 3 _______ 6. Maximum Permitted Ratio per Section 9.3 1.15 to 1.00 D. Net Worth 1. Fifty percent (50%) of Consol- idated Net Income of ACC and its Subsidiaries (a) Less total debits with respect to deferred interest payments recorded for the Fleet Venture Investment for such period (not to exceed $1,200,000) as of each fiscal quarter end occurring after the Closing Date 1 _______ 2. 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 2 _______ 3. Minimum Net Worth: Add $95,000,000, line 1, and line 2 3 _______ 4. Actual Net Worth 4 _______ E. Excess Cash Flow For any Fiscal Year of ACC and its Subsidiaries, on a Consolidated basis 1. Operating Cash Flow for such period 1 __________ (a) Plus Net Working Capital (if negative), ___________ (b) Less the sum of: (i) Fixed Charges ___________ (ii) Net Working Capital (if positive) ____________ (iii) Any payments to the Managing Agents pursuant to the Letter Agreement ____________ Total ____________ G. Applicable Margin 1. Leverage Ratio (as calculated in Part A above) 1 _______ 2. Applicable Margin per Section 4.1 2 _______ EXHIBIT F to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent NOTICE OF ACCOUNT DESIGNATION Dated _________ First Union National Bank of North Carolina, as Managing Agent and Administrative Agent One First Union Center, TW-10 301 South College Street Charlotte, North Carolina 28288-0608 Attn: Syndication Agency Services Ladies and Gentlemen: This Notice of Account Designation is delivered to you by ACC Corp. on behalf of the Borrowers under Section 5.2(f)(i) of the Amended and Restated Credit Agreement dated as of _______ ___, 1997 (as amended, restated or otherwise modified, the "Amended and Restated Credit Agreement") by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. The Agent is hereby authorized to disburse Loan proceeds to the following Borrowers into the corresponding account(s): Domestic Borrowers [Insert name of bank/ ABA Routing Number/ and Account Number] Canadian Borrowers [Insert name of bank/ ABA Routing Number/ and Account Number] U.K. Borrowers [Insert name of bank/ ABA Routing Number/ and Account Number] IN WITNESS WHEREOF, the undersigned has executed this Notice of Account Designation this _____ day of _______, 19__. [CORPORATE SEAL] ACC CORP. By: ________________________________ Name: _________________________ Title: _________________________ EXHIBIT G to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent ASSIGNMENT AND ACCEPTANCE Dated _________ Reference is made to the Amended and Restated Credit Agreement dated as of _________ ___, 1997 (as further amended, restated or otherwise modified, the "Amended and Restated Credit Agreement"), by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. Capitalized terms which are defined in the Amended and Restated Credit Agreement and which are used herein without definition shall have the same meanings herein as in the Amended and Restated Credit Agreement. ______________________________________ (the "Assignor") and ____________________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, as of the Effective Date (as defined below), a ____% interest (the "Assigned Interest") in and to all of the Assignor's interests, rights and obligations under the Amended and Restated Credit Agreement, and the Assignor thereby retains ____% of its interest therein (the "Retained Interest"). This Assignment and Acceptance is entered pursuant to, and authorized by, Section 14.10 of the Amended and Restated Credit Agreement. 2. The Assignor (a) represents that, as of the date hereof, (i) its Commitment Percentage (without giving effect to assignments thereof which have not yet become effective) under the Amended and Restated Credit Agreement, (ii) the outstanding balance of its Revolving Credit Loans (unreduced by any assignments thereof which have not yet become effective) under the Amended and Restated Credit Agreement, (iii) the outstanding balance of its Swingline Loans (unreduced by any assignments thereof which have not yet become effective), and (iv) the outstanding balance of its Commitment Percentage of the L/C Obligations (unreduced by any assignments thereof which have not yet become effective) are each set forth in Section 2 of Schedule I hereto; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Amended and Restated Credit Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Amended and Restated Credit Agreement or any other instrument or document furnished pursuant thereto, other than that the Assignor is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the performance or observance by the Borrowers of any of their obligations under the Amended and Restated Credit Agreement or any other Loan Document; and (d) attaches the Revolving Credit Note [and/or any Swingline Note, as applicable] delivered to it under the Amended and Restated Credit Agreement and requests that the Borrowers exchange such [Note][Notes] for new Notes payable to each of the Assignor and the Assignee as follows: Revolving Credit Note Payable to the Order of: Principal Amount of Note: ______________________ $_________ ______________________ $_________ Swingline Note Payable to the Order of: Principal Amount of Note: ______________________ $_________ 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Amended and Restated Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor or any other Lender or the Administrative Agent 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 the Amended and Restated Credit Agreement; (d) confirms that it is an Eligible Assignee; (e) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Amended and Restated Credit Agreement and the other Loan Documents as are delegated to the agent by the terms thereof, together with such powers as are reasonably incidental thereto; (f) agrees that it will perform in accordance with their terms all the obligations which by the terms of the Amended and Restated Credit Agreement and the other Loan Documents are required to be performed by it as a Lender; and (g) agrees that it will keep confidential all non-public information with respect to the Borrowers obtained pursuant to the Loan Documents in accordance with Section 14.10(g) of the Amended and Restated Credit Agreement. 4. The effective date for this Assignment and Acceptance shall be as set forth in Section 1 of Schedule I hereto (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for consent thereby and by the Borrowers and acceptance and recording in the Register. 5. Upon such consents, acceptance and recording, from and after the Effective Date, (i) the Assignee shall be a party to the Amended and Restated Credit Agreement and the other Loan Documents to which Lenders are parties and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender under each such agreement, and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Amended and Restated Credit Agreement and the other Loan Documents. 6. Upon such consents, acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the interest assigned hereby (including payments of principal, interest, fees and other amounts) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE DEEMED TO BE A CONTRACT UNDER SEAL AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. ASSIGNOR _________________________________ Commitment Percentage ____% By:______________________________ Title:___________________________ ASSIGNEE _________________________________ Commitment Percentage ____% By:______________________________ Title:___________________________ Acknowledged and Consented to: FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Managing Agent and Administrative Agent By:____________________________________ Title:______________________________ [ACC CORP., on behalf of itself and the other Borrowers] By:____________________________________ Title:______________________________ Schedule I to Assignment and Acceptance 1. Effective Date _________________, ____ 2. Assignor's Interest Prior to Assignment (a) Commitment Percentage of Assignor ______% (b) Outstanding balance of Assignor's Revolving Credit Loans $____________ (c) Outstanding balance of Assignor's Swingline Loans $____________ (d) Outstanding balance of Assignor's Commitment Percentage of the L/C Obligations $____________ 3. Assigned Interest (from Section 1) ______% 4. Assignee's Extensions of Credit After Effective Date (a) Outstanding balance of Assignee's Revolving Credit Loans (line 2(b) times line 3) $____________ (b) Outstanding balance of Assignee's Commitment Percentage of L/C Obligations (line 2(c) times line 3) $____________ 5. Retained Interest of Assignor after Effective Date (a) Retained Interest (from Section 1) ______% (b) Outstanding balance of Assignor's Revolving Credit Loans (line 2(b) times line 5(a)) $_____________ (c) Outstanding balance of Assignor's Commitment Percentage of L/C Obligations (line 2(c) times line 5(a)) $_____________ 6. Payment Amount $_____________ 7. Payment Instructions (a) If payable to Assignor, to the account of Assignor to: _________________________________ _________________________________ _________________________________ Routing No.:_____________________ Account No.:_____________________ Attn:____________________________ Reference:_______________________ (b) If payable to Assignee, to the account of Assignee to: _________________________________ _________________________________ _________________________________ Routing No.:_____________________ Account No.:_____________________ Attn:____________________________ Reference:_______________________ EXHIBIT L to Amended and Restated Credit Agreement dated as of January 14, 1997 by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent FORM OF AMENDED AND RESTATED JOINDER AGREEMENT THIS JOINDER AGREEMENT, dated as of the day of _________, 1997 (the "Agreement), to the Amended and Restated Credit Agreement referred to below is entered into by and among ACC Corp. and certain Subsidiaries, as Borrowers, ACC Corp., as Guarantor, the Lenders party thereto, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. Statement of Purpose ACC Corp., ACC Long Distance Corp., ACC National Telecom Corp., ACC Long Distance of Massachusetts Corp., ACC Global Corp., ACC Radio Corp., ACC National Long Distance Corp., ACC Long Distance U.K., Ltd. and ACC TelEnterprises Ltd. are party to an Amended and Restated Credit Agreement of even date (as amended, restated or otherwise modified, the "Amended and Restated Credit Agreement"), among such Borrowers, the Lenders party thereto and First Union National Bank of North Carolina, as Managing Agent and Administrative Agent, and Fleet National Bank, as Managing Agent and Documentation Agent. [INSERT NAME OF ADDITIONAL BORROWER] (the "Company") has become a direct or indirect Material Subsidiary of ACC pursuant to [DESCRIBE ACQUISITION OR OTHER RELEVANT DOCUMENTS]. In connection with such transaction, the Company is required to execute, among other documents, a joinder agreement in order to become a Borrower under the Amended and Restated Credit Agreement. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto hereby agree as follows: 1.01 Joinder of Company. (a) Joinder. Pursuant to Section 8.12 of the Amended and Restated Credit Agreement, the Company hereby agrees that it is a [____________] Borrower under the Amended and Restated Credit Agreement as if a signatory thereof on the Closing Date, and the Company shall comply with and be subject to all of the terms, conditions, covenants, agreements and obligations set forth therein. [IF THE COMPANY IS A CANADIAN SUBSIDIARY, LANGUAGE SATISFACTORY TO THE MANAGING AGENTS SHALL BE INSERTED PROVIDING FOR JOINT AND SEVERAL LIABILITY AMONG ALL OF THE CANADIAN BORROWERS FOR THE OBLIGATIONS OF THE CANADIAN BORROWERS, TO THE FULLEST EXTENT PERMITTED UNDER CANADIAN LAW.] The Company hereby agrees that each reference to any [_____________ Borrower] or [ ___________ Borrowers] or to any "Borrower" or the "Borrowers" in the Amended and Restated Credit Agreement shall include the Company. The Company acknowledges that it has received a copy of the Amended and Restated Credit Agreement and that it has read and understands the terms thereof. (b) Schedules. Attached hereto are updated copies of each Schedule referenced in the Amended and Restated Credit Agreement revised to include all information required to be provided therein with respect to the Company. (c) Sublimit. Attached is a revised Schedule 1.2 to the Amended and Restated Credit Agreement which includes the Sublimit of the Company. 2.01 Effectiveness. This Agreement shall become effective upon receipt by the Administrative Agent of (i) an originally executed corresponding Note for each Lender jointly executed by each applicable Borrower and the Company in exchange for the corresponding Notes issued on the Closing Date or the date of the most recent Joinder Agreement, as applicable, (ii) an originally executed counterpart hereof and (iii) supplements to the applicable Security Documents and each other agreement or document requested by the Administrative Agent in accordance with Section 8.12. 4.01 General Provisions. (a) Representations and Warranties. Each Borrower hereby confirms that each representation and warranty made by it under the Loan Documents is true and correct in all material respects as of the date hereof and that no Default or Event of Default has occurred and is continuing under the Amended and Restated Credit Agreement, except for any deviations from such representations and warranties expressly permitted by the Amended and Restated Credit Agreement and except for any waivers of such representations and warranties granted by the Required Lenders in writing. Each such Borrower hereby represents and warrants that as of the date hereof there are no claims or offsets against or defenses or counterclaims to their respective obligations under the Amended and Restated Credit Agreement or any other Loan Document. (b) Limited Effect. Except as supplemented hereby, the Amended and Restated Credit Agreement and each other Loan Document shall continue to be, and shall remain, in full force and effect. This Agreement shall not be deemed (i) to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Amended and Restated Credit Agreement or (ii) to prejudice any right or rights which the Agents or Lenders may now have or may have in the future under or in connection with the Amended and Restated Credit Agreement or the Loan Documents or any of the instruments or agreements referred to therein, as the same may be further amended, restated or otherwise modified. (c) Costs and Expenses. The Borrower who is the parent of the Company hereby agrees to pay or reimburse the Agent for all of its reasonable and customary out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Agreement including, without limitation, the reasonable fees and disbursements of counsel. (d) Counterparts. This Agreement may be executed by one or more of the parties hereto in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. (e) Definitions. All capitalized terms used and not defined herein shall have the meanings given thereto in the Amended and Restated Credit Agreement. (f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF. /FN Insert Domestic, Canadian or U.K., as applicable. IN WITNESS WHEREOF the undersigned hereby causes this Agreement to be executed and delivered as of the date first above written. ACC LONG DISTANCE CORP. [CORPORATE SEAL] By: ____________________________ Name: __________________________ Title:__________________________ ACC NATIONAL TELECOM CORP. [CORPORATE SEAL] By: ____________________________ Name: __________________________ Title:__________________________ ACC LONG DISTANCE OF MASSACHUSETTS CORP. [CORPORATE SEAL] By: ____________________________ Name: __________________________ Title:__________________________ ACC RADIO CORP. [CORPORATE SEAL] By: ____________________________ Name: __________________________ Title:__________________________ ACC NATIONAL LONG DISTANCE CORP. [CORPORATE SEAL] By: ____________________________ Name: __________________________ Title:__________________________ ACC LONG DISTANCE U.K., LTD [CORPORATE SEAL] By: ____________________________ Name: __________________________ Title:__________________________ ACC TELENTERPRISES LTD. [CORPORATE SEAL] By: ____________________________ Name: __________________________ Title:__________________________ FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Lender, Managing Agent and Administrative Agent By: ____________________________ Name: __________________________ Title:__________________________ FLEET NATIONAL BANK, as Lender, Managing Agent and Documentation Agent By: ____________________________ Name: __________________________ Title:__________________________ SCHEDULE RESPONSIBLE DEPT. Schedule 1.1: Lenders and Commitments Schedule 1.2: Sublimits Schedule 1.3: Canadian Security Documents Schedule 6.1(a): Jurisdictions of Legal/Regulatory Organization and Qualification Schedule 6.1(b): Subsidiaries and Capitalization Legal/Regulatory Schedule 6.1(d): Required Governmental Approvals Legal/Regulatory Schedule 6.1(h): Employee Benefit Plan Laurie Wiest-Corp. Schedule 6.1(1): Material Contracts Legal/Regulatory Jack Baron Larry Dubow Pam Chesonis Sarah Schedule 6.1(m): Labor and Collective Bargaining Agreements NONE Schedule 6.1(r): Real Property Sarah Schedule 6.1(t): Debt and Contingent Obligations Finance Steve Mowers Deb Federation Schedule 6.1(u): Litigation Legal/Regulatory Schedule 6.1(v): Communications Licenses and Regulatory Approvals Legal/Regulatory Schedule 10.3: Existing Liens Bob Roth/NHDD Schedule 10.4: Existing Loans, Advances and Investments Finance Steve Mowers Deb Federation Schedule 1.1: Lenders and Commitments Commitment Lender Commitment Percentage First Union National Bank $40,000,000 40% of North Carolina 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 $25,000,000 25% 75 State Street MABOF10C Boston, Massachusetts 02109 Attention: Telephone No.: (617) 346-3766 Telecopy No.: (617) 346-3777 Bank of Montreal $20,000,000 20% 430 Park Avenue 15th Floor New York, New York 10022 Attention: Media/Communications Telephone No.: (___) _____-_____ Telecopy No.: (___) _____-_____ State Street Bank and Trust $15,000,000 15% Company 225 Franklin Street Boston, Massachusetts 02110-2804 Attention: Telephone No.: (___) _____-_____ Telecopy No.: (___) _____-_____ Schedule 1.2: Sublimits Borrower Sublimit* ACC Canada and any Additional $30,000,000 Borrower who is a Canadian Borrower ACC U.K. and any Additional $20,000,000 Borrower which is a U.K. Borrower ACC LEC $15,000,000 ACC and any Additional $100,000,000 less Borrower who is a Domestic outstandings to all Borrower other Borrowers * The Sublimits may be revised upon the prior written consent of the Required Lenders. Schedule 1.3: Canadian Security Documents (a) Quebec Security Documents (i) Hypothec by Canadian Borrower (ii) Landlord Agreement re: Montreal switch site (iii) Articles of Amalgamation of Canadian Borrower certified by appropriate Ontario governmental department (b) Ontario Security Documents (i) Ontario Security Agreement by Canadian Borrower (ii) Notice of Security Interest in Fixtures (Toronto Street) (iii) Leasehold Mortgage (Dundas Street) (iv) Landlord Agreement (Dundas Street) (v) Acknowledgement of Standard Charge Terms (Dundas Street) (vi) Letter of Credit (Dundas Street) (vii) Document General (Form 4) with an original notarial copy of the Articles of Amalgamation of the ACC Canada attached thereto (re: Dundas Street) (viii) Leasehold Mortgage (Toronto Street) (ix) Acknowledgement of Standard Charge Terms (Toronto Street) (x) Landlord Agreement (Toronto Street) (xi) Letter of Credit (Toronto Street) (xii) Document General (Form 4) with an original notarial copy of the Articles of Amalgamation of ACC Canada attached thereto (re: Toronto Street) (xiii) Confirmation and Consent by ACC Canada to Share pledge by ACC (xiv) Resolutions of directors of ACC Canada authorizing Pledge by ACC (c) British Columbia Security Documents (i) British Columbia Security Agreement by Canadian Borrower (ii) Notice of Security Interest in Fixtures (iii) Unregistered Leasehold Mortgage (in registrable form) (re: switch site) (iv) Letter of Canadian Borrower authorizing insertion of information in registrable mortgage (v) Equitable Mortgage (vi) Landlord Agreement Schedule 6.1(a): Jurisdictions of Organization and Qualification Trade Names And Names of U.S. State and Date of Foreign Expiration Date, Corporations Incorporation Qualifications if any FEIN ACC Corp. Delaware 4/9/87 NY 12/1/87 None 16-1175232 ACC Cellular Corp. Delaware 1/15/92 None None 16-1410583 ACC Credit Corp. Delaware 1/10/94 NY 1/12/94 None 16-1477277 ACC Global Corp. Delaware 11/10/92 NY 4/19/93 None 16-1367284 ACC Local Fiber Corp. New York 6/9/89 NY 6/9/89 NY: ACC 16-1355362 ACC Long Distance Corp. Delaware 10/25/93 None None ---------- ACC Long Distance Corp. New York 2/4/87 MA 2/4/87 NY: ACC Long 16-1291418 Distance ACC Long Distance of Delaware 3/24/92 CT 4/23/92 CT: ACC Long 16-1414774 Connecticut Corp. Distance ACC Long Distance of Delaware 10/20/93 GA 11/5/93 None 16-1453420 Georgia Corp. ACC Long Distance of Delaware 11/4/92 IL 1/31/92 IL: ACC Long 16-1410587 Illinois Corp. Distance ACC Long Distance of Delaware 12/9/93 ME 1/4/94 ME: ACC Long 16-1456983 Maine Corp. Distance ACC Long Distance of Delaware 1/14/92 MA 2/10/92 MA: ACC Long 16-1410586 Massachusetts Corp. Distance ACC Long Distance of New Hampshire None NH: ACC Long 16-1454296 New Hampshire Corp. 12/16/93 Distance ACC Long Distance of Delaware 1/29/92 OH 2/25/92 OH: ACC Long 16-1410579 Ohio Corp. Distance ACC Long Distance of Delaware 3/24/92 PA 4/23/92 PA: ACC Long 16-1414777 Pennsylvania Corp. Distance ACC Long Distance of Delaware 3/11/94 RI 10/6/94 RI: ACC Long 16-1459351 Rhode Island Corp. Distance ACC Long Distance of Delaware 12/9/93 VT 1/27/94 VT: ACC Long 16-1456948 Vermont Corp. Distance ACC Long Distance Delaware 2/25/94 NY 4/19/94 NY: ACC 16-1454370 Sales Corp. Marketing Media ACC National Long Delaware 10/25/93 See Attached See Attached 16-1456981 Distance Corp. ACC National Telecom Delaware 10/6/93 NY 10/8/93 None 16-1455828 Corp. ACC Network Corp. New York 8/23/79 NY 8/23/79 None 16-1133852 ACC Radio Corp. New York 2/4/57 MA 9/30/93 None 16-0880331 NH 3/3/94 PA 9/8/87 ACC Service Corp. Delaware 12/16/92 NY 1/31/94 None 16-1456980 Cel Tel Corp. Delaware 10/24/90 None None ---------- Danbury Cellular Connecticut 2/14/85 NY 4/19/91 None 06-1167340 Telephone Co. Teleprocessing New York 12/4/81 None None 16-1227839 Consultants, Inc. United Bluegrass Delaware 10/24/90 None None ---------- Cellular Corp.
Schedule 6.1(a): Jurisdictions of Organization and Qualification (Continued) Names of Non-U.S. Foreign Corporations Place and Date of Qualifications Trade Names Incorporation ACC TelEnterprises Ltd. Ontario, CAN 1/1/97 Alberta, British British Columbia: ACC, Columbia, Manitoba, ACC Long Distance, One New Brunswick, Plus Nova Scotia, Prince Ontario: ACC, ACC Long Edward Island, Distance, One Plus, One Quebec Plus Long Distance Telecommunications Quebec: ACC, Interurbains ACC, Un Plus, Telecommunications Interurbains Un Plus ACC Long Distance France 11/10/94 None None France, S.A.R.L. ACC Long Distance England 12/11/91 None None UK Ltd.
Schedule 6.1(a): Jurisdictions of Organization and Qualification (Continued) ACC NATIONAL LONG DISTANCE CORP. Date of Foreign Trade Name and Expiration State Qualification Date, if any Alabama 12/8/94 N/A Arizona 4/3/95 ACC Long Distance Expires 3/31/00 Arkansas 11/8/94 ACC Long Distance California 10/7/94 ACC Long Distance Expires 10/12/99 Colorado 10/6/94 ACC Long Distance Delaware N/A ACC Long Distance District of Columbia 10/5/94 N/A Florida 10/6/94 ACC Long Distance Expires 12/31/99 Idaho 10/12/94 ACC Long Distance Indiana 10/17/94 ACC Long Distance Iowa 11/4/94 ACC Long Distance Kansas 4/3/95 N/A Kentucky 10/5/94 ACC Long Distance Louisiana 10/11/94 ACC Long Distance Maryland 10/5/94 ACC Long Distance Expires 10/5/99 Michigan 10/6/94 ACC Long Distance Expires 12/31/99 Minnesota 11/4/94 ACC Long Distance Expires 11/4/04 Mississippi 10/5/94 N/A Missouri 10/5/94 ACC Long Distance Montana 10/7/94 ACC Long Distance Expires 10/31/99 Nebraska 10/12/94 ACC Long Distance Expires 10/12/04 Nevada 10/5/94 ACC Long Distance New Jersey 12/6/94 ACC Long Distance Expires 12/9/99 New Mexico 10/11/94 N/A North Carolina 10/5/94 N/A North Dakota 10/12/94 ACC Long Distance Expires 10/12/99 Oklahoma 10/5/94 ACC Long Distance Oregon 10/5/94 ACC Long Distance South Carolina 11/7/94 ACC Long Distance South Dakota 10/11/94 ACC Long Distance Tennessee 10/5/94 ACC Long Distance Expires 10/5/99 Texas 10/7/94 ACC Long Distance Utah 10/5/94 ACC Long Distance Expires 10/5/97 Virginia 10/5/94 N/A Washington 10/6/94 ACC National Long Distance Corp. West Virginia 10/28/94 ACC Long Distance Wisconsin 10/5/94 N/A Wyoming 10/5/94 N/A Schedule 6.1(b): Subsidiaries and Capitalization Shares # Shares Par Issued & Type Authorized Value Outstanding Shareholders *ACC Corp. Common 50,000,000 0.015 16,594,477 Publicly Traded ACC Service Corp. Common 3.000 0.000 1 ACC Corp. *ACC Long Distance Common 200 0.000 200 ACC Corp. Corp. ACC Long Distance Common 3,000 0.000 1 ACC National Long Sales Corp. Distance Corp. *ACC National Long Common 3,000 0.000 5 ACC Corp. Distance Corp. ACC Long Distance of Connecticut Corp. Common 3,000 0.00 1 ACC National Long Distance Corp. Georgia Corp. Common 3,000 0.000 1 ACC National Long Distance Corp. Illinois Corp. Common 3,000 0.00 1 ACC Corp. Maine Corp. Common 3,000 0.00 1 ACC National Long Distance Corp. Maryland Corp. Common 3,000 0.00 1 ACC National Long Distance Corp. *Massachusetts Corp. Common 3,000 0.00 1 ACC National Long Distance Corp. New Hampshire Corp. Common 3,000 0.00 1 ACC National Long Distance Corp. Ohio Corp. Common 3,000 0.00 1 ACC Corp. Pennsylvania Corp. Common 3,000 0.00 1 ACC Corp. Rhode Island Corp. Common 3,000 0.00 1 ACC National Long Distance Corp. Vermont Corp. Common 3,000 0.00 1 ACC National Long Distance Corp. ACC Network Corp. Common 200 0.00 200 ACC Corp. ACC Local Fiber Corp. Common 200 0.00 200 ACC Corp. *ACC Global Corp. Common 3,000 0.00 1 ACC Corp. *ACC Radio Corp. Common 200 0.00 200 ACC Corp. Cel Tel Corp. Common 3,000 0.00 1 ACC Corp. United Bluegrass Common 3,000 0.00 1 Cel Tel Corp. Cellular Danbury Cellular Common 5,000 0.00 100 ACC Corp. Telephone Corp. *ACC National Common 3,000 0.00 1 ACC Corp. Telecom Corp. ACC Credit Corp. Common 3,000 0.00 1 ACC Corp. FOREIGN SUBSIDIARIES: *ACC TelEnterprises Ltd. Common Unlimited 0.00 100 ACC Corp. *ACC Long Distance Ordinary 9,001,000 1.000(pound) 9,000,002 ACC Corp. UK Ltd. ACC Long Distance Common 500 100.00 500 ACC Corp. France, S.A.R.L.
* Denotes a material subsidiary Section 6.1(b): Subsidiaries and Capitalization (Continued) Warrants ACC Corp. Expiration Date Recipient No. of Shares Price Per Share 10/31/99 Peter H. Meyer 11,250* 12.50 * -Warrant for 7,500 shares of ACC Corp. Common Stock was granted before the August 8, 1996 3 for 2 stock split. ACC Long Distance Corp. None ACC National Telecom Corp. None ACC Global Corp. None ACC Long Distance of Massachusetts Corp. None ACC Radio Corp. None ACC TelEnterprises Ltd. None ACC Long Distance UK Ltd. None ACC CORP. INCENTIVE STOCK OPTION PLAN NOVEMBER 30, 1996 (listing of currently assigned options, exercise price and expiration dates) ACC CORP. & SUBSIDIARIES NON-QUALIFIED STOCK OPTIONS NOVEMBER 30, 1996 (listing of currently assigned options, exercise price and expiration dates) ACC CORP. DIRECTOR'S/NON-EMPLOYEE PLAN NON-QUALIFIED STOCK OPTIONS NOVEMBER 30, 1996 Current Expiration Assigned Price Date Bennett, Hugh 7,500 15.3333 01/20/06 7,500 28.8333 06/15/06 Estey, Willard 7,500 15.3333 01/20/06 7,500 28.8333 06/15/06 Tessoni, Daniel 7,500 15.3333 01/20/06 7,500 28.8333 06/15/06 VanDegna, Robert 7,500 15.3333 01/20/06 7,500 28.8333 06/15/06 TOTAL 60,000 Schedule 6.1(d): Required Governmental Approvals Public Utility Commission approval is required for the following Borrowers in the following states: ACC National Long Distance Corp. Arkansas Delaware Florida* Louisiana Maine Nebraska New York North Carolina Tennessee Washington** West Virginia * In Florida, PSC approval is not required, however, a notification letter was sent to the PSC on 12/9/96. ** ACC has filed an application with the Washington Utilities and Transportation Commission to be classified as a competitive telecommunications carrier, whereby ACC will be relieved of many regulatory requirements, including requiring Commission approval for transactions relating to securities and affiliated interests. ACC Corp. ACC Long Distance of Massachusetts Corp. None None ACC Long Distance Corp. ACC Radio Corp. None None ACC National Telecom Corp. ACC TelEnterprises Ltd. None None ACC Global Corp. ACC Long Distance UK Ltd. None None Schedule 6.1(h): Employee Benefit Plans The Company offers the following benefits to employees who work more than 30 hours per week: U.S. Health Insurance - Blue Cross & Blue Shield (Comprehensive) - Blue Choice (Select) - Preferred Care (Community) - Independent Health - Community Blue - Capital District Physician's Health - PHP (Prepaid Health Plan) [available 1/1/97] Dental Insurance - Self-insured (administered through Blue Cross & Blue Shield/Smile Saver) New York Statutory State Disability - Covers all in and out of State (U.S.) employees (Paul Revere) Worker's Compensation Long Term Disability Insurance - Paul Revere Optional Long Term Disability Insurance Life Insurance - First UNUM Optional Life and Dependent Life Program Accidental Death & Dismemberment - First UNUM ACC Long Distance Corp. - long distance credit - $25.00 per month credit for personal long distance usage Tuition Reimbursement - Prorated reimbursement for tuition Employee Stock Purchase Plan - Purchase at 15% discount; up to 15% of salary may be deferred Employee Savings and Retirement Plan - 401(k) - Six month waiting period; up to 16% of salary may be deferred Employee Assistance Program - Catholic Family Center & Affiliates Dependent Care Program - FSA (through Blue Cross and Blue Shield) - Medical/Dental FSA Wage Severance Plan Pre-tax Premium Plan The following benefits are available only to certain key employees of the Company: Employment Continuation Incentive Agreements Annual Incentive Plan Stock Option Plan Officer Medical Reimbursement Auto Allowance Cellular Phone Allowance Canada The Company offers the following benefits to employees who are full- time permanent employees and have completed at least three months of continuous employment, and are a full-time resident of Canada and under 70 years of age: Supplemental Health Insurance Benefit for Employees and Dependents - National Life of Canada Dental Expense Benefit for Employees and Dependents - National Life of Canada Weekly Indemnity Benefit for Employees - National Life of Canada Long Term Disability Benefit for Employees - National Life of Canada Life Insurance Benefit for Employees - National Life of Canada Life Insurance Benefit for Spouse - National Life of Canada Accidental Death & Dismemberment Insurance for Employees - National Life of Canada Group Registered Retirement Savings Plan ("RRSP") ACC long distance credit - $30.00 per month credit for personal long distance usage Internet Software and On-Line Benefit Tuition Reimbursement - Prorated reimbursement for tuition United Kingdom Permanent Health Insurance Group Life Assurance - Zurich Life Assurance Company Ltd. Group Salary Continuance Scheme - Zurich Life Assurance Company Ltd. Phone Benefit - 20 pounds per month free long distance calls with ACC The Company provides the following benefits to key employees: Cellular allowances Auto allowance Group Life Insurance Private Health Insurance Share Save Scheme - employee stock purchase plan Stock options also awarded Schedule 6.1(l): Material Contracts U.S. - Severance Agreement between ACC Corp. and Richard T. Aab. - Agreement for Service dated January 30, 1996 between ACC National Telecom Corp. and Ripple Communications Inc. - Agreement for Service dated August 26, 1996 between ACC National Telecom Corp. and Eagle Communications Inc. - Columbia Capital: 1% fee for consulting services - General Agreement dated August 30, 1994 between ACC New York Telecom Corp. and American Telephone and Telegraph Company. - Addendum Number 1 to General Agreement dated August 30, 1994 between ACC New York Telecom Corp. and American Telephone and Telegraph Company. - Addendum Number Two to the General Agreement between ACC National Telecom and Lucent Technologies Inc. - Leased property (refer to Schedule 6.1(r)). (listing of contracts with colleges and universitites) Schedule 6.1(l): Material Contracts (Continued) CANADA - - Agreement for Operations and Support Services between ACC TelEnterprises Ltd. and E.D.S. Services of Canada Ltd. dated June 24, 1996. - - License between ACC TelEnterprises Ltd. and E.D.S. Services of Canada Ltd. dated June 24, 1996. - - Commercial Sales Agreement between ACC TelEnterprises Ltd. and Noranda Inc. dated May 1, 1996. - - Leased Property (refer to Schedule 6.1(r)). (listing of contracts with colleges and universitites) Schedule 6.1(l): Material Contracts (Continued) UNITED KINGDOM - -Revised Standard Interconnect Agreement between ACC Long Distance UK Limited and British Telecommunications plc dated September 27, 1996. Includes: Transition Agreement between BT and ACC UK dated September 27, 1996. Side letter regarding billing from BT to ACC UK dated September 27, 1996. Side letter regarding pricing from BT to ACC UK dated September 27, 1996. Side letter regarding matters to be reviewed from BT to ACC UK dated September 27, 1996. Side letter regarding the transition agreement from BT to ACC UK dated November 29, 1996. - -License granted by the Secretary of State for Trade and Industry to ACC Long Distance UK Limited under Section 7 of the Telecommunications Act of 1984 dated December 18, 1996 (includes Specification by the Secretary of State for purposes of paragraphs 1(s) and 1(t) of Schedule 1 and paragraphs 4(j) and 4(k) of Schedule 3 to the License). - -Letter dated July 24, 1996 from Department of Trade and Industry regarding the removal of the "equivalency" requirements by the UK government and the designation of all countries and territories for international simple resale. - -Modifications of the Conditions of the License of ACC UK's IST License dated December 18, 1996. - -Lease Agreement between Ericsson IFS and ACC UK and ACC Corp. relating to AXE10 Telecommunications equipment dated December 4, 1995. - -Leased property (refer to Schedule 6.1(r)). (listing of contracts with colleges and universitites) Schedule 6.1(m): Labor and Collective Bargaining Agreements NONE Schedule 6.1(r): Real Property U.S. Landlord Property Address Term The Hague Corporation 400 West Avenue 05/94 - 06/04 Rochester, NY Corporate Headquarters Harry Fenson 62 Chenango Street 11/93 - 10/98 Binghamton, NY Binghamton Sales Office Harry Fenson 62 Chenango Street 08/94 - 10/98 Binghamton, NY Regional Sales Office The Widewaters Group Corporate Woods I 02/92 - 07/99 1035 7th North Street Liverpool, NY Syracuse Sales Office Cres, Inc. c/o Newmark & 192 Lexington Avenue 1/96 - 6/99 Company Real Estate, Inc. New York, NY New York City Sales Office Paramount Group, Inc. as 32 Old Slip 2/97 - 3/07 agent for Old Ship New York, NY Associates, L.P. ANTC New York Switch Rosetti & Associates 421 New Karner Road 2/92 - 11/98 Albany, NY Albany Sales Office State Tower Associates 109 S. Warren Street 04/89 - 03/99 Syracuse, NY Syracuse Switch/Regional 69 Delaware Avenue 69 Delaware Avenue 05/83 - 12/99 Buffalo, NY Buffalo Sales Office The Flatley Company 1661 Worcester Road, 08/96 - 07/99 Suite 403 Framingham, MA Framingham Sales Office Michael Futerman One West Avenue 10/92 - 10/97 Rochester, NY Fiber Optic Storage DePaul Home for Adults 45 West Main Street 06/84 - 12/96 Mariner Building Rochester, NY Twin Tower Assoc. Ltd. One Commerce Plaza 08/94 - 07/99 Albany, NY Regional Switch/Sales Schedule 6.1(r) Real Property (Continued) CANADA Landlord Property Address Term 100 James Street South 100 James Street South 06/91 - 05/01 Hamilton, Ontario Equipment Space Standard Life Assurance One Toronto Street 01/91 - 12/99 Toronto, Ontario Switch Office Lithwick Corporation 150 Metcalfe Street 05/95 - 03/20 14th Floor Ottawa, Ontario Midland Walwyn Leasing 1 Place Ville Marie 01/93 - 04/02 3625 Montreal, Quebec Montreal Sales Office Oxford Development 5343 Dundas Street 03/94 - 02/04 Etobicoke, Ontario Canadian Headquarters Etobicoke Sales Office Property Trizec Rene Levesque Blvd. 04/91 - 03/96 Montreal, Quebec Montreal Switch Site Waterfront Centre Waterfront Centre 01/93 - 01/98 200 Burrand Street Suite 2070 Vancouver, BC Vancouver Sales Office Waterfront Centre 200 Burrand Street 05/94 - 04/04 Suite 2070 Vancouver, BC Vancouver Switch Site Centre West Properties Calgary Office 05/95 - 04/00 First Executive Centre Suite 2000, Bankers Hall Month to Month 855 2nd Street, S.W. Calgary, Alberta Calgary Office Paragon Executive Centre 326 Broadway Avenue Month to Month 5th Floor Winnepeg, Manitoba Winnepeg Office Schedule 6.1(r): Real Property (Continued) UNITED KINGDOM: Landlord Property Address Term IBM United Kingdom Ltd. 1st, 9th, and 10th Floor 09/93 - 09/03 414 Chiswick High Road Chiswick, London Corporate Office Cromwell Rd. Investments Lower Ground Floor 09/93 - 09/03 114A Cromwell Rd. London Cromwell Rd. Investments Ground Floor 09/93 - 09/03 114A Cromwell Rd. London Midland Bank plc Unit 1.2a Bldg. 8 Exchange Quay Salford, Greater Manchester University of Bath Room HH8/37 09/94 - 09/95 then 3 months rolling Frederick Roger Jenkins 75a Cowley Road 08/94 - 08/97 Oxford Prudential St. Andrews House 09/94 - 09/04 Cambridge University of Liverpool Microwave Dish 08/94 - Midland Bank plc Suites 13a, 13b and 13c 05/95 - 05/05 Building 5 Exchange Quay Manchester Schedule 6.1(t): Debt and Contingent Obligations As of January 8, 1997 U.S. (U.S. Dollars) Bank Amount First Union National Bank $35,000,000.00 Credit Facility (will be of North Carolina replaced by $100,000,000.00 Credit Facility) ACC CORP. AND SUBSIDIARIES Letters of Credit 11/30/96 First Union National Bank (U.S. $'s) CANADA Coopers and Lybrand, Ltd. $ 105,480 CANADA Properties Trizec Ltd. $ 26,018 CANADA Royal Bank of Canada $ 727,000 CANADA Waterfront Centre Leasehold $ 12,415 Total for Canada $ 870,913 US Associated Communications $ 30,000 US AT&T Credit Corp. $ 255,000 US Marine Midland Bank $1,000,000 US New York Telephone Company $ 40,000 US Standard Life Assurance Co. $ 82,000 US State University of New York $ 50,000 US Texas Commerce Bank National $ 107,000 US USL Capital Corporation $ 400,000 US USL Capital Corporation $ 353,886 Total for US $2,317,886 Grand Total $3,188,799 ACC Corp. & Subsidiaries Maturities of Long Term Debt November 30, 1996 Monthly Company Note Rate Payment Term 1996 1997 1998 1999 2000 2001 Totals ACC Corp NEC 10.42% 16,478 9/99 12,280 155,954 173,007 142,060 483,301 NEC 8.00% 468 2/98 424 5,309 927 6,660 NEC 8.00% 4,236 2/98 3,834 48,053 8,388 60,275 MFP 10.00% 22,950 12/96 22,760 22,760 MFP 10.00% 9,639 11/97 8,729 100,932 109,661 F.MacArthur 10.00% 1,725 8/97 1,483 12,318 13,801 Romax 13.00% 17,178 4/00 10,786 138,964 158,235 180,179 99,254 587,418 AT&T 12.20% 9,686 4/98 8,270 105,883 28,491 142,644 Meridian 10.13% 8,344 5/00 5,892 74,748 82,760 91,632 32,677 287,709 DSC/Sanwa 10.00% 64,255 12/98 43,716 533,900 611,901 55,100 1,264,617 Total 154,959 118,174 1,196,061 1,063,709 468,971 131,931 2,978,846 ACC Global Sprint-IRU #1 11.63% 10,969 9/97 111,569 111,569 Sprint-IRU #2 1.16% 4,219 9/97 42,909 42,909 Sprint-IRU #3 11.63% 9,342 9/98 149,464 99,643 249,107 Sprint-IRU #4 1.16% 3,737 9/98 59,784 39,856 99,640 Sprint-IRU #5 11.63% 37,366 4/99 597,856 597,856 149,464 1,345,176 Sprint-IRU #6 1.16% 18,683 4/99 298,928 298,928 74,732 672,588 Total 84,315 1,260,510 1,036,283 224,196 2,520,989 ACC National Pics Plus #1 15.00% 200 1/98 334 2,185 197 2,716 Telecom Corp. Pics Plus #2 15.00% 250 2/98 412 2,697 490 3,599 Pics Plus #3 15.00% 209 3/98 341 2,231 612 3,184 Pics Plus #4 15.00% 239 4/98 384 2,515 925 3,824 Pics Plus #5 15.00% 345 4/98 556 3,595 1,339 5,490 Pics Plus #6 15.00% 254 4/98 409 2,679 985 4,073 Pics Plus #7 15.00% 322 4/98 518 3,397 1,250 5,165 Pics Plus #8 15.00% 287 4/98 462 3,026 1,113 4,601 Pics Plus #9 15.00% 250 6/98 393 2,574 1,438 4,405 Pics Plus #10 15.00% 705 6/98 1,106 7,245 4,048 12,399 Pics Plus #11 15.00% 1,601 6/98 2,513 16,460 9,197 28,170 Pics Plus #12 15.00% 252 7/98 391 2,562 1,680 4,633 Pics Plus #13 15.00% 258 8/98 395 2,591 1,954 4,940 Pics Plus #14 15.00% 449 8/98 687 4,501 3,396 8,584 Total 5,621 8,900 58,258 28,624 95,782 ACC UK BMW 525i 21.49% 696 12/96 7,130 9,681 16,811 BMW 320i 20.00% 448 10/96 11,350 11,350 IBM 10.80% 6,069 8/97 85,068 69,788 154,856 Pallas 11.70% 1,520 2/00 15,984 17,857 19,950 22,288 5,969 82,048 Ericcson 11.11% 6/00 295,987 458,523 649,380 725,170 393,815 2,522,875 Total (GBP) 8,732 415,519 555,849 669,330 747,458 399,784 2,787,940 Total (US $) 14,600 1.6720 694,748 929,380 1,119,119 1,249,749 668,439 4,661,435 ACC LD LTD. DSM Leasing 10.00% 36,442 8/97 291,533 291,533 GE Capital #2 5.82% 1,211 10/97 12,106 12,106 Gould Lease1 4.57% 1,259 6/97 7,552 7,552 Equilease #1 15.36% 1,635 4/99 19,626 19,626 6,542 45,794 Equilease #2 15.50% 852 4/99 10,228 10,228 3,409 23,866 Commcorp Leasing 16.95% 663 6/99 7,955 7,955 3,978 19,888 Xerox-Copier 13.76% 194 3/01 2,333 2,333 2,333 2,333 583 9,914 Xerox- Facsimile 16.58% 110 11/00 1,325 1,325 1,325 1,215 5,191 SAC UofT N/A 15,875 6/98 15,875 6,875 22,750 Total (CND $) 58,242 - 368,533 48,342 17,587 3,548 583 438,594 Total (US $) 43,286 0.74322 - 273,901 35,929 13,071 2,637 433 325,972 Grand Total (US $) $ 302,781 $821,822 $3,718,111 $3,283,664$1,955,987 $803,006 $433 $10,583,024
Schedule 6.1(u): Litigation NONE Schedule 6.1(v): Communications Licenses and Regulatory Approvals ACC Corp. - None ACC Global Corp. - Refer to Attachment ACC Long Distance Corp. - Refer to Attachment ACC Long Distance of Connecticut Corp. - Refer to Attachment ACC Long Distance of Georgia Corp. - Refer to Attachment ACC Long Distance of Illinois Corp. - Refer to Attachment ACC Long Distance of Maine Corp. - Refer to Attachment ACC Long Distance of New Hampshire Corp. - Refer to Attachment ACC Long Distance of Pennsylvania Corp. - Refer to Attachment ACC Long Distance of Rhode Island Cor. - Refer to Attachment ACC Long Distance of Vermont Corp. - Refer to Attachment ACC Long Distance U.K., Ltd. - None ACC National Long Distance Corp. - Refer to Attachment ACC Radio Corp. - None ACC Long Distance Inc. - None ACC TelEnterprises, Ltd. - None Metrowide Communications Inc. - None Schedule 6.1(v): Communications Licenses and Regulatory Approvals (Continued) ACC GLOBAL CORP. LICENSES AND AUTHORIZATION GEOGRAPHIC TYPE OF SERVICE AUTHORIZED EXPIRATION LOCATION DATE International FCC Section 214 Certification and FCC Tariff 1+, 800, WATS, OS International Yes None Schedule 6.1(v): Communications Licenses and Regulatory Approvals (Continued) LICENSES AND AUTHORIZATION COMPANY GEOGRAPHIC TYPE OF SERVICE AUTHORIZED EXPIRATION LOCATION DATE Intrastate Interstate International Certification, FCC Section Registration or 214 Certif. and Unregulated FCC Tariff FCC Tariff 1+, 800, WATS 1+, 800, 1+, 800, WATS, WATS, OS OS ACC Long Distance Corp. New York Yes Yes Yes None ACC Long Distance of Connecticut Yes Yes Yes None Connecticut Corp. ACC Long Distance of Georgia Yes Yes Yes None Georgia Corp. ACC Long Distance of Illinois Yes Yes Yes None Illinois Corp. ACC Long Distance of Maine Yes Yes Yes None Maine Corp. ACC Long Distance of New Hampshire Yes Yes Yes None New Hampshire ACC Long Distance of Pennsylvania Corp. Pennsylvania Yes Yes Yes None ACC Long Distance of Rhode Island Yes Yes Yes None Rhode Island Corp. ACC Long Distance of Vermont Yes Yes Yes None Vermont Corp. ACC National Long Refer to Attachment Distance Corp.
Schedule 6.1(v): Communications Licenses and Regulatory Approvals (Continued) ACC NATIONAL LONG DISTANCE CORP. LICENSES AND AUTHORIZATION GEOGRAPHIC TYPE OF SERVICE AUTHORIZED EXPIRATION LOCATION DATE Intrastate Interstate International Certification, FCC Section 214 Registration or Certification and Unregulated FCC Tariff FCC Tariff 1+, 800, WATS 1+, 800, WATS, OS 1+, 800, WATS, OS Alabama Yes Yes Yes None Arizona Yes Yes Yes None Arkansas Yes Yes Yes None California Yes Yes Yes None Colorado Yes Yes Yes None Delaware Yes Yes Yes None Florida Yes Yes Yes None Idaho Yes Yes Yes None Indiana Yes Yes Yes None Iowa Yes Yes Yes None Kansas Yes Yes Yes None Louisiana Yes Yes Yes None Maryland Yes Yes Yes None Michigan Yes Yes Yes None Minnesota Yes Yes Yes None Mississippi Yes Yes Yes None Missouri Yes Yes Yes None Montana Yes Yes Yes None Nebraska Yes Yes Yes None Nevada Yes Yes Yes None New Jersey Yes Yes Yes None New Mexico Yes Yes Yes None North Carolina Yes Yes Yes None North Dakota Yes Yes Yes None Oklahoma Yes Yes Yes None Oregon Yes Yes Yes None South Carolina Yes Yes Yes None South Dakota Yes Yes Yes None Texas Yes Yes Yes None Utah Yes Yes Yes None Virginia Yes Yes Yes None Washington Yes Yes Yes None West Virginia Yes Yes Yes None Wisconsin Yes Yes Yes None Wyoming Yes Yes Yes None
Schedule 10.3: Existing Liens Schedule 10.4: Existing Loans, Advances and Investments U.S. (U.S. Dollars): Borrower Loan Amount Due Date Mintel (Mark Miller) $103,888.33 Line of Credit Arunas A. Chesonis 45,480.71 March 31, 1997 Arunas A. Chesonis 1,622.26 April 11, 1993 Arunas A. Chesonis 8,205.14 September 25, 1992 Christopher Bantoft 325,000.00 March 31, 1997 $484,196.44 Canadian (Canadian Dollars): Borrower Loan Amount Due Date 1002390 Ontario Inc. $24,988.50 Seneca College 9,997.59 December 31, 1996 Thomas W. Murphy 3,408.91 December 31, 1996 Keith Taylor 1,678.42 December 31, 1996 Chuck D'Ruiter 815.93 December 31, 1996 Last Minute Club 1,559.40 December 31, 1996 Sales Rep. Advances 5,250.00 December 31, 1996 $47,698.75 EX-10 3 Exhibit 10-20 COUNTY OF MONROE MODIFICATION TO LEASEHOLD MORTGAGE NEW YORK This instrument was prepared by and when recorded please return to: Michael L. Flynn, Esq. Kennedy Covington Lobdell & Hickman, L.L.P. Suite 4200 100 North Tryon Street Charlotte, NC 28202-4006 This MODIFICATION TO LEASEHOLD MORTGAGE (this "Modification") is made and entered into as of this 14th day of January, 1997, between ACC Corp, a Delaware corporation ("Mortgagor"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("First Union"), as Administrative Agent ("Mortgagee"), for the financial institutions (the "Lenders") as are, or may from time to time become, parties to the Amended and Restated Credit Agreement (as defined below). STATEMENT OF PURPOSE The Mortgagor executed and delivered to the Mortgagee a Leasehold Mortgage dated as of July 21, 1995 and recorded in Deed Book 1260, Page 368, in the Monroe County, New York registry (as amended, restated or otherwise modified, the "Leasehold Mortgage"). The Mortgagor and certain affiliates thereof, as borrowers, the lenders party thereto (the "Original Lenders"), and First Union as administrative agent, entered into a Credit Agreement dated as of July 21, 1995 (as amended, the "Original Credit Agreement") for the principal sum of up to Thirty-Five Million Dollars ($35,000,000), as evidenced by certain promissory notes dated such date executed by the Mortgagor and such affiliates in favor of the Original Lenders, and such other documents as may have been executed or given by Mortgagor and such affiliates in connection with the transactions contemplated by such Original Credit Agreement. The Mortgagor and certain Affiliates thereof, as Borrowers, the Lenders, and First Union, as Administrative Agent, have modified such Credit Agreement by executing an Amended and Restated Credit Agreement of even date (as further amended, restated or otherwise modified, the "Amended and Restated Credit Agreement"), providing for Extensions of Credit of up to One Hundred Million Dollars ($100,000,000) and the other modifications set forth therein. The Mortgagor, such Affiliates thereof, the Mortgagee and the Lenders desire by this instrument to modify the Leasehold Mortgage to reflect that the Original Credit Agreement has been amended and restated in its entirety by such Amended and Restated Credit Agreement. In furtherance thereof, the Mortgagor and the Mortgagee have agreed to the following amendment of the Leasehold Mortgage: MODIFICATION AGREEMENT 1. Modification. (a) Each reference in the Leasehold Mortgage to the "Credit Agreement" shall hereby be deemed to be a reference to the Amended and Restated Credit Agreement. (b) The phrase "Thirty-Five Million Dollars ($35,000,000)" appearing in the second paragraph on the first page of the Leasehold Mortgage is hereby deleted and is replaced by the phrase "One Hundred Million Dollars ($100,000,000)". (c) The phrase "Section 13.1" appearing in paragraph [11] of the Leasehold Mortgage is hereby deleted and is replaced by the phrase "Section 14.1". 2. Reaffirmation of Terms of Leasehold Mortgage. The Mortgagor hereby ratifies and reaffirms to the Mortgagee that (i) each of the representations, warranties, covenants, and agreements set forth in the Leasehold Mortgage shall apply to the Mortgagor with the same force and effect as if each were separately stated herein and made as of the date of this Modification by the Mortgagor, (ii) each of the Leasehold Mortgage and every other document and instrument which evidences or secures payment of the Amended and Restated Credit Agreement, represents the valid, enforceable and collectible obligations of the Mortgagor and the Mortgagor specifically acknowledges that validity and enforceability of all the terms and provisions contained in such document or instrument and (iii) no Default or Event of Default has occurred and is continuing. 2. No Other Modifications. Except as expressly modified herein, all provisions, terms and conditions contained in the Leasehold Mortgage shall remain in full force and effect as originally executed and delivered. 3. No Novation. The execution and delivery of this Modification shall not constitute a modification or novation of the lien and encumbrance of the Leasehold Mortgage, which lien and encumbrance shall retain its first priority position as originally filed for record in the Monroe County Clerk's Office. 4. Binding Nature. This Modification shall be binding upon and shall inure to the benefit of the Mortgagor, the Mortgagee, and their respective heirs, legal representatives, successors and assigns. 5. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Amended and Restated Credit Agreement. 6. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the undersigned, by authority duly given, have caused this Modification to be executed under seal, delivered, and effective as of the day and year first written above. ACC CORP. By: /s/ John J. Zimmer [CORPORATE SEAL] Name: John J. Zimmer Title: Vice President - Finance ATTEST: /s/ Daniel J. Venuti Name: Daniel J. Venuti Title: Assistant Secretary MORTGAGEE: FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Administrative Agent By: /s/ Jim Redman By: [CORPORATE SEAL] Name: Jim Redman Title:Senior Vice President STATE OF NORTH CAROLINA) ) COUNTY OF MECKLENBURG ) I, Betty G. Smith, a Notary Public of the county and state aforesaid, certify that Daniel J. Venuti personally came before me this day and acknowledged that he is Assistant Secretary of ACC Corp., a Delaware corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Vice President - Finance, sealed with its corporate seal and attested by himself as its Assistant Secretary. WITNESS my hand and official stamp, this 14th day of January, 1997. /s/ Betty G. Smith Notary Public My commission expires: August 5, 1997 STATE OF NORTH CAROLINA) ) COUNTY OF MECKLENBURG ) This 14th day of January, 1997, personally came before me Jim F. Redman, who, being by me duly sworn, says that he is Senior Vice President of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, that the seal affixed to the foregoing instrument in writing is the corporate seal of said Corporation, and that said writing was signed and sealed by him, in behalf of said Corporation, by its authority duly given. And the said Senior Vice President acknowledged the said writing to be the act and deed of said Corporation. /s/ Betty G. Smith NOTARY PUBLIC [NOTARIAL SEAL] My Commission Expires: August 5, 1997 EX-10 4 Exhibit 10-22 COUNTY OF ONONDAGA MODIFICATION TO LEASEHOLD MORTGAGE NEW YORK This instrument was prepared by and when recorded please return to: Michael L. Flynn, Esq. Kennedy Covington Lobdell & Hickman, L.L.P. Suite 4200 100 North Tryon Street Charlotte, NC 28202-4006 This MODIFICATION TO LEASEHOLD MORTGAGE (this "Modification") is made and entered into as of this 14th day of January, 1997, between ACC Corp, a Delaware corporation ("Mortgagor"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("First Union"), as Administrative Agent ("Mortgagee"), for the financial institutions (the "Lenders") as are, or may from time to time become, parties to the Amended and Restated Credit Agreement (as defined below). STATEMENT OF PURPOSE The Mortgagor executed and delivered to the Mortgagee a Leasehold Mortgage dated as of July 21, 1995 and recorded in Deed Book 8181, Page 0138, in the Onondaga County, New York registry (as amended, restated or otherwise modified, the "Leasehold Mortgage"). The Mortgagor and certain affiliates thereof, as borrowers, the lenders party thereto (the "Original Lenders"), and First Union as administrative agent, entered into a Credit Agreement dated as of July 21, 1995 (as amended, the "Original Credit Agreement") for the principal sum of up to Thirty-Five Million Dollars ($35,000,000), as evidenced by certain promissory notes dated such date executed by the Mortgagor and such affiliates in favor of the Original Lenders, and such other documents as may have been executed or given by Mortgagor and such affiliates in connection with the transactions contemplated by such Original Credit Agreement. The Mortgagor and certain Affiliates thereof, as Borrowers, the Lenders, and First Union, as Administrative Agent, have modified such Credit Agreement by executing an Amended and Restated Credit Agreement of even date (as further amended, restated or otherwise modified, the "Amended and Restated Credit Agreement"), providing for Extensions of Credit of up to One Hundred Million Dollars ($100,000,000) and the other modifications set forth therein. The Mortgagor, such Affiliates thereof, the Mortgagee and the Lenders desire by this instrument to modify the Leasehold Mortgage to reflect that the Original Credit Agreement has been amended and restated in its entirety by such Amended and Restated Credit Agreement. In furtherance thereof, the Mortgagor and the Mortgagee have agreed to the following amendment of the Leasehold Mortgage: MODIFICATION AGREEMENT 1. Modification. (a) Each reference in the Leasehold Mortgage to the "Credit Agreement" shall hereby be deemed to be a reference to the Amended and Restated Credit Agreement. (b) The phrase "Thirty-Five Million Dollars ($35,000,000)" appearing in the second paragraph on the first page of the Leasehold Mortgage is hereby deleted and is replaced by the phrase "One Hundred Million Dollars ($100,000,000)". (c) The phrase "Section 13.1" appearing in paragraph [11] of the Leasehold Mortgage is hereby deleted and is replaced by the phrase "Section 14.1". 2. Reaffirmation of Terms of Leasehold Mortgage. The Mortgagor hereby ratifies and reaffirms to the Mortgagee that (i) each of the representations, warranties, covenants, and agreements set forth in the Leasehold Mortgage shall apply to the Mortgagor with the same force and effect as if each were separately stated herein and made as of the date of this Modification by the Mortgagor, (ii) each of the Leasehold Mortgage and every other document and instrument which evidences or secures payment of the Amended and Restated Credit Agreement, represents the valid, enforceable and collectible obligations of the Mortgagor and the Mortgagor specifically acknowledges that validity and enforceability of all the terms and provisions contained in such document or instrument and (iii) no Default or Event of Default has occurred and is continuing. 2. No Other Modifications. Except as expressly modified herein, all provisions, terms and conditions contained in the Leasehold Mortgage shall remain in full force and effect as originally executed and delivered. 3. No Novation. The execution and delivery of this Modification shall not constitute a modification or novation of the lien and encumbrance of the Leasehold Mortgage, which lien and encumbrance shall retain its first priority position as originally filed for record in Onondaga County. 4. Binding Nature. This Modification shall be binding upon and shall inure to the benefit of the Mortgagor, the Mortgagee, and their respective heirs, legal representatives, successors and assigns. 5. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Amended and Restated Credit Agreement. 6. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the undersigned, by authority duly given, have caused this Modification to be executed under seal, delivered, and effective as of the day and year first written above. MORTGAGOR: ACC CORP. By: /s/ John J. Zimmer [CORPORATE SEAL] Name: John J. Zimmer Title: Vice President ATTEST: /s/ Daniel J. Venuti Name: Daniel J. Venuti Title: Assistant Secretary MORTGAGEE: FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Administrative Agent By: /s/ Jim Redman Name: Jim Redman Title:Senior Vice President [CORPORATE SEAL] STATE OF NORTH CAROLINA) COUNTY OF MECKLENBURG ) I, BETTY G. SMITH, a Notary Public of the county and state aforesaid, certify that DANIEL J. VENUTI personally came before me this day and acknowledged that he is Assistant Secretary of ACC Corp., a Delaware corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Vice President, sealed with its corporate seal and attested by himself as its Assistant Secretary. WITNESS my hand and official stamp, this 14th day of January, 1997. /s/ Betty G. Smith NOTARY PUBLIC My commission expires: August 5, 1997 STATE OF NORTH CAROLINA) COUNTY OF MECKLENBURG ) This 14th day of January, 1997, personally came before me JIM F. REDMAN, who, being by me duly sworn, says that he is Senior Vice President of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, that the seal affixed to the foregoing instrument in writing is the corporate seal of said Corporation, and that said writing was signed and sealed by him, in behalf of said Corporation, by its authority duly given. And the said Senior Vice President acknowledged the said writing to be the act and deed of said Corporation. /s/ Betty G. Smith NOTARY PUBLIC [NOTARIAL SEAL] My Commission Expires: August 5, 1997 EX-10 5 Exhibit 10-24 COUNTY OF ONONDAGA MODIFICATION TO LEASEHOLD MORTGAGE NEW YORK This instrument was prepared by and when recorded please return to: Michael L. Flynn, Esq. Kennedy Covington Lobdell & Hickman, L.L.P. Suite 4200 100 North Tryon Street Charlotte, NC 28202-4006 This MODIFICATION TO LEASEHOLD MORTGAGE (this "Modification") is made and entered into as of this 14th day of January, 1997, between ACC Corp, a Delaware corporation ("Mortgagor"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("First Union"), as Administrative Agent ("Mortgagee"), for the financial institutions (the "Lenders") as are, or may from time to time become, parties to the Amended and Restated Credit Agreement (as defined below). STATEMENT OF PURPOSE The Mortgagor executed and delivered to the Mortgagee a Leasehold Mortgage dated as of July 21, 1995 and recorded in Deed Book 8181, Page 0138, in the Onondaga County, New York registry (as amended, restated or otherwise modified, the "Leasehold Mortgage"). The Mortgagor and certain affiliates thereof, as borrowers, the lenders party thereto (the "Original Lenders"), and First Union as administrative agent, entered into a Credit Agreement dated as of July 21, 1995 (as amended, the "Original Credit Agreement") for the principal sum of up to Thirty-Five Million Dollars ($35,000,000), as evidenced by certain promissory notes dated such date executed by the Mortgagor and such affiliates in favor of the Original Lenders, and such other documents as may have been executed or given by Mortgagor and such affiliates in connection with the transactions contemplated by such Original Credit Agreement. The Mortgagor and certain Affiliates thereof, as Borrowers, the Lenders, and First Union, as Administrative Agent, have modified such Credit Agreement by executing an Amended and Restated Credit Agreement of even date (as further amended, restated or otherwise modified, the "Amended and Restated Credit Agreement"), providing for Extensions of Credit of up to One Hundred Million Dollars ($100,000,000) and the other modifications set forth therein. The Mortgagor, such Affiliates thereof, the Mortgagee and the Lenders desire by this instrument to modify the Leasehold Mortgage to reflect that the Original Credit Agreement has been amended and restated in its entirety by such Amended and Restated Credit Agreement. In furtherance thereof, the Mortgagor and the Mortgagee have agreed to the following amendment of the Leasehold Mortgage: MODIFICATION AGREEMENT 1. Modification. (a) Each reference in the Leasehold Mortgage to the "Credit Agreement" shall hereby be deemed to be a reference to the Amended and Restated Credit Agreement. (b) The phrase "Thirty-Five Million Dollars ($35,000,000)" appearing in the second paragraph on the first page of the Leasehold Mortgage is hereby deleted and is replaced by the phrase "One Hundred Million Dollars ($100,000,000)". (c) The phrase "Section 13.1" appearing in paragraph [11] of the Leasehold Mortgage is hereby deleted and is replaced by the phrase "Section 14.1". 2. Reaffirmation of Terms of Leasehold Mortgage. The Mortgagor hereby ratifies and reaffirms to the Mortgagee that (i) each of the representations, warranties, covenants, and agreements set forth in the Leasehold Mortgage shall apply to the Mortgagor with the same force and effect as if each were separately stated herein and made as of the date of this Modification by the Mortgagor, (ii) each of the Leasehold Mortgage and every other document and instrument which evidences or secures payment of the Amended and Restated Credit Agreement, represents the valid, enforceable and collectible obligations of the Mortgagor and the Mortgagor specifically acknowledges that validity and enforceability of all the terms and provisions contained in such document or instrument and (iii) no Default or Event of Default has occurred and is continuing. 2. No Other Modifications. Except as expressly modified herein, all provisions, terms and conditions contained in the Leasehold Mortgage shall remain in full force and effect as originally executed and delivered. 3. No Novation. The execution and delivery of this Modification shall not constitute a modification or novation of the lien and encumbrance of the Leasehold Mortgage, which lien and encumbrance shall retain its first priority position as originally filed for record in Onondaga County. 4. Binding Nature. This Modification shall be binding upon and shall inure to the benefit of the Mortgagor, the Mortgagee, and their respective heirs, legal representatives, successors and assigns. 5. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Amended and Restated Credit Agreement. 6. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the undersigned, by authority duly given, have caused this Modification to be executed under seal, delivered, and effective as of the day and year first written above. MORTGAGOR: ACC CORP. By: /s/ John J. Zimmer [CORPORATE SEAL] Name: John J. Zimmer Title: Vice President - Finance ATTEST: /s/ Daniel J. Venuti Name: Daniel J. Venuti Title: Assistant Secretary MORTGAGEE: FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Administrative Agent By: /s/ Jim Redman By: [CORPORATE SEAL] Name: Jim Redman Title:Senior Vice President STATE OF NORTH CAROLINA) ) COUNTY OF MECKLENBURG ) I, Betty G. Smith, a Notary Public of the county and state aforesaid, certify that Daniel J. Venuti personally came before me this day and acknowledged that he is Assistant Secretary of ACC Corp., a Delaware corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Vice President - Finance, sealed with its corporate seal and attested by himself as its Assistant Secretary. WITNESS my hand and official stamp, this 14th day of January, 1997. /s/ Betty G. Smith Notary Public My commission expires: August 5, 1997 STATE OF NORTH CAROLINA) ) COUNTY OF MECKLENBURG ) This 14th day of January, 1997, personally came before me JIM F. REDMAN, who, being by me duly sworn, says that he is Senior Vice President of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, that the seal affixed to the foregoing instrument in writing is the corporate seal of said Corporation, and that said writing was signed and sealed by him, in behalf of said Corporation, by its authority duly given. And the said Senior Vice President acknowledged the said writing to be the act and deed of said Corporation. /s/ Betty G. Smith NOTARY PUBLIC [NOTARIAL SEAL] My Commission Expires: August 5, 1997 EX-10 6 Seal of DOCUMENT GENERAL Exhibit 10-25 D Province of Ontario Form 4 -- Land Registration Reform Act 1984
F (1)Registry / / Land Titles /x/ (2) Page 1 of 12 pages O ------------------------------- ------------------------------------- --------------------------- R (3) Property Block Property Identifier(s) Additional: O See F Schedule / / F ------------------------------ ------------------------------------- --------------------------- I (4) Nature of Document C NOTICE OF CHARGE OF LEASE (Subsection 111(6) of the Act) E ------------------------------- ------------------------------------- --------------------------- (5) Consideration U TWO------------100 Dollars $2.00 S ----------------------- -------------------------------- ------------------------------------- --------------------------- E (6) Description O New Property Identifiers Parcel 1-3, Section AD-87 N Additional: City of Toronto L See Municipality of Metropolitan Toronto Y Schedule / / (Continued on Schedule A) ------------------------- ------------------------------- ------------------------------------- --------------------------- Executions (7) This (a) Redescription (b) Schedule for: Additional Document New Easement Additional See Contains: Plan/Sketch // Description /x/ Parties / / Other Schedule / / ------------------------- ------------------------------- ------------------------------------- ---------------------------
(8)This Document provides as follows: To: The Land Registrar for the Land Titles Division of Metropolitan Toronto (No. 66) The undersigned, ACC TelEnterprises Ltd./TelEntreprises ACC Ltee. hereby applies for the entry of a notice of a charge of lease dated January 14, 1997 wherein ACC TelEnterprises Ltd./TelEntreprises ACC Ltee. charged to First Union National Bank of North Carolina, as Agent its interest in the leases of which notice is registered as No. C959862 and No. , in respect of part of the lands and premises registered as Parcel 1-3, Section AD-87 (more particularly described in Box (6) hereof of which 945169 Ontario Limited is the registered owner of a 1/3 interest and Royal Trust Corporation of Canada, as trustee, is the registerd owner of a 2/3 interest. Continued on Schedule /x/ - --------------------------------------------------------------------------- (9) This Document relates to instrument number(s) Nos. C959862 and - --------------------------------------------------------------------------- 10)Party(ies) (Set out Status or Interest)
Name(s) Signature(s) Date of Signature Y M D ACC TELENTERPRISES LTD/TELENTREPRISES ACC Per: /s/ John J. Zimmer 1997 1 8 LTEE. (Tenant) (Chargor) Name: John J. Zimmer Title: Assistant Controller We have authority to bind the Corporation Per: /s/ Daniel J. Venuti 1997 1 8 Name: Daniel J. Venuti Title: Authorized Signatory
- ----------------------------------------------------------------------------- (11) Address for Service 5343 Dundas Street West, Suite 600, Etobicoke, Ontario M9B 6K5 - ------------------------------------------------------------------------------ (12) Party(ies) (Set out Status or Interest) Name(s) Signature(s) Date of Signature Y M D FIRST UNION NATIONAL BANK OF NORTH CAROLINA AS AGENT (Chargee) - ------------------------------------------------------------------------------ (13) Address for Service 1 First Union Center, TW10, 301 S. College Street, Charlotte, North Carolina 28288 - ------------------------------------------------------------------------------
(14) Municipal Address of Property (15)Document Prepared by: F Fees and Tax O ---------------------------------------- One Toronto Street Fraser & Beatty R Toronto, Ontario P.O. Box 100 Registration Fee 1 First Canadian Place O ---------------------- ---------------- Toronto, Ontario F M5X 1B2 F (MJW) I ---------------------- ---------------- C E U ---------------------- ---------------- S E O N L Total Y ---------------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------------
SCHEDULE BOX 6 -DESCRIPTION CON'T . . . Parcel 1-3, Section AD-87, City of Toronto, Municipality of Metropolitan Toronto, being parts of Lots 1, 2, 3, 4 and 5 on the south side of Court Street, part of Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 on the north side of King Street East, part of the Court House Lot, part of the Home District Gaol Lot all on Plan D-87 (City of Toronto) designated as PARTS 6, 7, 8, 9, 15, 16, 17, 18, 19, 20, 21, 22, 25, 31, 32, 33, 34, 35, 36, 37, 40, 41, 43, 44, 45, 46, 47, 48, 52, 55, 56, 57, 58, 61, 62, 64, and 65 on Plan 66R-16018. Plan BA-2190 on a Plan under the Boundaries Act as Plan D-857 confirms the boundaries of the street limits of King Street East, Church Street, Court Street and Toronto Street (See C- 194337). As in Instrument No. C-898674. Seal of CHARGE/MORTGAGE OF LAND B Province of Ontario Form 2 -- Land Registration Reform Act, 1984
F (1)Registry / / Land Titles /x/ (2) Page 3 of 12 pages O --------------------------------- ----------------------------------- ------------- R (3) Property Block Property Identifiers Additional O See F - Schedule / / F --------------------------------- ---------------------------------- -------------- I (4) Principal Amount C FIFTY MILLION---------00/100 Dollars ($50,000,000.00) E ------------------------------------------------------------------------------------ U New Property Identifiers (5) Description S Additional: E See Parcel 1-3, Section AD-87 Schedule / / City of Toronto, O ------------------------------------- Municipality of Metropolitan Toronto, N Executions Land Titles Division of Metropolitan Toronto (No.66) L Additional: (Continued on Schedule A attached) Y See Schedule / / -------------------------------------- ----------------------------------------------------------------------------------- (6) This (a) Redescription (b) Schedule for: (7) Interest/Estate Charge Document New Easement Contains Plan/Sketch / / Additional ---------e Description / / Parties / / Other /x/ LEASEHOLD INTEREST -------------------------------------- ------------------------------------------------------------------------------------
(8) Standard Charge Terms -- The parties agree to be bound by the provisions in Standard Charge Terms filed as number 911 and the Chargor(s) hereby acknowledge(s) receipt of a copy of these terms - ------------------------------------------------------------------------------
(9) Payment Provisions (b) Interest Rate (c) Calculation Period (a) Principal % per annum Amount $ SEE SCHEDULE ------------------------------------------- --------------------------------------------------------------------------------- Interest Y M D Payment First Y M D (d) Adjustment (e) Date and (f) Payment Date Period Date ------------------------------------------ --------------------------------------------------------------------------------- Last Amount (g) Payment (h) of Each Date Payment Dollars $ ----------------------------------------- --------------------------------------------------------------------------------- Balance (j) Insurance Dollars $ (i) Due Date ----------------------------------------- ---------------------------------------------------------------------------- 10) Additional Provisions SEE SCHEDULE Continued on Schedule /x/ ------------------------------------------ ---------------------------------------------------------------------------------
(11) Chargor(s) The chargor hereby charges the land to the chargee and certifies that the chargor is at least eighteen years old and that the Chargor is a corporation
(S> The chargor(s) acknowledge(s) receipt of a true copy of this charge Name(s) Signature(s) Date of Signature Y M D ACC TELENTERPRISES LTD./TELENTREPRISES ACC LTEE. Per: /s/ John J. Zimmer 1997 1 8 Name: John J. Zimmer Title: Assistant Controller I/We have authority to bind the Corporation. Per: /s/ Daniel J. Venuti 1997 1 8 Name: Daniel J. Venuti Title: Authorized Signatory - ------------------------------------------------------------------------- ------------------------------ --------------------- (12) Spouse(s) of Chargor(s) I hereby consent to this transaction Name(s) Signature(s) Date of Signature Y M D - ------------------------------------------------------------------------- ------------------------------ -------------------- (13)Chargor(s) Address for Service Suite 600, 5343 Dundas Street West, Etobicoke, Ontario, M9B 6K5 - ------------------------------------------------------------------------- ------------------------------ -------------------- (14) Chargee(s) FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS AGENT - ------------------------------------------------------------------------- ------------------------------ -------------------- (15) Chargee(s) Address for service One First Union Center, TW 10, 301 S. College Street, Charlotte, North Carolina 28288 - ------------------------------------------------------------------------- ----------------------------- ------------------- (16)Assessment Roll Number of Property Cty Mun Map Sub Par - ------------------------------------------------------------------------- ----------------------------- ------------------- (17) Municipal Address of Property (18) Document Prepared by: F Fees and Tax O ------------------------- One Toronto Street Michael J. Wunder R Toronto, Ontario Fraser & Beatty Registration Fee 1 First Canadian Place O P.O. Box 100 F ------------------- ---- Toronto, Ontario M5X 1B2 F I C E ------------------ ---- U S E ------------------ ---- O N Total L Y - ------------------------------------------------------------------------ ------------------------------ ------------------
MORTGAGE OF LEASEHOLD INTEREST This agreement made as of the 14th day of January, 1997. BETWEEN: ACC TELENTERPRISES LTD./TELENTREPRISES ACC LTEE., a corporation amalgamated under the laws of the Province of Ontario OF THE FIRST PART -and- FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS AGENT OF THE SECOND PART WHEREAS ACC Long Distance Ltd./Interurbains ACC Ltee. ("ACC Ltd.") entered into a lease dated as of November 1, 1990 between ACC Ltd., as tenant, and King-Toronto Development Inc. as landlord (the "Original Lease") (945169 Ontario Limited, as to a one-third interest, and Royal Trust Corporation of Canada, as trustee for The Standard Life Assurance Company), as to a two-thirds interest, has subsequently become the landlord under the Lease), relating to leased premises on the lands and premises known as 1 Toronto Street, 70 King Street East and 92 King Street East, Toronto, Ontario and more particularly described in Schedule "A" hereto (which leased premises are hereinafter referred to as the "Lands"); AND WHEREAS ACC Ltd. amalgamated with ACC Long Distance Inc./Interurbains ACC Inc., ACC Network Ltd. and 1154653 Ontario Inc. on December 31, 1995 and continued as ACC Long Distance Inc./Interurbains ACC Inc. ("ACC Inc."); AND WHEREAS ACC Inc. entered into a lease of additional space with the landlord dated October 10, 1996 (the "New Lease") (the Original Lease and the New Lease, as the same may be hereafter amended, extended or replaced from time to time are hereinafter collectively called the "Lease"); AND WHEREAS ACC Inc. amalgamated with, among others ACC TelEnterprises Ltd./TelEntreprises ACC Ltee. effective January 1, 1997 and continued as ACC TelEnterprises Ltd./TelEntreprises ACC Ltee. (the "Company"); AND WHEREAS the Company has agreed to mortgage, charge and assign all of its right, title and interest in and to and all benefits arising under or in respect of the Lease including without limitation its rights and interests in the aforesaid storage space and the Lands (which rights, title, interests and benefits are hereinafter collectively called the "Leasehold Interest") to the Mortgagee (as that term is hereinafter defined) as security for payment of the Indebtedness; NOW WITNESS that in consideration of the sum of TWO DOLLARS ($2.00) now paid by the Mortgagee to the Company and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by the Company), the Company hereby agrees with the Mortgagee as follows: 1. Subject to the exception as to leasehold hereinafter contained, the Company, as security for repayment of the sum of Fifty Million ($50,000,000 Cdn.) Canadian Dollars and the "Obligations" (as that term is hereinafter defined) of the Company under or pursuant to the certain amended and restated credit agreement dated January 14, 1997 between ACC Corp. and certain subsidiaries thereof (including without limitation the Company), as borrowers, ACC Corp. as guarantor, the lenders referred to therein, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent and Fleet National Bank, as Managing Agent and Documentation Agent (such amended and restated credit agreement as may be amended, supplemented, replaced or restated from time to time being hereinafter called the "Credit Agreement") (the term "Obligations" shall have the same meaning ascribed thereto in -2- the Credit Agreement) (all of the Company's foregoing indebtedness and the Obligations being hereinafter called the "Credit Agreement Indebtedness") together with interest thereon at the rate of twenty-five (25%) percent per annum calculated and payable monthly not in advance, both before and after demand and before and after default, judgment and execution from the date hereof until payment (the Credit Agreement Indebtedness, together with interest thereon as set out above is hereinafter collectively referred to as the "Indebtedness"), hereby mortgages, charges and assigns to First Union National Bank of North Carolina, as Administrative Agent for the benefit of itself and the financial institutions as are, or may from time to time become lenders under the Credit Agreement (the "Mortgagee"), and grants to the Mortgagee a security interest in the Leasehold Interest. TO HAVE AND TO HOLD the assets hereby mortgaged and charged to the Mortgagee, its successors and assigns, forever but subject to the terms and conditions herein set forth. 2. It is hereby declared that the last day of any term of years reserved by any lease, verbal or written, or any agreement therefor (including without limitation the Lease), now held or hereafter acquired by the Company, and whether falling within the general or particular description of the mortgaged premises hereunder or otherwise shall be excepted out of the mortgage and charge constituted hereby or by any other agreement, but the Company shall stand possessed of the reversion of one day remaining in the Company in respect of any such term of years, for the time being demised, as aforesaid, upon trust to assign and dispose of the same as any purchaser of such term of years shall direct. 3. The Company hereby covenants and agrees that it shall at all times, at its own cost and expense, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged or delivered all and singular every such further act, deed, transfer, assignment and assurance as the Mortgagee may reasonably require for the better mortgaging, charging, transferring, assigning and confirming unto the Mortgagee the property and assets hereby mortgaged and charged or intended so to be or which the Company may hereafter become bound to mortgage charge, transfer or assign in favour of the Mortgagee and for the better accomplishing and effectuating of this mortgage. 4. The Mortgagee shall not in any way whatsoever be obligated to perform any covenants or obligations of the Company under the Lease. 5. The Company represents and warrants to the Mortgagee and each Lender (as that term is defined in the Credit Agreement) party to the Credit Agreement that as of the date hereof: (a) the Lease has not been surrendered or forfeited; (b) the rents and covenants therein contained have been duly paid and performed by the Company; (c) the Company has full right, power and authority to mortgage and charge the Lease and the Leasehold Interest as contemplated hereby; and (d) the Company has obtained the consent of the Landlord to the mortgaging and charging of the Lease and the Leasehold Interest (if such consent is required to be obtained from the Landlord). 6. The Company hereby covenants and agrees to and with the Mortgagee and each Lender party to the Credit Agreement that until the Indebtedness has been repaid in full, the Company: (a) shall not without the prior written consent of the Mortgagee create any lien upon or assign or transfer as security or pledge or hypothecate any asset subject to the mortgage and charge hereof except to the Mortgagee and the Company will not, in the ordinary course of business or otherwise, sell, transfer, assign, or otherwise dispose of any such asset without the prior written consent of the Mortgagee; (b) shall not without the prior written consent of the Mortgagee merge or amalgamate with any other corporation; (c) shall insure and keep insured the buildings, erections, fixtures, improvements, premises and all other assets hereby charged against loss or damage by fire and other insurable hazards which such assets are commonly insured against in the Province of Ontario to the full insurable -3- value thereof; the Company shall duly and promptly pay all premiums and other sums of money payable for maintaining such insurance and shall cause all insurance proceeds thereunder to be payable in the case of loss to the Mortgagee as first mortgagee and loss payee such insurance policy(ies) to contain a standard mortgage clause and the Company shall, upon request from the Mortgagee, provide to the Mortgagee evidence of the payment of such premiums and the assignment of such insurance proceeds to the Mortgagee; and (f) shall strictly comply with every covenant and undertaking heretofore or hereafter given by it to the Mortgagee. 7. The Company covenants and agrees to and with the Mortgagee and each Lender party to the Credit Agreement that: (a) it shall at all times fully perform and comply with all of its covenants and obligations contained in the Lease, and imposed upon or assumed or agreed to by it pursuant to any prior encumbrance of the Lands or any part thereof or its Leasehold Interest therein and that, if the Company shall fail to do so the Mortgagee may (but shall not be obligated to) take any action the Mortgagee deems necessary or desirable to cure any default by the Company in the performance of or compliance with any of the obligations of the Company pursuant to the Lease or imposed upon, assumed by or agreed to by the Company pursuant to any such prior encumbrance; upon receipt by the Mortgagee from the Landlord or from any such prior encumbrancer of any written notice of default by the Company, the Mortgagee may rely thereon and take any action as aforesaid to cure such default even though the existence of such default or the nature thereof may be questioned or denied by the Company or by any party on behalf of the Company; the Company hereby expressly grants to the Mortgagee and agrees that the Mortgagee shall have the absolute and immediate right to enter in and upon the Lands or any part thereof to such extent and as often as the Mortgagee, in its sole discretion, deems necessary or desirable, in order to cure any such default by the Company; the Mortgagee may pay and expend such sums of money as the Mortgagee in its sole discretion, acting reasonably, deems necessary or desirable for any such purpose, and the Company hereby agrees to pay to the Mortgagee, immediately upon notification by the Mortgagee and without demand, all such sums so paid and expended by the Mortgagee, together with interest thereon at the rate applicable to the Indebtedness from time to time; all such sums so paid or expended by the Mortgagee and such interest thereon, shall be secured hereby in addition to the Indebtedness and in priority to all other mortgages and charges; (b) it shall not surrender the Lease or any rights of renewal with respect thereto nor terminate nor cancel the Lease without the prior written consent of the Mortgagee and that the Company will not, without the prior written consent of the Mortgagee, modify, revise, alter or amend the Lease, either orally or in writing; (c) no release or forbearance of any of the Company's covenants and obligations contained in the Lease or pursuant to any prior encumbrance of the Leasehold Interest or any part thereof shall release the Company from any of its obligations contained herein; (d) unless the Mortgagee shall otherwise expressly consent in writing, the title in fee simple to the Lands and the Leasehold Interest shall not merge but shall always remain separate and distinct, -4- notwithstanding the union of said estates in either the Landlord or the Company, by purchase or otherwise; (e) if the Company shall, at any time prior to the repayment in full of the Indebtedness, purchase or in any way acquire the freehold title to the Lands, this mortgage and charge shall attach, extend to and constitute a mortgage and charge of such freehold estate; (f) it will indemnify and save harmless the Mortgagee and each Lender party to the Credit Agreement from and against any and all losses, costs, claims, actions, damages and expenses (including without limitation legal fees and disbursements on a solicitor and client basis) incurred or suffered by the Mortgagee and/or any such Lender or its agents or employees as a result of or in connection with the presence, removal, disposal or movement of any hazardous waste or substance on the Lands which is not in compliance with Applicable Law; (g) it will at any time and from time to time, upon request from the Mortgagee, deliver to the Mortgagee a statement in writing certifying that: the Lease is in full force and effect; there are no defaults under the Lease; the Lease has not been modified or amended; all amounts required to be paid by the Company under the Lease have been paid to the date of the certificate; (h) upon the occurrence of a default hereunder, the Mortgagee may peaceably and quietly enter upon and use, occupy, possess and enjoy the Lands and the Leasehold Interest, free from all encumbrances, liens and charges, without hindrance, interruption or denial of the same by the Company or any other person or persons, save only the rights of the Landlord under the Lease; (i) the Company hereby assigns and transfers to the Mortgagee all of the Company's right, title and interest in and to the benefit of any and all non- disturbance, attornment or like agreements to which the Company is now or may hereafter become a party (and the Company covenants and agrees to and with the Mortgagee that the Company shall use its best efforts at its own cost and expense to obtain from all appropriate third parties non-disturbance, attornment or other similar agreements in favour of the Mortgagee in form and substance satisfactory to the Mortgagee); and (j) the Company shall not subordinate or postpone or agree to subordinate or postpone the Leasehold Interest or the Mortgagee's security interests, charges or rights therein, to or in favour of any lien, charge or encumbrance without the prior written consent of the Mortgagee. 8. The Indebtedness shall become payable and the security hereby constituted shall become enforceable in each and every of the events following (each of such events being hereinafter referred to as an "Event of Default"): (a) if an Event of Default (as defined in the Credit Agreement) occurs; (b) if the Company defaults in the observance or performance in any material respect of any of its covenants, agreements or other obligations under this mortgage, provided however that if such default is curable, such default has not been remedied within 30 days after the Secured Party has given notice to the Company to remedy the default; -5- (c) if an order is made or a resolution passed for the winding-up of the Company, or if a petition is filed for the winding-up of the Company; (d) if the Company ceases or threatens to cease to carry on business or if the Company commits or threatens to commit any act of bankruptcy or if the Company becomes insolvent or makes an assignment or proposal in bankruptcy or makes a bulk sale of its assets or if a bankruptcy petition is filed or presented against the Company; (e) if any proceedings with respect to the Company are commenced under the COMPANIES' CREDITORS ARRANGEMENT ACT or the BANKRUPTCY AND INSOLVENCY ACT or if the Company shall seek relief or consent to the filing of a petition against it under any law which involves any compromise of any creditor's rights against the Company; (f) if an execution or any other process of any court becomes enforceable against the Company or if a distress or analogous process is levied upon the property of the Company or any part thereof; or (g) if any licences, permits or approvals required by any law, regulation or governmental policy or any governmental agency or commission for the operation by the Company of its business shall be withdrawn or cancelled. 9. No waiver by the Mortgagee of any of its rights or remedies hereunder shall be considered a waiver of any other or subsequent right or remedy of the Mortgagee, no delay or omission in the exercise or enforcement by the Mortgagee of any right or remedy shall be considered as a waiver of such right or remedy of the Mortgagee and no exercise or enforcement of such right or remedy shall exhaust or preclude the exercise of any other right or remedy by the Mortgagee. 10. Upon the occurrence and during the continuance of an Event of Default the Mortgagee may: (a) take possession of all or part of the Lands and the Leasehold Interest with the power to exclude the Company, its agents and servants therefrom; and (b) enter upon and lease or sell the whole or any part or parts of the property and assets charged hereby and any such sale may be made hereunder by public auction, by public tender or by private contract, with or without notice and with or without advertising and without any other formality, all of which are hereby waived by the Company to the fullest extent permitted by law and such sale shall be on such terms and conditions as to credit or otherwise and as to upset or reserve bid or price as to the Mortgagee in its sole discretion may seem advantageous and such sale may take place whether or not the Mortgagee has taken possession of such property and assets. 11. Upon the occurrence of an Event of Default, the Mortgagee may appoint by instrument in writing a receiver (including a receiver and manager) or receivers of the Leasehold Interest or any part thereof (which receiver or receivers may be any person or persons, whether an officer or officers or employee or employees of the Mortgagee or not and the Mortgagee may remove any receiver or receivers so appointed and appoint another or others in his or their stead) and any receiver or receivers so appointed shall have the power to: (a) take possession of and to use the Leasehold Interest or any part thereof; (b) preserve and maintain the Leasehold Interest as the receiver shall deem advisable; (c) borrow money required for the preservation or protection of the Leasehold Interest or any part thereof; -6- (d) further charge the Leasehold Interest in priority to the security interests of this mortgage as security for monies so borrowed; and (e) sell, lease or otherwise dispose of the whole or any part of the Leasehold Interest on such terms and conditions and in such manner as the receiver shall determine in its sole and unfettered discretion. The Mortgagee shall not be responsible for any actions or errors of omission by the receiver or receivers in exercising any such powers. 12. All rights and remedies of the Mortgagee contained herein shall be cumulative, and all such rights and remedies may be pursued jointly and separately, successively or concurrently at the sole discretion of the Mortgagee. 13. The Company agrees to pay to the Mortgagee forthwith on demand all costs, charges, expenses and fees (including without limitation all legal fees and disbursements on a solicitor and client basis) of or incurred by the Mortgagee and by any receiver or receivers or agent or agents appointed by the Mortgagee in connection with the enforcement of this mortgage, whether by realization, taking possession of the Tenant's Leasehold Interest or otherwise. All such sums, together with interest thereon at the rate or rates applicable to the Indebtedness shall be secured by the charges contained herein. The term "receiver" as used in this mortgage includes a receiver and manager. 14. Upon payment by the Company, its successors or assigns, of the Indebtedness hereby secured (including without limitation interest, costs and expenses), the Mortgagee shall upon request in writing by the Company, its successors or assigns, deliver up this mortgage to the Company, its successors or assigns and, at the expense of the Company, cancel and discharge the charge of this mortgage and execute and deliver to the Company, its successors or assigns such deeds or other instruments as shall be requisite to discharge the charge constituted hereby. 15. This security is in addition to and not in substitution for any other security now or hereafter held by the Mortgagee or any Lender party to the Credit Agreement. 16. In the event that any provision hereof is for any reason held by a court of competent jurisdiction to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provision hereof and this mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 17. This mortgage shall be governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein and all disputes among the parties hereto shall be submitted to the courts of the Province of Ontario provided that the Mortgagee shall be entitled to commence actions in the courts of any other jurisdiction at its discretion for the purpose of enforcing the provisions hereof. 18. All notices, demands, requests, consents and other communications required or permitted or otherwise to be given for any purpose hereunder shall be in writing and shall be communicated by personal delivery or by facsimile transmission to the respective addresses herein set forth, or such other addresses which the parties hereto may from time to time designate by written notice to the other as required herein. All notices, demands, requests, consents and other communications shall be addressed as follows: (a) If to the Company, to it at: 5343 Dundas Street West Suite 600 Etobicoke, Ontario M9B 6K5 Attention: Barry Singer Facsimile No.: (416) 236-7392 -7- (b) If to the Mortgagee, to it at: First Union National Bank of North Carolina One First Union Center TW10, 301 S. College Street Charlotte, North Carolina 28288 Attention:Syndication Agency Services Facsimile No.: (704) 383-0288 Each communication given by personal delivery or by facsimile transmission shall be deemed to have been received by the party to which it is so addressed on the date of such personal delivery or facsimile transmission, provided that it is delivered or faxed before 5:00 p.m. (Toronto, Ontario time) on a Business Day (failing which, receipt shall be deemed to have occurred on the next following Business Day). For the purposes of this mortgage, a "Business Day" means a day on which Bank of Montreal's main Toronto, Ontario branch (at 1 First Canadian Place) is open for normal banking business, but specifically excludes any Saturday, Sunday or any other day which is a statutory holiday in Toronto, Ontario. 19. This mortgage shall enure to the benefit of the Mortgagee and each Lender which is now or may hereafter become a party to the Credit Agreement and their respective successors and assigns and it shall be binding upon the Company and its successors and assigns. The Mortgagee and each Lender which is now or may hereafter become a party to the Credit Agreement shall be entitled in its sole and unfettered discretion, without the consent of the Company, to assign the indebtedness hereunder (and any and all security therefor or interest therein) to any assignee or assignees and the Company shall, at the Mortgagee's request, execute or cause to be executed all documents required by the Mortgagee to facilitate such assignment. The Company shall not, without the Mortgagee's prior written consent, assign any interest herein to any other person, firm, corporation or other entity whatsoever. 20. Notwithstanding anything else herein contained, payment by Company to the Mortgagee of the Credit Agreement Indebtedness and other costs and expenses (and interest thereon) contemplated thereby shall constitute satisfaction and payment of the Indebtedness owing by the Company to the Mortgagee hereunder. 21. In the event of any of any conflict or inconsistency between the terms and conditions contained herein and the terms and conditions contained in Standard Charge Terms 911, the terms and conditions contained herein shall govern to the extent of such conflict or inconsistency and the provisions of the Standard Charge Terms No. 911 shall be deemed to be varied accordingly. 22. Unless otherwise stated herein, all dollar amounts referred to herein are denominated in Canadian dollars. IN WITNESS WHEREOF the Company has caused its corporate seal to be affixed to this mortgage under the hands of by its proper officers duly authorized in that behalf as of the 14th day of January, 1997. ACC TELENTERPRISES LTD./ TELENTREPRISES ACC LTEE. Per: /S/ JOHN J. ZIMMER Name: John J. Zimmer c/s Title: Assistant Controller Per: /S/ DANIEL J. VENUTI Name: Daniel J. Venuti Title: Authorized Signatory -8- SCHEDULE "A" LEGAL DESCRIPTION OF LANDS Parcel 1-3, Section AD-87, City of Toronto, Municipality of Metropolitan Toronto, being parts of Lots 1, 2, 3, 4 and 5 on the south side of Court Street, part of Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 on the north side of King Street East, part of the Court House Lot, part of the Home District Gaol Lot all on Plan D-87 (City of Toronto) designated as PARTS 6, 7, 8, 9, 15, 16, 17, 18, 19, 20, 21, 22, 25, 31, 32, 33, 34, 35, 36, 37, 40, 41, 43, 44, 45, 46, 47, 48, 52, 55, 56, 57, 58, 61, 62, 64 and 65 on Plan 66R-16018. Plan BA-2190 on a Plan under the Boundaries Act as Plan D-857 confirms the boundaries of the street limits of King Street East, Church Street, Court Street and Toronto Street (See C-194337). As in Instrument No. C-898674. EX-10 7 Seal of DOCUMENT GENERAL Exhibit 10-26 D Province of Ontario Form 4 -- Land Registration Reform Act 1984
F (1)Registry / / Land Titles /x/ (2) Page 1 of 11 pages O R (3) Property Block Property Identifier(s) Additional: O See F Schedule / / F -------------------------------- ------------------- ----------------- I (4) Nature of Document C NOTICE OF CHARGE OF LEASE (Subsection 111(6) of the Act) E -------------------------------- -------------------- ----------------- (5) Consideration U TWO-----------100 Dollars $2.00 S -------------------------- -------------------------------- ------------------- ----------------- E (6) Description New Property Identifiers Part of Lot 7, Concession 5 Colonel Smith's Tract, O Additional: City of Etobicoke, N See Municipality of Metropolitan Toronto, L Schedule / / designated as Parts 3 and 5 on Plan 64R-5004 Y Land Titles Division of Metropolitan Toronto (No. 66) -------------------------- -------------------------------- --------------------- ---------------- Executions (7) This (a) Redescription (b) Schedule for: Additional: Document New Easement Additional See Contains: Plan/Sketch / / Description / / Parties Other /x/ Schedule / / -------------------------- --------------------------------- -------------------- ------------------ (8)This Document provides as follows: To: The Land Registrar for the Land Titles Division of Metropolitan Toronto (No. 66) The undersigned, a ACC TelEnterprises Ltd./TelEntreprises ACC Ltee. hereby applies for the entry of a notice of a charge of lease dated January 14, 1997 wherein ACC TelEnterprises Ltd./TelEntreprises ACC Ltee. charged to First Union National Bank of North Carolina, as Agent its interest in the lease, notice of which is registered as No. CA357723, notice of an assignment of which lease is registered as No. CA357724, and notice of an amendment of which lease is registered as No. , in respect of part of the lands and premises described in Box (6) hereof of which Dundas Kipling II Inc. is a registered owner. Continued on Schedule /x/ - --------------------------------------------------------------------------------------------------------------------------------- (9)This Document relates to instrument number(s) Nos. CA357723, CA357724, and - --------------------------------------------------------------------------------------------------------------------------------- 10)Party(ies) (Set out Status or Interest) Name(s) Signature(s) Date of Signature Y M D ACC TELENTERPRISES LTD./TELENTREPRISES ACC Per: /s/ John J. Zimmer 1997 1 8 LTEE. (Tenant) (Chargor) Name: John J. Zimmer Title: Assistant Controller We have authority to bind the Corporation Per: /s/ Daniel J. Venuti 1997 1 8 Name: Daniel J. Venuti Title: Authorized Signatory (11)Address for Service 5343 Dundas Street West, Suite 600, Etobicoke, Ontario M9B 6K5 ----------------------------------------------------------------------------------------------------------------------------- (12)Party(ies) (Set out Status or Interest) Name(s) Signature(s) Date of Signature Y M D FIRST UNION NATIONAL BANK OF NORTH CAROLINA AS AGENT (Chargee) - --------------------------------------------------------------------------------------------------------------------------------- (13)Address for Service 1 First Union Center, TW10, 301 S. College Street, Charlotte, North Carolina 28288 - --------------------------------------------------------------------------------------------------------------------------------- (14)Municipal Address of Property (15)Document Prepared by: F Fees and Tax O ---------------------------------------------- 5343 Dundas Street West Fraser & Beatty R Registration Fee Etobicoke, Ontario P.O. Box 100 1 First Canadian Place O ------------------------ -------------------- Toronto, Ontario F M5X 1B2 F (MJW) I ------------------------ -------------------- C E ======================== ==================== U S Total E O N L Y ======================== ==================== Total
Seal of CHARGE/MORTGAGE OF LAND B Province of Ontario Form 2 -- Land Registration Reform Act, 1984 F (1)Registry / / Land Titles /x/ (2) Page 2 of 11 pages O ---------------------------------- -------------------------------- ----------------------------- R (3) Property Block Property Identifier(s) Additional: O See F Schedule F ---------------------------------- ------------------------------- ----------------------------- I (4) Principal Amount C FIFTY MILLION-----------00/100 DOLLARS ($50,000,000.00) E ---------------------------------- ------------------------------- ----------------------------- New Property Identifiers (5) Description U Additional: S See Part of Lot 7, Concession 5, Colonel Smith's Tract, E Schedule / / City of Etobicoke, in the Municipality of Metropolitan Toronto, ----------------------------- designated as Part 3 and 5 on Plan 64R-5004 O Executions N Additional: Land Titles Division of Metropolitan Toronto (No.66) L See Y Schedule / / ----------------------------- -------------------------------- ------------------------------ ----------------------------- (6) This (a) Redescription (b) Schedule for: (7) Interest/Estate Charged Document New Easement Contains Plan/Sketch / / Additional Description / / Parties / / Other /x/ LEASEHOLD INTEREST - --------------------------------------------------------------------------------------------------------------------------------- (8) Standard Charge Terms -- The parties agree to be bound by the provisions in Standard Charge Terms filed as number 911 and the Chargor(s) ehreby acknowledge(s) receipt of a copy of these terms - --------------------------------------------------------------------------------------------------------------------------------- (9) Payment Provisions (b) Interest Rate (c) Calculation Period (a) Principal % per annum Amount $ SEE SCHEDULE Interest Y M D Payment First Y M D (d) Adjustment (e) Date and (f) Payment Date Period Date Last Amount (g) Payment (h) of Each Date Payment Dollars $ - --------------------------------------------------------------------------------------------------------------------------------- Balance (j) Insurance Dollars $ (i) Due Date - --------------------------------------------------------------------------------------------------------------------------------- 10) Additional Provisions SEE SCHEDULE - --------------------------------------------------------------------------------------------------------------------------------- (11) Chargor(s) The chargor hereby charges the land to the chargee and certifies that the chargor is at least eighteen years old and that the Chargor is a corporation. The chargor(s) acknowledge(s) receipt of a true copy of this charge Name(s) Signature(s) Date of Signature Y M D ACC TELENTERPRISES LTD./TELENTREPRISES ACC LTEE. Per: /s/ John J. Zimmer 1997 1 8 Name: John J. Zimmer Title: Assistant Controller I/We have authority to bind the Corporation. Per: /s/ Daniel J. Venuti 1997 1 8 Name: Daniel J. Venuti Title: Authorized Signatory - ---------------------------------------------------------------------------------------------------------------------------------- (12) Spouse(s) of chargor(s) I hereby consent to this transaction Name(s) Signature(s) Date of Signature Y M D - --------------------------------------------------------------------------------------------------------------------------------- (13)Chargor(s) Address for Service Suite 600, 5343 Dundas Street West, Etobicoke, Ontario, M9B 6K5 - --------------------------------------------------------------------------------------------------------------------------------- (14) Chargee(s) FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS AGENT - --------------------------------------------------------------------------------------------------------------------------------- (15) Chargee(s) Address for service One First Union Center, TW 10, 301 S. College Street, Charlotte, North Carolina 28288 - --------------------------------------------------------------------------------------------------------------------------------- (16) Assessment Roll Number of Property Cty Mun Map Sub Par 19 19 031 020 02100 - --------------------------------------------------------------------------------------------------------------------------------- (17)Municipal Address of Property (18)Document Prepared by: F Fees and Tax O ------------------------------------------------ 5343 Dundas Street West Michael J. Wunder R Etobicoke, Ontario Fraser & Beatty Registration Fee 1 First Canadian Place O P.O. Box 100 F ----------------------- ----------------------- Toronto, Ontario M5X 1B2 F I ----------------------- ----------------------- C E ----------------------- ----------------------- U Total S E O N L _______________________________________________________________________________Y _______________________ ______________________
MORTGAGE OF LEASEHOLD INTEREST This agreement made as of the 14th day of January, 1997. BETWEEN: ACC TELENTERPRISES LTD./TELENTREPRISES ACC LTEE., a corporation amalgamated under the laws of the Province of Ontario (hereinafter called the "Company") OF THE FIRST PART -and- FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS AGENT OF THE SECOND PART WHEREAS ACC Long Distance Ltd./Interurbains ACC Ltee. ("ACC Ltd."), as lessee, entered into to an amended and restated lease dated as of March 1, 1994 between the Company, as tenant, and Coopers & Lybrand as receiver and manager for Dundas Kipling II Inc., as landlord (the "Original Lease"), relating to the lands and premises municipally known as 5343 Dundas Street West, Etobicoke, Ontario and more particularly described in Schedule "A" hereto (which leased premises are hereinafter referred to as the "Lands"); AND WHEREAS the ACC Ltd. assigned its right, title and interest in and to the Lease and the obligations owing thereunder to ACC Long Distance Inc./Interurbains ACC Inc. ("ACC Inc.") pursuant to an assignment and assumption agreement dated as of March 1, 1994; AND WHEREAS the Original Lease was amended by a Lease Amending Agreement (the "Amending Agreement") dated as of June 10, 1996 pursuant to which, among other things, effective November 1, 1996, the Original Lease was amended to expand the Premises (as that term is defined in the Original Lease) to be an additional 17,624 square feet of Rental Area (as such term is defined in the Original Lease) (the Original Lease, as amended by the Amending Agreement and as may be hereafter amended, extended or further restated from time to time is hereinafter collectively referred to as the "Lease"); AND WHEREAS ACC Inc. amalgamated with, among others ACC TelEnterprises Ltd./TelEntreprises ACC Ltee. effective January 1, 1997 and continued as ACC TelEnterprises Ltd./TelEntreprises ACC Ltee. (the "Company"); AND WHEREAS the Company has agreed to mortgage, charge and assign all of its right, title and interest in and to and all benefits arising under or in respect of the Lease including without limitation its rights and interests in the Lands (which rights, title, interests and benefits are hereinafter collectively called the "Leasehold Interest") to the Mortgagee (as that term is hereinafter defined) as security for payment of the Indebtedness; NOW WITNESS that in consideration of the sum of TWO DOLLARS ($2.00) now paid by the Mortgagee to the Company and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by the Company), the Company hereby agrees with the Mortgagee as follows: 1. Subject to the exception as to leasehold hereinafter contained, the Company, as security for repayment of the sum of Fifty Million ($50,000,000 Cdn.) Canadian Dollars and the "Obligations" (as that term is hereinafter defined) of the Company under or pursuant to the certain amended and restated credit agreement dated January 14, 1997 between ACC Corp. and certain subsidiaries thereof (including without limitation the Company), as borrowers, ACC Corp. as guarantor, the lenders referred to therein, First Union National Bank of North Carolina, as Managing Agent and Administrative Agent and Fleet National Bank, as Managing Agent and Documentation Agent (such amended and restated credit agreement as may -2- be amended, supplemented, replaced or restated from time to time being hereinafter called the "Credit Agreement") (the term "Obligations" shall have the same meaning ascribed thereto in the Credit Agreement) (all of the Company's foregoing indebtedness and the Obligations being hereinafter called the "Credit Agreement Indebtedness") together with interest thereon at the rate of twenty-five (25%) percent per annum calculated and payable monthly not in advance, both before and after demand and before and after default, judgment and execution from the date hereof until payment (the Credit Agreement Indebtedness together with interest thereon as set out above is hereinafter collectively referred to as the "Indebtedness"), hereby mortgages, charges and assigns to First Union National Bank of North Carolina, as Administrative Agent for the benefit of itself and the financial institutions as are, or may from time to time become lenders under the Credit Agreement (the "Mortgagee"), and grants to the Mortgagee a security interest in the Leasehold Interest. TO HAVE AND TO HOLD the assets hereby mortgaged and charged to the Mortgagee, its successors and assigns, forever but subject to the terms and conditions herein set forth. 2. It is hereby declared that the last day of any term of years reserved by any lease, verbal or written, or any agreement therefor (including without limitation the Lease), now held or hereafter acquired by the Company, and whether falling within the general or particular description of the mortgaged premises hereunder or otherwise shall be excepted out of the mortgage and charge constituted hereby or by any other agreement, but the Company shall stand possessed of the reversion of one day remaining in the Company in respect of any such term of years, for the time being demised, as aforesaid, upon trust to assign and dispose of the same as any purchaser of such term of years shall direct. 3. The Company hereby covenants and agrees that it shall at all times, at its own cost and expense, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged or delivered all and singular every such further act, deed, transfer, assignment and assurance as the Mortgagee may reasonably require for the better mortgaging, charging, transferring, assigning and confirming unto the Mortgagee the property and assets hereby mortgaged and charged or intended so to be or which the Company may hereafter become bound to mortgage charge, transfer or assign in favour of the Mortgagee and for the better accomplishing and effectuating of this mortgage. 4. The Mortgagee shall not in any way whatsoever be obligated to perform any covenants or obligations of the Company under the Lease. 5. The Company represents and warrants to the Mortgagee and each Lender (as that term is defined in the Credit Agreement) party to the Credit Agreement that as of the date hereof: (a) the Lease has not been surrendered or forfeited; (b) the rents and covenants therein contained have been duly paid and performed by the Company; (c) the Company has full right, power and authority to mortgage and charge the Lease and the Leasehold Interest as contemplated hereby; and (d) the Company has obtained the consent of the Landlord to the mortgaging and charging of the Lease and the Leasehold Interest (if such consent is required to be obtained from the Landlord). 6. The Company hereby covenants and agrees to and with the Mortgagee and each Lender party to the Credit Agreement that until the Indebtedness has been repaid in full, the Company: (a) shall not without the prior written consent of the Mortgagee create any lien upon or assign or transfer as security or pledge or hypothecate any asset subject to the mortgage and charge hereof except to the Mortgagee and the Company will not, in the ordinary course of business or otherwise, sell, transfer, assign, or otherwise dispose of any such asset without the prior written consent of the Mortgagee; (b) shall not without the prior written consent of the Mortgagee merge or amalgamate with any other corporation; (c) shall insure and keep insured the buildings, erections, fixtures, improvements, premises and all other assets hereby charged against loss -3- or damage by fire and other insurable hazards which such assets are commonly insured against in the Province of Ontario to the full insurable value thereof; the Company shall duly and promptly pay all premiums and other sums of money payable for maintaining such insurance and shall cause all insurance proceeds thereunder to be payable in the case of loss to the Mortgagee as first mortgagee and loss payee such insurance policy(ies) to contain a standard mortgage clause and the Company shall, upon request from the Mortgagee, provide to the Mortgagee evidence of the payment of such premiums and the assignment of such insurance proceeds to the Mortgagee; and (f) shall strictly comply with every covenant and undertaking heretofore or hereafter given by it to the Mortgagee. 7. The Company covenants and agrees to and with the Mortgagee and each Lender party to the Credit Agreement that: (a) it shall at all times fully perform and comply with all of its covenants and obligations contained in the Lease, and imposed upon or assumed or agreed to by it pursuant to any prior encumbrance of the Lands or any part thereof or its Leasehold Interest therein and that, if the Company shall fail to do so the Mortgagee may (but shall not be obligated to) take any action the Mortgagee deems necessary or desirable to cure any default by the Company in the performance of or compliance with any of the obligations of the Company pursuant to the Lease or imposed upon, assumed by or agreed to by the Company pursuant to any such prior encumbrance; upon receipt by the Mortgagee from the Landlord or from any such prior encumbrancer of any written notice of default by the Company, the Mortgagee may rely thereon and take any action as aforesaid to cure such default even though the existence of such default or the nature thereof may be questioned or denied by the Company or by any party on behalf of the Company; the Company hereby expressly grants to the Mortgagee and agrees that the Mortgagee shall have the absolute and immediate right to enter in and upon the Lands or any part thereof to such extent and as often as the Mortgagee, in its sole discretion, deems necessary or desirable, in order to cure any such default by the Company; the Mortgagee may pay and expend such sums of money as the Mortgagee in its sole discretion, acting reasonably, deems necessary or desirable for any such purpose, and the Company hereby agrees to pay to the Mortgagee, immediately upon notification by the Mortgagee and without demand, all such sums so paid and expended by the Mortgagee, together with interest thereon at the rate applicable to the Indebtedness from time to time; all such sums so paid or expended by the Mortgagee and such interest thereon, shall be secured hereby in addition to the Credit Agreement Indebtedness and in priority to all other mortgages and charges; (b) it shall not surrender the Lease or any rights of renewal with respect thereto nor terminate nor cancel the Lease without the prior written consent of the Mortgagee and that the Company will not, without the prior written consent of the Mortgagee, modify, revise, alter or amend the Lease, either orally or in writing; (c) no release or forbearance of any of the Company's covenants and obligations contained in the Lease or pursuant to any prior encumbrance of the Leasehold Interest or any part thereof shall release the Company from any of its obligations contained herein; (d) unless the Mortgagee shall otherwise expressly consent in writing, the title in fee simple to the Lands and the Leasehold Interest shall -4- not merge but shall always remain separate and distinct, notwithstanding the union of said estates in either the Landlord or the Company, by purchase or otherwise; (e) if the Company shall, at any time prior to the repayment in full of the Indebtedness, purchase or in any way acquire the freehold title to the Lands, this mortgage and charge shall attach, extend to and constitute a mortgage and charge of such freehold estate; (f) it will indemnify and save harmless the Mortgagee and each Lender party to the Credit Agreement from and against any and all losses, costs, claims, actions, damages and expenses (including without limitation legal fees and disbursements on a solicitor and client basis) incurred or suffered by the Mortgagee and/or any such Lender or its agents or employees as a result of or in connection with the presence, removal, disposal or movement of any hazardous waste or substance on the Lands which is not in compliance with Applicable Law; (g) it will at any time and from time to time, upon request from the Mortgagee, deliver to the Mortgagee a statement in writing certifying that: the Lease is in full force and effect; there are no defaults under the Lease; the Lease has not been modified or amended; all amounts required to be paid by the Company under the Lease have been paid to the date of the certificate; (h) upon the occurrence of a default hereunder, the Mortgagee may peaceably and quietly enter upon and use, occupy, possess and enjoy the Lands and the Leasehold Interest, free from all encumbrances, liens and charges, without hindrance, interruption or denial of the same by the Company or any other person or persons, save only the rights of the Landlord under the Lease; (i) the Company hereby assigns and transfers to the Mortgagee all of the Company's right, title and interest in and to the benefit of any and all non- disturbance, attornment or like agreements to which the Company is now or may hereafter become a party (and the Company covenants and agrees to and with the Mortgagee that the Company shall use its best efforts at its own cost and expense to obtain from all appropriate third parties non-disturbance, attornment or other similar agreements in favour of the Mortgagee in form and substance satisfactory to the Mortgagee); and (j) the Company shall not subordinate or postpone or agree to subordinate or postpone the Leasehold Interest or the Mortgagee's security interests, charges or rights therein, to or in favour of any lien, charge or encumbrance without the prior written consent of the Mortgagee. 8. The Indebtedness shall become payable and the security hereby constituted shall become enforceable in each and every of the events following (each of such events being hereinafter referred to as an "Event of Default"): (a) if an Event of Default (as defined in the Credit Agreement) occurs; (b) if the Company defaults in the observance or performance in any material respect of any of its covenants, agreements or other obligations under this mortgage, provided however that if such default is curable, such default has not been remedied within 30 days after the Secured Party has given notice to the Company to remedy the default; -5- (c) if an order is made or a resolution passed for the winding-up of the Company, or if a petition is filed for the winding-up of the Company; (d) if the Company ceases or threatens to cease to carry on business or if the Company commits or threatens to commit any act of bankruptcy or if the Company becomes insolvent or makes an assignment or proposal in bankruptcy or makes a bulk sale of its assets or if a bankruptcy petition is filed or presented against the Company; (e) if any proceedings with respect to the Company are commenced under the CoMPANIES' CREDITORS ARRANGEMENT ACT or the BANKRUPTCY AND INSOLVENCY ACT or if the Company shall seek relief or consent to the filing of a petition against it under any law which involves any compromise of any creditor's rights against the Company; (f) if an execution or any other process of any court becomes enforceable against the Company or if a distress or analogous process is levied upon the property of the Company or any part thereof; or (g) if any licences, permits or approvals required by any law, regulation or governmental policy or any governmental agency or commission for the operation by the Company of its business shall be withdrawn or cancelled. 9. No waiver by the Mortgagee of any of its rights or remedies hereunder shall be considered a waiver of any other or subsequent right or remedy of the Mortgagee, no delay or omission in the exercise or enforcement by the Mortgagee of any right or remedy shall be considered as a waiver of such right or remedy of the Mortgagee and no exercise or enforcement of such right or remedy shall exhaust or preclude the exercise of any other right or remedy by the Mortgagee. 10. Upon the occurrence and during the continuance of an Event of Default the Mortgagee may: (a) take possession of all or part of the Lands and the Leasehold Interest with the power to exclude the Company, its agents and servants therefrom; and (b) enter upon and lease or sell the whole or any part or parts of the property and assets charged hereby and any such sale may be made hereunder by public auction, by public tender or by private contract, with or without notice and with or without advertising and without any other formality, all of which are hereby waived by the Company to the fullest extent permitted by law and such sale shall be on such terms and conditions as to credit or otherwise and as to upset or reserve bid or price as to the Mortgagee in its sole discretion may seem advantageous and such sale may take place whether or not the Mortgagee has taken possession of such property and assets. 11. Upon the occurrence of an Event of Default, the Mortgagee may appoint by instrument in writing a receiver (including a receiver and manager) or receivers of the Leasehold Interest or any part thereof (which receiver or receivers may be any person or persons, whether an officer or officers or employee or employees of the Mortgagee or not and the Mortgagee may remove any receiver or receivers so appointed and appoint another or others in his or their stead) and any receiver or receivers so appointed shall have the power to: (a) take possession of and to use the Leasehold Interest or any part thereof; (b) preserve and maintain the Leasehold Interest as the receiver shall deem advisable; (c) borrow money required for the preservation or protection of the Leasehold Interest or any part thereof; -6- (d) further charge the Leasehold Interest in priority to the security interests of this mortgage as security for monies so borrowed; and (e) sell, lease or otherwise dispose of the whole or any part of the Leasehold Interest on such terms and conditions and in such manner as the receiver shall determine in its sole and unfettered discretion. The Mortgagee shall not be responsible for any actions or errors of omission by the receiver or receivers in exercising any such powers. 12. All rights and remedies of the Mortgagee contained herein shall be cumulative, and all such rights and remedies may be pursued jointly and separately, successively or concurrently at the sole discretion of the Mortgagee. 13. The Company agrees to pay to the Mortgagee forthwith on demand all costs, charges, expenses and fees (including without limitation all legal fees and disbursements on a solicitor and client basis) of or incurred by the Mortgagee and by any receiver or receivers or agent or agents appointed by the Mortgagee in connection with the enforcement of this mortgage, whether by realization, taking possession of the Tenant's Leasehold Interest or otherwise. All such sums, together with interest thereon at the rate or rates applicable to the Indebtedness shall be secured by the charges contained herein. The term "receiver" as used in this mortgage includes a receiver and manager. 14. Upon payment by the Company, its successors or assigns, of the Indebtedness hereby secured (including without limitation interest, costs and expenses), the Mortgagee shall upon request in writing by the Company, its successors or assigns, deliver up this mortgage to the Company, its successors or assigns and, at the expense of the Company, cancel and discharge the charge of this mortgage and execute and deliver to the Company, its successors or assigns such deeds or other instruments as shall be requisite to discharge the charge constituted hereby. 15. This security is in addition to and not in substitution for any other security now or hereafter held by the Mortgagee or any Lender party to the Credit Agreement. 16. In the event that any provision hereof is for any reason held by a court of competent jurisdiction to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provision hereof and this mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 17. This mortgage shall be governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein and all disputes among the parties hereto shall be submitted to the courts of the Province of Ontario provided that the Mortgagee shall be entitled to commence actions in the courts of any other jurisdiction at its discretion for the purpose of enforcing the provisions hereof. 18. All notices, demands, requests, consents and other communications required or permitted or otherwise to be given for any purpose hereunder shall be in writing and shall be communicated by personal delivery or by facsimile transmission to the respective addresses herein set forth, or such other addresses which the parties hereto may from time to time designate by written notice to the other as required herein. All notices, demands, requests, consents and other communications shall be addressed as follows: (a) If to the Company, to it at: 5343 Dundas Street West Suite 600 Etobicoke, Ontario M9B 6K5 Attention: Barry Singer Facsimile No.: (416) 236-7392 -7- (b) If to the Mortgagee, to it at: First Union National Bank of North Carolina One First Union Center TW10, 301 S. College Street Charlotte, North Carolina 28288 Attention:Syndication Agency Services Facsimile No.: (704) 383-0288 Each communication given by personal delivery or by facsimile transmission shall be deemed to have been received by the party to which it is so addressed on the date of such personal delivery or facsimile transmission, provided that it is delivered or faxed before 5:00 p.m. (Toronto, Ontario time) on a Business Day (failing which, receipt shall be deemed to have occurred on the next following Business Day). For the purposes of this mortgage, a "Business Day" means a day on which Bank of Montreal's main Toronto, Ontario branch (at 1 First Canadian Place) is open for normal banking business, but specifically excludes any Saturday, Sunday or any other day which is a statutory holiday in Toronto, Ontario. 19. This mortgage shall enure to the benefit of the Mortgagee and each Lender which is now or may hereafter become a party to the Credit Agreement and their respective successors and assigns and it shall be binding upon the Company and its successors and assigns. The Mortgagee and each Lender which is now or may hereafter become a party to the Credit Agreement shall be entitled in its sole and unfettered discretion, without the consent of the Company, to assign the indebtedness hereunder (and any and all security therefor or interest therein) to any assignee or assignees and the Company shall, at the Mortgagee's request, execute or cause to be executed all documents required by the Mortgagee to facilitate such assignment. The Company shall not, without the Mortgagee's prior written consent, assign any interest herein to any other person, firm, corporation or other entity whatsoever. 20. Notwithstanding anything else herein contained, payment by Company to the Mortgagee of the Credit Agreement Indebtedness and other costs and expenses (and interest thereon) contemplated thereby shall constitute satisfaction and payment of the Indebtedness owing by the Company to the Mortgagee hereunder. 21. In the event of any of any conflict or inconsistency between the terms and conditions contained herein and the terms and conditions contained in Standard Charge Terms 911, the terms and conditions contained herein shall govern to the extent of such conflict or inconsistency and the provisions of the Standard Charge Terms No. 911 shall be deemed to be varied accordingly. 22. Unless otherwise stated herein, all dollar amounts referred to herein are denominated in Canadian dollars. IN WITNESS WHEREOF the Company has caused its corporate seal to be affixed to this mortgage under the hands of by its proper officers duly authorized in that behalf as of the 14th day of January, 1997. ACC TELENTERPRISES LTD./ TELENTREPRISES ACC LTEE. Per: /S/ JOHN J. ZIMMER Name: John J. Zimmer c/s Title: Assistant Controller Per: /S/ DANIEL J. VENUTI Name: Daniel J. Venuti Title: Authorized Signatory -8- SCHEDULE "A" LEGAL DESCRIPTION OF LANDS Part of Lot 7, Concession 5, Colonel Smith's Tract, City of Etobicoke, in the Municipality of Metropolitan Toronto, designated as Part 3 and 5 on Plan 64R-5004. City of Toronto, Municipality of Metropolitan Toronto. EX-10 8 Exhibit 10-27 AMENDED AND RESTATED PLEDGE AGREEMENT THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Pledge Agreement"), dated as of January 14, 1997 is made by ACC CORP., a Delaware corporation (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, 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 Amended and Restated 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 (the "Original Pledge Agreement") in connection with the Original Credit Agreement. Pursuant to the Amended and Restated Credit Agreement, dated as of even date herewith (as amended, restated or otherwise modified, the "Amended and Restated 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 Amended and Restated 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 Amended and Restated Credit Agreement and as a condition precedent thereto, the Lenders have requested that the Pledgor amend and restate the Original 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 Amended and Restated 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 Amended and Restated 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. "Collateral" means the Pledged Stock and all Proceeds. "Pledge Agreement" means this 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 as defined in the Amended and Restated 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 Amended and Restated 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; (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 the U.K. Subsidiaries and Canadian Subsidiaries; (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. 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 Canadian Subsidiaries and U.K. 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 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 the U.K. Borrowers or Canadian Borrowers 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 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 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 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 Amended and Restated 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 Amended and Restated 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 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, any PUC 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 FCC, CRTC, DTI, OFTEL and any applicable PUC 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 FCC, CRTC, DTI, OFTEL and any applicable PUC, if required, for any action or transactions contemplated by this Pledge Agreement including, without limitation, the preparation, execution and filing with the FCC, CRTC, DTI, OFTEL and any applicable PUC 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 FCC, CRTC, DTI, OFTEL or any PUC 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. 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 Amended and Restated 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 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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) 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. [CONTINUED ON THE FOLLOWING PAGE NO. 14] (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. 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: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President-Finance 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: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller ACC NATIONAL TELECOM CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President ACC RADIO CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller ACC GLOBAL CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller ACC NATIONAL LONG DISTANCE CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President ACC TELENTERPRISES LTD. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Assistant Controller ACC LONG DISTANCE U.K. LTD. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Attorney 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 Q 1 ACC National Long Distance Corp. Common 1 1 Common 3 4 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 __ 5,999,401 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 of North Carolina, a national banking corporation, as Administrative Agent (in such capacity, the "Administrative Agent"), under the Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 CANADIAN OR U.K. 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: DESCRIPTION OF PLEDGED STOCK Issuer Class of Stock Certificate No. No. of Shares New Issuer 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:_______________________ ACKNOWLEDGEMENT AND CONSENT OF NEW ISSUER The undersigned hereby acknowledges receipt of a copy of the foregoing Supplement and the Amended and Restated 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:___________________________ EX-10 9 Exhibit 10-28 AMENDED AND RESTATED PLEDGE AGREEMENT THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Pledge Agreement"), dated as of January 14, 1997 is made by ACC NATIONAL LONG DISTANCE CORP., a Delaware corporation (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, 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 Amended and Restated 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 (the "Original Pledge Agreement") in connection with the Original Credit Agreement. Pursuant to the Amended and Restated Credit Agreement, dated as of even date herewith (as amended, restated or otherwise modified, the "Amended and Restated 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 Amended and Restated 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 Amended and Restated Credit Agreement and as a condition precedent thereto, the Lenders have requested that the Pledgor amend and restate the Original 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 Amended and Restated 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 Amended and Restated 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. "Collateral" means the Pledged Stock and all Proceeds. "Pledge Agreement" means this 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 as defined in the Amended and Restated 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 Amended and Restated 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; (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 the U.K. Subsidiaries and Canadian Subsidiaries; (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. 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 Canadian Subsidiaries and U.K. 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 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 the U.K. Borrowers or Canadian Borrowers 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 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 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 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 Amended and Restated 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 Amended and Restated 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 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, any PUC 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 FCC, CRTC, DTI, OFTEL and any applicable PUC 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 FCC, CRTC, DTI, OFTEL and any applicable PUC, if required, for any action or transactions contemplated by this Pledge Agreement including, without limitation, the preparation, execution and filing with the FCC, CRTC, DTI, OFTEL and any applicable PUC 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 FCC, CRTC, DTI, OFTEL or any PUC 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. 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 Amended and Restated 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 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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) 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. [CONTINUES ON THE FOLLOWING PAGE NO. 14] (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. 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 NATIONAL LONG DISTANCE CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President 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 OF MASSACHUSETTS CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President SCHEDULE 1 To Pledge Agreement DESCRIPTION OF PLEDGED STOCK [ACC NATIONAL AGREEMENT] Issuer Class of Stock Certificate No. No. of Shares ACC Long Distance of Massachusetts Corp. Common 2 1 PLEDGE AGREEMENT SUPPLEMENT, dated as of _______________, 199_ (the "Supplement"), made by _________, a ________________ corporation (the "Pledgor"), in favor of First Union National Bank of North Carolina, a national banking corporation, as Administrative Agent (in such capacity, the "Administrative Agent"), under the Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 CANADIAN OR U.K. 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: DESCRIPTION OF PLEDGED STOCK Issuer Class of Stock Certificate No. No. of Shares New Issuer 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:____________________ ACKNOWLEDGEMENT AND CONSENT OF NEW ISSUER The undersigned hereby acknowledges receipt of a copy of the foregoing Supplement and the Amended and Restated 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:___________________________ EX-10 10 Exhibit 10-29 AMENDED AND RESTATED SECURITY AGREEMENT THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "Agreement"), dated as of January 14, 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 OF NORTH CAROLINA, 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 Amended and Restated 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 (the "Original Security Agreement") in connection with the Original Credit Agreement. Pursuant to the 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 "Amended and Restated Credit Agreement"), between the Grantors and certain Canadian Subsidiaries and U.K. 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 Amended and Restated Credit Agreement. In order to induce the Lenders and the Administrative Agent to enter into the Amended and Restated Credit Agreement, and as a condition to the provision of Extensions of Credit thereunder, the Lenders require that the Grantors amend and restate the Original 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 Amended and Restated 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 Amended and Restated 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. "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; (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 set forth in the Perfection Certificate. "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, 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 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 Amended and Restated Credit Agreement. "Permitted Liens" means all such Liens respecting the Collateral permitted pursuant to Section 10.3 of the Amended and Restated 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 the Obligations as defined in the Amended and Restated Credit Agreement and any renewals or extensions of any of the Obligations. "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. SECTION 2. The Security Interests. (a) In order to secure the Amended and Restated 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 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. 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. (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; (iii) 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 Liens and rights of others therein except for the Permitted Liens (to the extent 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 Amended and Restated 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, 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. (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 Amended and Restated 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 Amended and Restated 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. (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 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. (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 of North Carolina, 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 Amended and Restated Credit Agreement and will provide photocopies thereof to the Administrative Agent upon its reasonable request. (b) Certain Provisions Regarding Maintenance of Records and Reporting Re: Accounts. (i) In the event any amounts due and owing in excess of $250,000 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 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 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 (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 9504(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 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, (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 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 Amended and Restated 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 Amended and Restated Credit Agreement in accordance with the provisions of the Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated Credit Agreement, this Agreement or any other Loan Document preclude any other or further exercise thereof, and the exercise of any rights in this Agreement, the Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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. (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. 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. 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: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President - Finance [CORPORATE SEAL] ACC LONG DISTANCE CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller [CORPORATE SEAL] ACC NATIONAL TELECOM CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President [CORPORATE SEAL] ACC LONG DISTANCE OF MASSACHUSETTS CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President [CORPORATE SEAL] ACC RADIO CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller [CORPORATE SEAL] ACC GLOBAL CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Controller [CORPORATE SEAL] ACC NATIONAL LONG DISTANCE CORP. By: /s/ John J. Zimmer Name: John J. Zimmer Title: Vice President Administrative Agent: [CORPORATE SEAL] FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Administrative Agent By: /s/ Jim Redman Name: Jim Redman Title: SVP SCHEDULE I to Security Agreement Trademark Registrations Registration Mark Number Date Goods Flying ACC 1,371,741 11/19/85 Telecommunications Services Circular Design 1,607,689 7/24/89 Telecommunications Services ACC with Circular Design 1,950,804 1/23/96 Telecommunications Services Call America 1,407,073 8/26/86 Telecommunications Services Trademark Applications Mark Serial No. Goods Telecommunications, Just 75/124052 Telecommunications Your Size Services ACC, The Answer Not Assigned Yet Telecommunications Services Trademark Licenses None 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 of North Carolina, 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. 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:____________________ 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 of North Carolina, as Administrative Agent (in such capacity, the "Administrative Agent") under the Amended and Restated 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 Security Agreement dated as of __________, 1995, 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 Amended and Restated 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 Amended and Restated 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 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:__________________________ EX-10 11 Exhibit 10-30 AMENDED AND RESTATED TRADEMARK SECURITY AGREEMENT WHEREAS, ACC CORP., a corporation organized under the laws of Delaware ("Company"), owns the Trademarks and the Trademark registrations and Trademark applications listed on Schedule 1 annexed hereto, and is a party to the Trademark Licenses listed on Schedule 1 annexed hereto; and WHEREAS, pursuant to an Amended and Restated Credit Agreement (as further amended, restated or otherwise modified, the "Amended and Restated Credit Agreement") of even date herewith among the Company and certain of its Subsidiaries as Borrowers (collectively, the "Borrowers"), the financial institutions which are, or may from time to time become, party thereto (collectively, the "Lenders") and First Union National Bank of North Carolina, as Administrative Agent for the Lenders (the "Administrative Agent"), the Lenders have agreed to amend and restate a Credit Agreement dated as of July 21, 1995 and to provide certain Extensions of Credit according to the terms and conditions more particularly described in the Amended and Restated Credit Agreement; and WHEREAS, pursuant to the terms of the Amended and Restated Security Agreement of even date (as further amended, restated or otherwise modified, the "Security Agreement;" all capitalized terms defined in the Amended and Restated Credit Agreement or the Security Agreement and not otherwise defined herein have the respective meanings provided for in the Amended and Restated Credit Agreement or the Security Agreement), between the Borrowers (as grantors thereunder the "Grantors") and the Administrative Agent, the Grantors have granted to the Administrative Agent for the benefit of itself and the Lenders a security interest in certain assets of each of the Grantors, including all right, title and interest of the Company in, to and under all now owned and hereafter acquired Trademarks, Trademark registrations, Trademark applications and Trademark Licenses, together with the goodwill of the business symbolized by the Company's Trademarks, and all products and proceeds thereof, to secure the payment of all amounts owing by the Borrowers under the Amended and Restated Credit Agreement and the other Secured Obligations; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company does hereby grant to the Administrative Agent for the benefit of itself and the Lenders a continuing security interest in all of Company's right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the "Trademark Collateral"), whether now existing or hereafter created or acquired in order to secure the Secured Obligations referred to herein: (1) each Trademark, Trademark registration and Trademark application, together with any reissues, continuations or extensions thereof including, without limitation, the Trademarks, Trademark registrations (together with any reissues, continuations or extensions thereof) and Trademark applications referred to in Schedule 1 annexed hereto, and all of the goodwill of the business connected with the use of, and symbolized by, each Trademark, Trademark registration and Trademark application; (2) each Trademark License and all of the goodwill of the business connected with the use of, and symbolized by, each Trademark License; and (3) all products and proceeds of the foregoing, including, without limitation, any claim by the Company against third parties for past, present or future (a) infringement or dilution of any Trademark or Trademark registration including, without limitation, the Trademarks and Trademark registrations referred to in Schedule 1 annexed hereto, the Trademark registrations issued with respect to the Trademark applications referred to in Schedule 1 and the trademarks licensed under any Trademark License, or (b) injury to the goodwill associated with any Trademark, Trademark registration or trademark licensed under any Trademark License. This security interest is granted in conjunction with the security interests granted to the Administrative Agent pursuant to the Security Agreement. The Company hereby acknowledges and affirms that the rights and remedies of the Administrative Agent with respect to the security interest in the Trademark Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. IN WITNESS WHEREOF, the Company has caused this Trademark Security Agreement to be duly executed by its duly authorized officer thereunto as of the 14th day of January, 1997. [CORPORATE SEAL] ACC CORP. ATTEST: By: /s/ Daniel J. Venuti By: /s/ John J. Zimmer Name: Daniel J. Venuti Name: John J. Zimmer Title: Assistant Secretary Title: Vice President - Finance Agreed and Accepted as of the 14th day of January, 1997 FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Administrative Agent By: /s/ Jim Redman Name: Jim Redman Title: Senior Vice President SCHEDULE I to Trademark Security Agreement Trademark Registrations Registration Mark Number Date Goods Flying ACC 1,371,741 11/19/85 Telecommunications Services Circular Design 1,607,689 7/24/89 Telecommunications Services ACC with Circular Design 1,950,804 1/23/96 Telecommunications Services Call America 1,407,073 8/26/86 Telecommunications Services Trademark Applications Mark Serial No. Goods Telecommunications, Just 75/124052 Telecommunications Services Your Size ACC, The Answer Not Assigned Yet Telecommunications Services Trademark Licenses None EX-10 12 Exhibit 10-35 RULES OF THE ACC CORP. 1996 UK SHARESAVE SCHEME Adopted by the Board on August 5, 1996 Approved by the Inland Revenue on July 11, 1996 under Ref SRS 1768/RC Arthur Andersen 1 Surrey Street London WC2R 2PS Tel: 0171 438 3000 CONTENTS Page 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. APPLICATION FOR OPTIONS. . . . . . . . . . . . . . . . . . . . . . 7 3. SCALING DOWN . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4. GRANT OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 10 5. NUMBER OF SHARES IN RESPECT OF WHICH OPTIONS MAY BE GRANTED . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6. RIGHTS OF EXERCISE AND LAPSE OF OPTIONS. . . . . . . . . . . . . . 11 7. TAKEOVER, RECONSTRUCTIONS AND AMALGAMATION, AND WINDING UP . . . . . . . . . . . . . . . . . . . . . . . . . . 13 8. MANNER OF EXERCISE . . . . . . . . . . . . . . . . . . . . . . . . 16 9. ISSUE OR TRANSFER OF SHARES. . . . . . . . . . . . . . . . . . . . 16 10. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 11. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 18 12. ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 13. GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 RULES OF THE ACC Corp. 1996 UK SHARESAVE SCHEME 1. DEFINITIONS 1.1 In this Scheme, the following words and expressions shall have, where the context so admits, the meanings set forth below:- "Appropriate Period" the meaning given by Paragraph 15(2) of Schedule 9 to the Taxes Act; "Associated Company" in relation to the Company:- (A) any company which has Control of the Company; (B) any company which is under the Control of any company referred to in (A) above; "Auditors" the auditors of the Company for the time being or in the event of there being joint auditors such one of them as the Board shall select; Board" the board of directors for the time being of the Company or a duly authorised committee thereof; "Bonus" any sum by way of terminal bonus payable under a Savings Contract being the additional payment made when repaying contributions made under such a Savings Contract; "Bonus Date" where repayments under the relevant Savings Contract are taken as including the Maximum Bonus, the earliest date on which the Maximum Bonus is payable, where the repayments under the relevant Savings Contract are taken as including the Standard Bonus, the earliest day on which the Standard Bonus is payable and in any other case the earliest day on which the Lower Bonus is payable under the Savings Contract; "Close Company" a close company as defined in section 414(1) of the Taxes Act, as varied by Paragraph 8 of Schedule 9 to the Taxes Act; "the Company" ACC Corp. (a Delaware USA corporation); "Control" has the meaning given by section 840 of the Taxes Act; "Date of Grant" the date on which an Option is granted; "Date of Invitation" the date on which the Grantor invites applications for Options; "Dealing Day" any day on which NASDAQ is open for the transaction of business; "Eligible Employee" (A) any individual who at the date of Grant:- (1) is an executive director or employee of a Participating Company; and (2) is chargeable to tax in respect of his office or employment under Case I of Schedule E of the Taxes Act; and (3) has been such an executive director or employee of a Participating Company for such qualifying period (if any) (being a period commencing not earlier than 5 years prior to the Date of Grant) as the Board may determine; or (B) any other individual who is nominated by the Board as an executive director or employee of a Participating Company (or is nominated as a member of a category of such executive directors and employees) but in all cases excluding any person who is prohibited from participating by reason of the provisions of Paragraph 8 of Schedule 9 to the Taxes Act; "Employees' Share Scheme" the meaning given by Section 743 of the Companies Act 1985; "Exercise Price" the total amount payable in relation to the exercise of an Option, whether in whole or in part, being an amount equal to the relevant Option Price multiplied by the number of Shares in respect of which the Option is exercised; "Grant Period" the period of 42 days commencing on any of the following: (A) the day on which the Scheme is approved by the Inland Revenue; (B) prior to the admission of the Shares to the Daily Official List of the London Stock Exchange, any day determined by the Board; (C) the day on which any Shares are first admitted to the Daily Official List of the London Stock Exchange; (D) the day immediately following the day on which the Company makes an announcement of its results for the last preceding financial year, half-year or other period; (E) the day on which the Board resolves that exceptional circumstances exist which justify the grant of Options; (F) any day on which any change to the legislation affecting savings-related share option schemes approved by the Inland Revenue under the Taxes Act is proposed or made; (G) any day on which a new Savings Contract prospectus is announced or takes effect; "Grantor" either:- (A) the Board in respect of Options granted or to be granted by the Company; or (B) the Trustees in respect of Options granted or to be granted by the Trustees; "London Stock Exchange" the London Stock Exchange Limited; "Lower Bonus" the Bonus payable at the end of a period of three years from the commencement of a Savings Contract; "Market Value" in relation to a Share on any day:- (A) if and so long as the shares are listed on the London Stock Exchange its middle market quotation (as derived from the Daily Official List of the London Stock Exchange); (B) subject to (A) above, its market value determined in accordance with Part VIII of the Taxation of Chargeable Gains Act 1992 and agreed in advance with the Shares Valuation Division of the Inland Revenue; "Material Interest" the meaning given by Section 187(3) of the Taxes Act, "Maximum Bonus" the Bonus payable at the end of a period of seven years from the commencement of a Savings Contract; "Maximum Contribution" the lesser of: (A) such maximum monthly contribution as may be permitted pursuant to Paragraph 24 of Schedule 9 to the Taxes Act or, if less, 250 pounds per month; or (B) such maximum monthly contribution as may be determined from time to time by the Board; "Member of a Consortium" the meaning given by Section 187(7) of the Taxes Act; "Monthly Contributions" monthly contributions agreed to be paid by a Participant under his Savings Contract; "NASDAQ" National Association of Securities Dealers, Inc's Automated Quotation System; "Option" a right to acquire Shares under the Scheme which is either subsisting or is proposed to be granted; "Option Price" the price per Share, as determined by the Grantor, at which an Eligible Employee may acquire Shares upon the exercise of an Option granted to him being not less than: (A) 85 per cent. of the Market Value of a Share on the Dealing Day two days prior to the Date of Invitation (or, if the Grantor so determines, 85 per cent. of the average of the Market Values on the three Dealing Days immediately preceding the Date of Invitation or 85 per cent. of the Market Value at such other time or times as may be previously agreed in writing with the Inland Revenue); and (B) if the Shares are to be subscribed, their nominal value; expressed in US $ but subject to any adjustment pursuant to Rule 10; "Participant" any Eligible Employee to whom an Option has been granted, or (where the context so admits) the personal representative(s) of any such person; "Participating Company" (A) the Company; and (B) any other company which is under the Control of the Company, is a Subsidiary of the Company and which has been expressly designated by the Board as being a Participating Company; "Pensionable Age" age (60) sixty; "Savings Contract" a contract under a certified contractual savings scheme (within the meaning of Section 326 of the Taxes Act) approved by the Inland Revenue for the purpose of Schedule 9 to that Act; "Scheme" the ACC Corporation 1996 UK Sharesave Scheme in its present form or as from time to time amended in accordance with the provisions hereof; "Share" a share of Class A common stock of the Company par value US $.015 per share which satisfies paragraphs 10 to 14 of Schedule 9 to the Taxes Act; "Standard Bonus" the Bonus payable at the end of a period of five years from the commencement of a Savings Contract; "Subsidiary" a company as defined by Section 736 of the Companies Act 1985; "Taxes Act" the Income and Corporation Taxes Act 1988; and "Trustees" the trustee or trustees for the time being of any employee benefit trust established for the benefit of beneficiaries including all or substantially all of the Eligible Employees. 1.2 Words and expressions not otherwise defined herein have the same meaning they have in the Taxes Act. 1.3 Where the context so admits or requires words importing the singular shall include the plural and vice versa and words importing the masculine shall include the feminine. 1.4 References in the rules of the Scheme to any statutory provisions are to those provisions as amended, extended or re-enacted from time to time and shall include any regulations made thereunder. The Interpretation Act 1978 shall apply to these rules mutatis mutandis as if they were an Act of Parliament. 1.5 The headings in the rules of the Scheme are for the sake of convenience only and should be ignored when construing the rules. 2. APPLICATION FOR OPTIONS 2.1 The Grantor may, with the prior written approval of the Board, during any Grant Period, invite applications for Options at the Option Price from Eligible Employees. Any such invitation shall be in writing and shall include details of: 2.1.1 eligibility; 2.1.2 the Option Price expressed in US $; 2.1.3 the date by which applications made pursuant to Rule 2.3 must be received, (being neither earlier than 14 days nor later than 25 days after the Date of Invitation); and 2.1.4 whether, for the purposes of determining the number of Shares over which an Option is to be granted, Eligible Employees may elect for the repayment under the Savings Contract to be taken:- 2.1.4.1 as including the Maximum Bonus; 2.1.4.2 as including the Standard Bonus; 2.1.4.3 as including the Lower Bonus; 2.1.4.4 as not including a Bonus; and and the Grantor may determine and include in the invitation details of the maximum number of Shares over which Options are to be granted in that Grant Period. 2.2 Each application for an Option must incorporate or be accompanied by a proposal for a Savings Contract. 2.3 An application for an Option shall be in writing in such form as the Board may from time to time prescribe save that it shall provide for the applicant to state:- 2.3.1 the Monthly Contribution (being a multiple of l pound and not less than 5 pounds) which he wishes to make under the related Savings Contract; 2.3.2 that his proposed Monthly Contributions (when taken together with any Monthly Contribution he makes under any other Savings Contract) will not exceed the Maximum Contribution; 2.3.3 if (as contemplated by Rule 2.1.4) Eligible Employees may elect for the repayment under the Savings Contract to be taken as including the Maximum Bonus, the Standard Bonus, the Lower Bonus or as not including a Bonus, his election in that respect. 2.4 Each application for an Option shall provide that, in the event of excess applications, each application shall be deemed to have been modified or withdrawn in accordance with the steps taken by the Grantor to scale down applications pursuant to Rule 3. 2.5 Proposals for a Savings Contract shall be limited to such bank or building society as the Board may designate. 2.6 Each application shah be deemed to be for an Option over the largest whole number of Shares which can be acquired at the Option Price with the expected repayment (including any relevant Bonus) under the related Savings Contract at the appropriate Bonus Date. 3. SCALING DOWN 3.1 If valid applications are received for a total number of Shares in excess of any maximum number of Shares determined by the Grantor pursuant to Rule 2.1 or any limitation under Rule 5, the Grantor shall (with the prior written approval of the Board) scale down applications by taking, at its absolute discretion, one of the following steps until the number of Shares available equals or exceeds the number of Shares applied for (provided always that in reducing the number of Shares applied for, any adjustments shall ensure that an Eligible Employee's Monthly Contribution remains a multiple of l pound): 3.1.1 by treating any elections for the Maximum Bonus as elections for the Standard Bonus and then, so far as necessary, by treating any elections for the Standard Bonus as an election for no Bonus and then, so far as necessary, by reducing the proposed Monthly Contributions pro rata to the excess over 5 pounds and then, so far as necessary, selecting by lot; or 3.1.2 by treating each election for a Bonus as an election for no Bonus and then, so far as necessary, by reducing the proposed Monthly Contributions pro rata to the excess over 5 pounds and then, so far as necessary, selecting by lot; or 3.1.3 by reducing the proposed Monthly Contributions pro rata to the excess over 5 pounds and then, so far as necessary selecting by lot. 3.2 If the number of Shares available is insufficient to enable an Option based on Monthly Contributions of 5 pounds a month to be granted to each Eligible Employee making a valid application, the Board may, as an alternative to selecting by lot, determine in its absolute discretion that no Options shall be granted. 3.3 If the Board so determines, the provisions in Rule 3.1.1, 3.1.2 and 3.1.3 may be modified or applied in any manner as may be agreed in advance with the Inland Revenue. 3.4 If in applying the scaling down provisions contained in this Rule 3, Options cannot be granted within the 30 day period referred to in Rule 4.2 below, the Board may extend that period by 12 days regardless of the expiry of the relevant Grant Period. 4. GRANT OF OPTIONS 4.1 No Option shall be granted to any person if: 4.1.1 at the Date of Grant that person shall have ceased to be an Eligible Employee; or 4.1.2 that person has or has had at any time within the 12 month period preceding the Date of Grant a Material Interest in the issued ordinary share capital of a Close Company which is the Company or a company which has Control of the Company or is a Member of a Consortium which owns the Company. 4.2 Within 30 days of the first Dealing Day by reference to which the Option Price was fixed (which date shall be within a Grant Period) the Grantor with the prior consent of the Board may, subject to Rule 3 above, grant to each Eligible Employee who has submitted a valid application an Option in respect of the number of Shares for which he has applied. 4.3 The Grantor shall issue to each Participant an option certificate in such form (not inconsistent with the provisions of the Scheme) as the Board may from time to time prescribe. Each such certificate shall specify the Date of Grant of the Option, the number of Shares over which the Option is granted, the Bonus Date and the Option Price. 4.4 Except as otherwise provided in these Rules, every Option shall be personal to the Participant to whom it is granted and shall not be transferable. 4.5 No amount shall be paid in respect of the grant of an Option. 5. NUMBER OF SHARES IN RESPECT OF WHICH OPTIONS MAY BE GRANTED 5.1 The number of Shares which may be issued or issuable pursuant to Options granted under the Scheme on any day shall not, when added to the aggregate of the number of Shares which have been issued or remain issuable in the previous 10 years pursuant to rights obtained under the Scheme, exceed 100,000 Shares or such other number as has been determined by the Board. 6. RIGHTS OF EXERCISE AND LAPSE OF OPTIONS 6.1 6.1.1 Save as provided in Rules 6.2,6.3 and 6.4 and Rule 7, an Option may not be exercised earlier than the Bonus Date under the relevant Savings Contract. 6.1.2 Save as provided in Rule 6.2, an Option shall not be exercisable later than 6 months after the Bonus Date under the relevant Savings Contract. 6.1.3 Save as provided in Rules 6.2 and 6.3 and Rule 7, an Option may only be exercised by a Participant whilst he is a director or employee of a Participating Company, an Associated Company or a company over which the Company has Control. 6.1.4 If, at the Bonus Date, a Participant holds an office or over which the Company has Control, such Option may be exercised within six months of the Bonus Date. 6.1.5 An Option may not be exercised by a Participant if he has or has had at any time within the 12 month period preceding the date of exercise a Material Interest in the issued ordinary share capital of a Close Company which is the Company or a company which has Control of the Company or is a Member of a Consortium which owns the Company, nor may an Option be exercised by the personal representatives of the Participant if the Participant had such a Material Interest at the date of his death. 6.2 An Option may be exercised by the personal representatives of a deceased Participant:- 6.2.1 within 12 months following the date of his death if such death occurs before the Bonus Date; or 6.2.2 within 12 months following the Bonus Date in the event of his death within 6 months after the Bonus Date. 6.3 Subject to Rule 6.1.2 an Option may be exercised by a Participant within 6 months following his ceasing to hold the office or employment by virtue of which he is eligible to participate in the Scheme by reason of: 6.3.1 injury, disability, redundancy within the meaning of the Employment Protection (Consolidation) Act 1978 or the Contracts of Employment and Redundancy Payments Act (Northern Ireland) 1965, or retirement on reaching Pensionable Age or at any other age at which he is bound to retire in accordance with the terms of his contract of employment; or 6.3.2 his office or employment being in a company of which the Company ceases to have Control; or 6.3.3 the transfer or sale of the undertaking or part-undertaking in which he is employed to a person who is neither an Associated Company nor a company under the Control of the Company; 6.3.4 retirement at any age at which he is entitled to retire in accordance with the terms of his contract of employment (other than at Pensionable Age or any age at which he is bound to retire), early retirement with the agreement of his employer, or pregnancy, in each case only if such cessation of office or employment is more than 3 years after the Date of Grant of the Option; or 6.3.5 cessation of employment in circumstances other than those mentioned in 6.3.1 to 6.3.4 above, after the Bonus Date. For the purposes of the Scheme, a woman who leaves employment due to pregnancy will be regarded as having left the employment on the earliest of the date she notifies her employer of her intention not to return, the last day of the 29 week period of confinement and any other date specified by the terms of her office or employment with her employer. 6.4 Subject to Rule 6.1.2 an Option may be exercised by a Participant within 6 months following the date he reaches Pensionable Age if he continues after that date to hold the office or employment by virtue of which he is eligible to participate in the Scheme. 6.5 No person shall be treated for the purposes of Rule 6.3 as ceasing to hold an office or employment by virtue of which that person is eligible to participate in the Scheme until that person ceases to hold any office or employment in the Company, any Associated Company or any company of which the Company has Control. 6.6 Options shall lapse upon the occurrence of the earliest of the following events: 6.6.1 subject to 6.6.2 below, 6 months after the Bonus Date; 6.6.2 where the Participant dies before the Bonus Date, 12 months after the date of death, and where the Participant dies in the period of 6 months after the Bonus Date, 12 months after the Bonus Date; 6.6.3 the expiry of any of the 6 month periods specified in Rule 6.3.1 to 6.3.5 save that if at the time any such applicable periods expire time is running under the 12 month periods specified in Rule 6.2, the Option shall not lapse by reason of this sub-rule 6.6 until the expiry of the relevant 12 month period in Rule 6.2; 6.6.4 the expiry of any of the periods specified in Rules 7.1 and 7.3 to 7.5 save where an Option is released in consideration of the grant of a New Option over New Shares in the Acquiring Company pursuant to Rule 7.6; 6.6.5 the Participant ceasing to hold any office or employment with the Company or any Associated Company or any company over which the Company has Control in any circumstances other than those specified in Rules 6.2 and 6.3 or ceasing to hold such office or employment for any reason during any of the periods specified in Rule 7; 6.6.6 subject to Rule 7.5, the passing of an effective resolution, or the making of an order by the Court, for the winding-up of the Company; 6.6.7 the Participant being deprived of the legal or beneficial ownership of the Option by operation of law, or doing anything or omitting to do anything which causes him to be so deprived or declared bankrupt; or 6.6.8 where before an Option has become capable of being exercised, the Participant gives notice that he intends to stop paying Monthly Contributions, or is deemed under the terms of the Savings Contract to have given such notice, or makes an application for repayment of the Monthly Contributions. 7. TAKEOVER, RECONSTRUCTIONS AND WINDING UP 7.1 Subject to Rule 7.3 if any person obtains Control of the Company as a result of making an offer to acquire Shares which is either unconditional or is made on a condition such that if it is satisfied the person making the offer will have Control of the Company, an Option may be exercised within 6 months of the time when the person making the offer has obtained Control of the Company and any condition subject to which the offer is made has been satisfied. 7.2 For the purpose of Rule 7.1 a person shall be deemed to have obtained Control of the Company if he and others acting in concert (as defined by the City Code on Takeovers and Mergers) with him have together obtained Control of it. 7.3 If any person becomes bound or entitled to acquire Shares under sections 428 to 430F of the Companies Act 1985 (or the equivalent, if any, in the US) an Option may be exercised at any time when that person remains so bound or entitled. 7.4 If under section 425 of the Companies Act 1985 (or the equivalent, if any, in the US) it is proposed that the Court sanctions a compromise or arrangement proposed for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies the Company shall give notice thereof to all Participants at the same time as it sends notices to members of the Company calling the meeting to consider such a compromise or arrangement. The Participant may then exercise the Option subject to the terms of this Rule before the later of the expiry of six months from the date of such notice and the date on which the Court sanctions the compromise or arrangement and thereafter the Option shall lapse conditionally on such compromise or arrangement being sanctioned by the Court and becoming effective. The exercise of an Option under this sub-rule shall be conditional on such compromise or arrangement being sanctioned by the Court and becoming effective. After exercising the Option the Participant shall transfer or otherwise deal with the Shares issued to him so as to place him in the same position (so far as possible) as would have been the case if such shares had been subject to such compromise or arrangement. 7.5 If notice is duly given of a resolution for the voluntary winding-up of the Company, the Company shall give notice thereof to all Participants and thereafter an Option may be exercised until the resolution is duly passed or defeated or the meeting concluded or adjourned sine die provided that any such exercise of an Option pursuant to this sub-rule shall be conditional upon the said resolution being duly passed. If such resolution is duly passed all Options shall, to the extent that they have not been exercised, lapse immediately. 7.6 If any company ("the Acquiring Company"):- 7.6.1 obtains Control of the Company as a result of making:- 7.6.1.1 a general offer to acquire the whole of the issued ordinary share capital of the Company which is made on a condition such that if it is satisfied the Acquiring Company will have Control of the Company; or 7.6.1.2 a general offer to acquire all the shares in the Company which are of the same class as the Shares which may be acquired by the exercise of Options; in either case ignoring any Shares which are already owned by it or a member of the same group of companies; or 7.6.2 obtains Control of the Company in pursuance of a compromise or arrangement sanctioned by the Court under section 425 of the Companies Act 1985; or 7.6.3 becomes bound or entitled to acquire Shares under sections 428 to 430F of that Act, any Participant may at any time within the Appropriate Period, by agreement with the Acquiring Company, release any Option which has not lapsed ("the Old Option") in consideration of the grant to him of an Option ("the New Option") which (for the purposes of Paragraph 15 of Schedule 9 to the Taxes Act) is equivalent to the Old Option but relates to shares in a different company (whether the Acquiring Company itself or some other company falling within Paragraph 10(b) or (c) of Schedule 9 to the Taxes Act). 7.7 The New Option shall not be regarded for the purposes of Rule 7.6 as equivalent to the Old Option unless the conditions set out in Paragraph 15(3) of Schedule 9 to the Taxes Act are satisfied, but so that the provisions of the Scheme shall for this purpose be construed as if:- 7.7.1 the New Option were an option granted under the Scheme at the same time as the Old Option; 7.7.2 except for the purpose of the definition of "Participating Company" in Rule 1, the reference to ACC Corp in the definition of "the Company" in Rule 1 were a reference to the different company mentioned in Rule 7.6; and 7.7.3 Rule 12.2 were omitted. 8. MANNER OF EXERCISE 8.1 An Option may only be exercised during the periods specified in Rules 6 and 7 and only with monies not exceeding the amount of repayment (including any interest and Bonus) under the Savings Contract as at the date of such exercise. For this purpose, no account shall be taken of such part (if any) of the repayment of any Monthly Contribution, the due date for the payment of which under the Savings Contract arises after the date of the repayment 8.2 Exercise shall be by the delivery to the Company Secretary as agent for the Grantor or other duly appointed agent, of a notice of exercise together with an option certificate or certificates covering at least all the Shares over which the Option is then to be exercised, together with any remittance for the Exercise Price payable or authority to the Company as agent for the Grantor to withdraw and apply monies from the Savings Contract to acquire the Shares over which the Option is to be exercised. The effective date of the exercise shall be the date of delivery of the notice of exercise. A notice of exercise shall for the purposes of this Scheme be deemed to be delivered when it is received by the Company. 8.3 The remittance for the Exercise Price referred to in Rule 8.2 above may be paid at the discretion of the Participant either in US $ or in pounds sterling PROVIDED THAT if paid in pounds sterling the Exercise Price shall be converted into US $ at the mid-market spot rate at the close of business published by the Financial Times on the date immediately preceding the date of the exercise or if this is not a Dealing Day the mid-market spot rate at close of business published in the Financial Times on the next preceding Dealing Day. 9. ISSUE OR TRANSFER OF SHARES 9.1 Subject to Rule 9.3, Shares to be issued pursuant to the exercise of an Option shall be allotted to the Participant (or his nominee) within 28 days following the date of effective exercise of the Option. 9.2 Subject to Rule 9.4, the Grantor shall procure the transfer of any Shares to be transferred to a Participant (or his nominee) pursuant to the exercise of an Option within 28 days following the date of effective exercise of the Option. 9.3 Shares issued pursuant to the Scheme shall rank pari passu in all respects with the Shares then in issue, except that they shall not rank for any rights attaching to Shares by reference to a record date preceding the date of exercise. 9.4 Shares transferred pursuant to the Scheme shall not be entitled to any rights attaching to Shares by reference to a record date preceding the date of exercise. 9.5 If and so long as the Shares are listed on the London Stock Exchange, the Company shall apply for a listing for any Shares issued pursuant to the Scheme as soon as practicable after the allotment thereof. 10. ADJUSTMENTS 10.1 The number of Shares over which an Option is granted and the Option Price thereof (and where an Option has been exercised but no Shares have been allotted or transferred pursuant to such exercise, the number of Shares which may be so allotted or transferred and the price at which they may be acquired) shall be adjusted in such manner as the Grantor shall determine following any capitalisation issue, any offer or invitation made by way of rights, subdivision, consolidation, reduction or other variation in the share capital of the Company other than as consideration for an acquisition, which in the opinion of the Auditors justifies such an adjustment, to the intent that (as nearly as may be without involving fractions of a Share or an Option Price calculated to more than two decimal places) the aggregate Exercise Price payable in respect of an Option shall remain unchanged provided that no adjustment made pursuant to this Rule 10.1 shall be made without the prior approval of the Inland Revenue (so long as the Scheme is approved by the Inland Revenue). 10.2 Apart from pursuant to this Rule 10.2, no adjustment under Rule 10.1 above may have the effect of reducing the Option Price to less than the nominal value of a Share. Where an Option subsists over both issued and unissued Shares any such adjustment may only be made if the reduction of the Option Price of Options over both issued and unissued Shares can be made to the same extent. Any adjustment made to the Option Price of Options over unissued Shares shall only be made if and to the extent that the Board shall be authorised to capitalise from the reserves of the Company a sum equal to the amount by which the nominal value of the Shares in respect of which the Option is exercisable exceeds the adjusted Exercise Price and to apply such sum in paying up such amount on such Shares so that on exercise of any Option in respect of which such a reduction shall have been made the Board shall capitalise such sum (if any) and apply the same in paying up such amount as aforesaid. 10.3 The Board may take such steps as it may consider necessary to notify Participants of any adjustment made under this Rule 10 and to call in, cancel, endorse, issue or reissue any option certificate consequent upon such adjustment. 11. ADMINISTRATION 11.1 Any notice or other communication under or in connection with the Scheme may be given by personal delivery or by sending the same by post, in the case of a company to its registered office and in the case of an individual to his last known address or, where he is a director or employee of a Participating Company or an Associated Company, either to his last known address or to the address of the place of business at which he performs the whole or substantially the whole of the duties of his office or employment, and where a notice or other communication is given by post, it shall be deemed to have been received 96 hours after it was put into the post properly addressed and stamped. 11.2 The Company may distribute to Participants copies of any notice or document normally sent by the Company to the holders of Shares. 11.3 If any option certificate shall be worn out, defaced or lost, it may be replaced on such evidence being provided as the Board may require. 11.4 The Company shall at all times keep available for allotment unissued Shares at least sufficient to satisfy all Options under which Shares may be subscribed or procure that sufficient Shares are available for transfer to satisfy all Options under which Shares may be acquired. 11.5 The decision of the Board in any dispute relating to an Option or the due exercise thereof or any other matter in respect of the Scheme shall be final and conclusive subject to the certification of the Auditors having been obtained when so required by Rule 10.1. 11.6 The costs of introducing and administering the Scheme shall be borne by the Company. 12. ALTERATIONS 12.1 Subject to Rule 12.2 and 12.4, the Board may at any time alter or add to all or any of the provisions of the Scheme in any respect, provided that if an alteration or addition is made at a time when the Scheme is approved by the Inland Revenue under Schedule 9 to the Taxes Act it shall not have effect until it has been approved by the Inland Revenue. 12.2 Subject to Rule 12.3, no alteration or addition to the advantage of Participants or employees shall be made under Rule 12.1 without the prior approval by resolution of the Board of the Company. 12.3 Rule 12.2 shall not apply to any minor alteration or addition which is to benefit the administration of the Scheme, is necessary or desirable in order to obtain or maintain Inland Revenue approval of the Scheme under Schedule 9 to the Taxes Act or any other enactment or to take account of any change in legislation or to obtain or maintain favourable taxation, exchange control or regulatory treatment for the Company, any subsidiary of the Company or any Participant. 12.4 No alteration or addition shall be made under Rule 12.1 which would abrogate or adversely affect the subsisting rights of a Participant, unless it is made:- 12.4.1 with the consent in writing of such number of Participants as hold Options under the Scheme to acquire 75 per cent. of the Shares which would be issued or transferred if all Options granted and subsisting under the Scheme were exercised; or 12.4.2 by a resolution at a meeting of Participants passed by not less than 75 per cent. of the Participants who attend and vote either in person or by proxy. For the purposes of this Rule 12.4 the provisions of the Articles of Incorporation of the Company relating to shareholder meetings shall apply mutatis mutandis. 12.5 Notwithstanding any other provision of the Scheme other than Rule 12.1 the Board may, in respect of Options granted to Eligible Employees who are or who may become subject to taxation outside the United Kingdom on their remuneration amend or add to the provisions of the Scheme and the terms of Options as it considers necessary or desirable to take account of or to mitigate or to comply with relevant overseas taxation, securities or exchange control laws provided that the terms of Options granted to such Eligible Employees are not overall more favourable than the terms of Options granted to other Eligible Employees. 12.6 As soon as reasonably practicable after making any alteration or addition under rule 12.1 the Board shall give written notice thereof to any Participant affected thereby. 12.7 No alteration shall be made to the Scheme if following the alteration the Scheme would cease to be an Employees' Share Scheme. 13. GENERAL 13.1 The Scheme shall terminate upon the 10th anniversary of its approval by the Company or at any earlier time by the passing of a resolution by the Board or an ordinary resolution of the Company in general meeting. Termination of the Scheme shall be without prejudice to the subsisting rights of Participants. 13.2 The Company and any Subsidiary of the Company may provide money to the trustee of any trust or any other person to enable them or him to acquire Shares to be held for the purposes of the Scheme, or enter into any guarantee or indemnity for those purposes, to the extent permitted by section 153 of the Companies Act 1985, provided that any trust deed to be made for this purpose shall, at time when the Scheme is approved by the Inland Revenue under Schedule 9 to the Taxes Act, have previously been submitted to the Inland Revenue. In addition, the Company may require any Subsidiary to enter into such other agreement or agreements as it shall deem necessary to oblige such Subsidiary to reimburse the Company for any other amounts paid by the Company hereunder, directly or indirectly in respect of such Subsidiary's employees. Nothing in the Scheme shall be deemed to give any employee of any Participating Company any right to Participate in the Scheme. 13.3 The rights and obligations of any individual under the terms of his office or employment with a Participating Company shall not be affected by his participation in the Scheme or any right which he may have to participate therein, and an individual who participates therein shall waive all and any rights to compensation or damages in consequence of the termination of his office or employment with any such company for any reason whatsoever insofar as those rights arise or may arise from his ceasing to have rights under or be entitled to exercise any Option under the Scheme as a result of such termination or from the loss or diminution in value of such rights or entitlements. 13.4 In the event that Shares are transferred to an Option holder pursuant to the exercise of any Option granted under the Scheme, the Participant shall, if so required by the person making the transfer, join that person in making a claim for relief under Section 165 of the Taxation of Chargeable Gains Act 1992 in respect of the disposal made by him in effecting such transfer. 13.5 These Rules shall be governed by and construed in accordance with the law of England. EX-10 13 Exhibit 10-39 LICENCE GRANTED BY THE SECRETARY OF STATE FOR TRADE AND INDUSTRY TO ACC LONG DISTANCE UK LTD UNDER SECTION 7 OF THE TELECOMMUNICATIONS ACT 1984 18 December 1996 TABLE OF CONTENTS THE LICENCE SCHEDULE 1: CONDITIONS INCLUDED UNDER SECTION 7 OF THE ACT PART 1: Definitions and interpretation relating to the Conditions in Schedule 1 PART 2: Special Conditions referred to in section 8 of the Act 1 Requirement to provide telecommunication services 2 Directory Information 3 Public Emergency Call Services 4 Planning and implementation of special arrangements for Emergencies 5 Requirement to provide Connection Services and connection of apparatus 6 Provision by others of services by means of the Applicable Systems 7 Publication of charges, terms and conditions to be applied 8 Prohibition on undue preference and undue discrimination PART 3: Other Conditions included under section 7 of the Act 9 Maintenance of effective competition where the licensee operates a system or provides services overseas 10 Fair Trading 11 Essential Interfaces 12 Customer Interface Standards 13 Metering and Billing Arrangements 14 Numbering arrangements 15 Arrangements for proportionate return 16 Arrangements for parallel accounting 17 Prohibition of exclusive dealing in international services 18 Notification of changes in Shareholdings 19 Licensee's Group 20 Payment of fees 21 Requirement to furnish information to the Director 22 Requirement to submit accounts to the Director 23 Exceptions and limitations on obligations in Schedule 1 SCHEDULE 2: REVOCATION SCHEDULE 3: AUTHORISATION TO CONNECT OTHER TELECOMMUNICATION SYSTEMS AND APPARATUS TO THE APPLICABLE SYSTEMS AND TO PROVIDE TELECOMMUNICATION SERVICES BY MEANS OF THE APPLICABLE SYSTEMS LICENCE GRANTED BY THE SECRETARY OF STATE FOR TRADE AND INDUSTRY TO ACC LONG DISTANCE UK LTD UNDER SECTION 7 OF THE TELECOMMUNICATIONS ACT 1984 THE LICENCE 1 The Secretary of State, in exercise of the powers conferred on him by section 7 of the Telecommunications Act 1984 (hereinafter referred to as "the Act") and after consulting the Director hereby grants to ACC Long Distance UK Ltd (hereinafter referred to as "the Licensee") a licence, for the period specified in paragraph 2, subject to the Conditions set out in the Schedule 1 and to revocation as provided for in paragraph 2 and in Schedule 2, to run telecommunication systems of every description within the United Kingdom ("the Applicable Systems") and authorises the Licensee to do all or any of the acts specified in Schedule 3. Duration 2 This Licence shall enter into force on the date of signature and shall be of six months' duration in the first instance but, without prejudice to Schedule 2 to this Licence, shall be subject to revocation thereafter on one month's notice in writing of such revocation. Interpretation 3 The Interpretation Act 1978 shall apply for the purpose of interpreting this Licence as if it were an Act of Parliament. In this Licence, except as hereinafter provided or unless the context otherwise requires, words or expressions shall have the meaning assigned to them and otherwise any word or expression shall have the same meaning as it has in the Act. For the purposes of interpreting this Licence, headings and titles shall be disregarded. 4 In this Licence, "Licence" means a licence granted or having effect as if granted under section 7 of the Act. 5 For the purposes of this Licence the "Applicable Systems" means any or all of the telecommunication systems run by the Licensee under this Licence unless the context otherwise requires. 6 Where this Licence provides for any power of the Secretary of State or the Director to give any direction or consent or make any specification, designation or determination, it implies, unless the contrary intention appears, a power, exerciseable in the same manner and subject to the same conditions or limitations, to revoke, amend or give or make again any such direction, consent, specification, designation or determination. 7 Any notification which is required to be given under this Licence by the Secretary of State or the Director shall be satisfied by serving the document by post on the Licensee at the Licensee's registered office. /s/ Illegible Parliamentary Under Secretary of State for Science and Technology 18 December 1996 SCHEDULE 1: CONDITIONS INCLUDED UNDER SECTION 7 OF THE ACT PART 1: DEFINITIONS AND INTERPRETATION RELATING TO THE CONDITIONS IN SCHEDULE 1 1 In this Schedule unless the context otherwise requires: (a) "Accounting Rate Service" means each telecommunications service to each country and territory for which a separate accounting rate has been agreed, not including Transit Services; (b) "Applicable Terminal Equipment" means apparatus which is applicable terminal equipment within the meaning of regulation 4 of the Telecommunications Terminal Equipment Regulations 1992; (c) "Approved Apparatus" means in relation to any system apparatus approved under section 22 of the Act for connection to that system; (d) "Associated Person" means any member of the Licensee's Group or a person with a Participating Interest in a member of the Licensee's Group or in whom a member of the Licensee's Group has a Participating Interest; (e) "Authorised Overseas System" means any telecommunication system outside the United Kingdom which is authorised to be connected to the Applicable Systems under Schedule 3; (f) "Compatibility" means that between the parties concerned there is no reasonably foreseeable risk of: (i) duplication of any Number; or (ii) any other related effect, such as would introduce ambiguity or errors or impose undue restrictions on any user or group of users; (g) "Compliant Terminal Equipment" means Applicable Terminal Equipment which satisfies the requirements of regulation 8 of the Telecommunications Terminal Equipment Regulations 1992; (h) "Condition" means a Condition in this Schedule; (i) "Connectable System" means a telecommunication system which is authorised to be run under a Licence which authorises connection of that system to the Applicable Systems; (j) "Connection Service" means a telecommunication service consisting in the conveyance of any Message which has been, or is to be, conveyed by means of the Applicable Systems; (k) "Dwelling-House" has the same meaning as in section 202 of the Broadcasting Act 1990; (l) "Emergency" means an emergency of any kind, including any circumstance whatever resulting from major accidents, natural disasters and incidents involving toxic or radio-active materials; (m) "Emergency Organisations" means in respect of any locality: (i) the relevant public police, fire, ambulance and coastguard services for that locality; and (ii) any other similar organisation in respect of which any public telecommunications operator licensed to operate in the locality in question is providing a Public Emergency Call Service on the day on which this Licence enters into force; (n) "Essential Interface" means in respect of a Point of Connection an interface at which in the opinion of the Director it is essential that interoperability between the Applicable Systems and the respective Operator's systems is available; (o) "Group" means a parent undertaking and its subsidiary undertaking or undertakings within the meaning of section 258 of the Companies Act 1985 as substituted by section 21 of the Companies Act 1989; and "Licensee's Group" means a Group in respect of which the Licensee is either a parent undertaking or a subsidiary undertaking; (p) "International Business" means the business of providing telecommunication services including, without limitation, any services comprised in a Relevant International Function, which consist in the conveyance of Messages to countries or territories outside the United Kingdom carried on under a Licence and include the running of such parts of the Applicable Systems as are used for the provision of those services, and the installation, maintenance, adjustment, repair, alteration, moving, removal or replacement of such Systems and any apparatus comprised therein; (q) "International Conveyance Service" means a telecommunication service consisting in the conveyance of any Message which has been or is to be conveyed by means of any telecommunication system outside the United Kingdom the connection of which to the system by means of which that service is provided is authorised by a Licence; (r) "International Private Leased Circuit" means a communication facility which is: (i) comprised both in a public telecommunication system and in an equivalent telecommunication system in a country or territory other than the United Kingdom; (ii) for the conveyance of Messages between points, all of which are points of connection between telecommunication systems referred to in paragraph 1(r)(i) and other telecommunication systems; (iii) made available to a particular person or particular persons; (iv) such that all of the Messages transmitted at any of the points mentioned in paragraph 1(r)(ii) are received at every other such point; and (v) such that the points mentioned in paragraph 1(r)(ii) are fixed by the way in which the facility is installed and cannot otherwise be selected by persons or telecommunication apparatus sending Messages by means of that facility; (s) "International Simple Data Resale Services" means telecommunication services consisting in the conveyance of Messages which do not include two-way live speech, but include only such switching, processing, data storage or protocol conversion as is necessary for the conveyance of those Messages in real time, which have been or are to be conveyed by means of all of the following: (i) a Public Switched Network; (ii) an International Private Leased Circuit; and (iii) the equivalent of a Public Switched Network in another country or territory; provided that conveyance of a Message by means of a Public Switched Network or, as the case may be, the equivalent of a Public Switched Network in another country or territory shall be disregarded where that Message is so conveyed in circumstances specified for the time being by the Secretary of State as not being material for the purposes of paragraph 3 of Schedule 3 to this Licence and included in a list kept for the purpose by the Director and made available by him for inspection by the general public; (t) "International Simple Voice Resale Services" means telecommunication services consisting in the conveyance of Messages which include two-way live speech which have been or are to be conveyed by means of all of the following: (i) a Public Switched Network; (ii) an International Private Leased Circuit; and (iii) the equivalent of a Public Switched Network in another country or territory; provided that conveyance of a Message by means of a Public Switched Network or, as the case may be, the equivalent of a Public Switched Network in another country or territory shall be disregarded where that Message is so conveyed in circumstances specified for the time being by the Secretary of State as not being material for the purposes of paragraph 3 of Schedule 3 to this Licence and included in a list kept for the purpose by the Director and made available by him for inspection by the general public; (u) "Long Line Public Telecommunications Operator" means a public telecommunications operator who is authorised by a Licence to provide telecommunication services consisting in the conveyance of Messages by fixed links run by that operator over distances greater than 50 linear kilometres; (v) "Major Office" means the Licensee's registered office and such other offices as the Director, having consulted the Licensee, may direct; (w) "Message" means anything falling within paragraphs (a) to (d) of section 4(1) of the Act; (x) "Network Connecting Apparatus" means telecommunication apparatus comprised in the Applicable Systems which is not Network Termination and Testing Apparatus and is connected to another telecommunication system; (y) "Network Termination Point" means any point: (i) within an item of Network Connecting Apparatus at which energy of any of the forms specified in section 4(1) of the Act is conveyed directly to or from apparatus comprised in a telecommunication system other than one in which that Network Connecting Apparatus is comprised; or (ii) within an item of Network Termination and Testing Apparatus at which such energy is conveyed directly to any Relevant Terminal Apparatus; (z) "Network Termination and Testing Apparatus" means an item of telecommunication apparatus comprised in the Applicable Systems installed in a fixed position on Served Premises which enables: (i) Approved Apparatus to be readily connected to, and disconnected from, the Applicable Systems; (ii) the conveyance of Messages between such Apparatus and the Applicable Systems; and (iii) the due functioning of the Applicable Systems to be tested, but the only other functions of which, if any, are: (1) to supply energy between such Apparatus and the Applicable Systems; (2) to protect the safety or security of the operation of the Applicable Systems; or (3) to enable other operations exclusively related to the naming of the Applicable Systems to be performed or the due functioning of any system to which the Applicable Systems are or are to be connected to be tested (separately or together with the Applicable Systems). (aa) "Number" means any identifier which would need to be used in conjunction with any public switched service for the purposes of establishing a connection with any Network Termination Point, user, telecommunication apparatus connected to any Public Switched Network or service element, but not including any identifier which is not accessible to the generality of users of a public switched service; (ab) "Numbering Plan" means a plan describing the method adopted or to be adopted for allocating and re- allocating a Number to any Network Termination Point, user telecommunication apparatus or service element; (ac) "Operator" means any person who is authorised by a Licence to run a Relevant Connectable System; (ad) "Parent Undertaking" has the same meaning as in section 258 of the Companies Act 1985 as substituted by section 21 of the Companies Act 1989; (ae) "Participating Interest" has the same meaning as in section 260 of the Companies Act 1985 as substituted by section 22 of the Companies Act 1989; (af) "Point of Connection" means a point at which the Applicable Systems and an Operator's system are connected; (ag) "Private Leased Circuit" means a communication facility which is: (i) provided by means of one or more public telecommunication systems; (ii) for the conveyance of Messages between points, all of which are points of connection between telecommunication systems referred to in paragraph 1(ag)(i) and other telecommunication systems; (iii) made available to a particular person or particular persons; (iv) such that all of the Messages transmitted at any of the points mentioned in paragraph l(ag)(ii) are received at every other such point; and (v) such that the points mentioned in paragraph 1(ag)(ii) are fixed by the way in which the facility is installed and cannot otherwise be selected by persons or telecommunication apparatus sending Messages by means of that facility; (ah) "Public Emergency Call Services" means a telecommunication service by means of which any member of the public may, at any time and without incurring any charge, by means of an item of telecommunication apparatus which is lawfully connected to the Applicable Systems and which is capable of transmitting and receiving unrestricted two way voice telephony services when so connected, communicate as swiftly as practicable with any of the Emergency Organisations for the purpose of notifying them of an Emergency; (ai) "Public Switched Network" means a public telecommunication system by means of which two-way telecommunication services are provided whereby Messages are switched incidentally to their conveyance, and, for the avoidance of doubt, a Public Switched Network does not include Private Leased Circuits or International Private Leased Circuits; (aj) "Relevant Apparatus" means any apparatus which is, or is to be, connected to any of the switched Applicable Systems; (ak) "Relevant Company" means: (i) the Licensee; or (ii) a Parent Undertaking in relation to the Licensee; (al) "Relevant Connectable System" means a Connectable System which is authorised to be run under a Licence which authorises the provision by means of that system of Connection Services for reward to the general public, or any class of the general public, not being a system: (i) authorised to be run under a Licence granted to all persons or persons of any class; and (ii) for the connection of which, and for the provision of matters necessary for such connection, the Licensee offers terms and conditions which satisfy the requirements of Condition 7 of Schedule 1, and not being a system which the Director has determined ought not to be deemed a Relevant Connectable System for the purposes of this Licence; (am) "Relevant International Function" means the business of providing any of the following telecommunication services by means of the Applicable Systems: (i) International Simple Voice Resale and/or International Simple Data Resale; (ii) provision to others of International Private Leased Circuits; (iii) provision of services under any agreement falling within the description contained in Condition 5.1 in Schedule 1; (iv) provision of International Conveyance Services (but not including International Simple Voice Resale or International Simple Data Resale), charges for which are to be settled at accounting rates; (v) provision of International Conveyance Services (but not including International Simple Voice Resale or International Simple Data Resale), charges for which are not to be settled at accounting rates, and where the Messages conveyed in the provision of such service are conveyed over a circuit which is capable of conveying two-way live speech; (vi) provision of International Conveyance Services (including International Simple Voice Resale or International Simple Date Resale), charges for which are not to be settled at accounting rates, and where the Messages conveyed in the provision of such service are conveyed over a circuit which is not capable of conveying two- way live speech; (vii) the installation, maintenance, adjustment, repair, alteration, moving, removal or replacement of any apparatus comprised or to be comprised in the Applicable Systems; or (viii) provision of any other services included in the Licensee's International Business but not included in any of (am) (i) to (vii) above. (an) "Relevant System" means a Connectable System which is, or is to be, connected to any of the switched Applicable Systems; (ao) "Relevant Terminal Apparatus" means: (i) "Terminal Apparatus", that is to say any telecommunication apparatus installed on Served Premises by means of which Messages are initially transmitted or ultimately received; and (ii) any other telecommunication apparatus directly connected to Terminal Apparatus (including apparatus which is Terminal Apparatus by virtue of this sub-paragraph) which would, if it were run with such Terminal Apparatus and any other apparatus by means of which it is so connected, constitute a system authorised to be run by the person running that Terminal Apparatus under a Licence; (ap) "Served Premises" means a single set of premises in single occupation where apparatus has been installed for the purpose of the provision of telecommunication services by means of the Applicable Systems at those premises; (aq) "Shares" has the same meaning as in section 259(2) of the Companies Act 1985, as substituted by section 22 of the Companies Act 1989, and the term "Shareholding" is to be construed accordingly; (ar) "Specified Numbering Scheme" means a scheme for the allocation and reallocation of Numbers which is specified by the Director for the purpose of this Licence and described in a list kept for that purpose by him and made available by him for inspection by the general public. (as) "Subscriber" means a person (other than a public telecommunications operator) to whom there are provided switched voice telephony services by means of the Applicable Systems; (at) "Subsidiary" has the meaning given to it in section 736 of the Companies Act 1985, as substituted by section 144(1) of the Companies Act 1989; (au) "Systems Business" means the following activities of the Licensee or of any wholly owned Subsidiary to the extent that they are undertaken in the United Kingdom taken together: (i) the running of the Applicable Systems; and (ii) the installation, maintenance, adjustment, repair, alteration, moving, removal or replacement of any apparatus comprised or to be comprised in the Applicable Systems; (av) "Transit Service" means any telecommunications service consisting in the conveyance of any Message which originates outside the United Kingdom and is not to be terminated within the United Kingdom and for which a separate accounting rate has been agreed; (aw) "Well Established International Operator" means an Operator having 25% or more of what is in the opinion of the Director the relevant market, unless the Director determines that the Operator is not a Well Established International Operator, or an Operator having less than 25% of what is in the opinion of the Director the relevant market which is determined by the Director to be a Well Established International Operator. 2 Any reference in any Condition in this Schedule, however expressed, to the Director notifying the Licensee about any matter, affording the Licensee an opportunity to make representations, taking representations by the Licensee into account, or explaining, or giving reasons for, any matter to the Licensee, shall be without prejudice to any obligation of due process or similar obligation which the Director is or may be under by virtue of any rule or principle of law or otherwise. 3 Expressions cognate with those referred to in this Schedule shall be construed accordingly. PART 2: SPECIAL CONDITIONS REFERRED TO IN SECTION 8 OF THE ACT Condition 1 REQUIREMENTS TO PROVIDE TELECOMMUNICATION SERVICES 1 The Licensee shall take all reasonable steps to provide by means of the Applicable Systems to any Operator who so requests International Conveyance Services to the extent necessary to satisfy all reasonable demands for such Services by such Operator. Condition 2 DIRECTORY INFORMATION 2.1 This Condition shall only apply where the Applicable Systems are connected to a telecommunication system not run under a Licence issued to a particular person. 2.2 Subject to paragraph 2.5, where the Licensee provides switched voice telephony services by means of any of the Applicable Systems which is connected to an Authorised Overseas System by means of which such services are provided, then, if a directory information service is provided by means of that Authorised Overseas System in respect of that Authorised Overseas System, the Licensee shall provide to any person to whom it provides switched voice telephony services by means of that Applicable System information as to how that person may avail himself by means of that Applicable System and that Authorised Overseas System when connected together of the directory information service provided and shall take all reasonable steps to secure that that can be done. 2.3 Where the Licensee provides switched voice telephony services by means of any of the Applicable Systems which is connected to both: (a) an Authorised Overseas System by means of which such services are provided; and (b) a Connectable System in the United Kingdom by means of which such services are provided which is run under a Licence which does not authorise the connection of that system to a system outside the United Kingdom so as to convey Messages from the United Kingdom to a place outside the United Kingdom it shall not unreasonably refuse to provide to the operator of that Connectable System access to such directory information services relating to the Authorised Overseas System as the Licensee makes available to those to whom it provides voice telephony services. 2.4 The directory information service provided by the Licensee under paragraph 2.2 shall include a service satisfactory to the Director whereby directory information is made available in a form which is appropriate to meet their needs to persons who are so blind or otherwise disabled as to be unable to use a telephone directory in a form in which it is generally available to persons to whom the Licensee provides services; and the service so provided to such persons shall from the date on which this Licence enters into force be provided free of charge or, if the Director is satisfied that that is not practicable, the Licensee shall provide, in accordance with arrangements agreed with the Director, appropriate reasonable compensation in respect of charges that are paid. 2.5 The obligation in paragraph 2.2 shall not apply: (a) when the directory information requested relates to a person who has requested the Licensee or the operator of the connected telecommunication system not to provide such information in relation to him; or (b) in respect of any person to whom switched voice telephony services are provided by means of the Applicable Systems if that person has notified the Licensee in writing that he is able to obtain from another public telecommunications operator who provides switched voice telephony services within the United Kingdom to that person information as to how to avail himself of such directory information service as may be provided in respect of any Authorised Overseas System which is connected to the Applicable Systems. 2.6 This Condition is without prejudice to Condition 5. Condition 3 PUBLIC EMERGENCY CALL SERVICES 3.1 This Condition shall only apply where the Applicable Systems are connected to a telecommunication system not run under a Licence issued to a particular person. 3.2 The Licensee shall ensure, except to the extent that the Director determines is not reasonably practicable, that both the numbers 999 and 112 are available as emergency call numbers so that any member of the public by dialling either the number 999 or the number 112 on telecommunication apparatus which is lawfully connected to the Applicable Systems at any place in the United Kingdom and which is capable of transmitting and receiving unrestricted two way voice telephony services when so connected is provided with a Public Emergency Call Service. 3.3 Where the Director has made a determination in accordance with paragraph 3.2 the Licensee shall take all reasonable steps to ensure that persons to whom there are provided by means of the Applicable Systems services which do not include a Public Emergency Call Service are notified in writing that the services so provided do not include a Public Emergency Call Service. 3.4 For the purposes of this Condition telecommunication apparatus shall be regarded as capable of transmitting and receiving unrestricted two way voice telephony services only if it is capable of both: (a) transmitting for conveyance by means of an Applicable System specific signals designated by the Licensee for the purpose of establishing communication with voice telephony apparatus controlled by the Emergency Organisations; and (b) transmitting and receiving uninterrupted simultaneous two way speech to be conveyed, or as the case may be conveyed, by means of that Applicable System. 3.5 In this Condition, the United Kingdom does not include any area to which the Act is extended under section 107. Condition 4 PLANNING AND IMPLEMENTATION OF SPECIAL ARRANGEMENTS FOR EMERGENCIES 4.1 The Licensee shall, after consultation with such authorities responsible for Emergency Organisations and such departments of central and local government as the Director may from time to time determine and whose names are notified to the Licensee by him for the purpose, make plans or other arrangements for the provision or, as the case may be, the rapid restoration of such telecommunication services as are practicable and may reasonably be required in Emergencies. 4.2 The Licensee shall, on request by any such person as is designated for the purpose in the relevant plans or arrangements, implement those plans or arrangements insofar as it is reasonable and practicable to do so. 4.3 Nothing in this Condition precludes the Licensee from: (a) recovering the costs which it incurs in making or implementing any such plans or arrangements from those on behalf of or in consultation with whom the plans or arrangements are made; or (b) making implementation of any plans or arrangements conditional upon the person or persons for whom or on whose behalf that plan or arrangement is to be implemented indemnifying the Licensee for all costs incurred as a consequence of the implementation. Condition 5 REQUIREMENT TO PROVIDE CONNECTION SERVICES AND CONNECTION OF APPARATUS 5.1 Subject to the following provisions of this Condition the Licensee shall, unless it is impracticable to do so, enter into an agreement or agree to amend such an agreement, within a reasonable period (which shall not, unless the Director otherwise consents, exceed 6 months), with an Operator if that Operator requires it to do so: (a) to connect, and keep connected, to any of the Applicable Systems, or to permit to be so connected and kept connected, any Relevant Connectable System run by the Operator and any item of telecommunication apparatus which is required for that purpose and which is located on the same premises as the Applicable Systems and which is approved for the time being under section 22 of the Act or is Compliant Terminal Equipment, and accordingly to establish and maintain such one or more Points of Connection as are reasonably required and are of sufficient capacity and in sufficient number to enable Messages conveyed or to be conveyed by means of the Operator's system to be conveyed by means of the Applicable Systems in such a way as conveniently to meet all reasonable demands for the conveyance of Messages between the Relevant Connectable System and the Applicable Systems; (b) without prejudice to paragraph 5.1(a), where the Operator is a Long Line Public Telecommunications Operator, to establish and maintain such Points of Connection as will enable persons running telecommunication systems connected to the Operator's system and persons running telecommunication systems connected to the Applicable Systems to exercise freedom of choice as to the extent to which Messages are conveyed by means of the Applicable Systems and in routing Messages so conveyed; and (c) to provide such other telecommunication services (including the conveyance of Messages which have been, or are to be, transmitted or received at such Points of Connection), information and other services as the Director determines are reasonably required (but no more than reasonably required) to secure that Points of Connection are established and maintained and to enable the Operator effectively to provide the Connection Services which he provides or proposes to provide. 5.2 The Licensee shall not be obliged under paragraph 5.1 to enter into an agreement to do anything or agree to amend such an agreement to do anything if: (a) in the opinion of the Licensee it would be liable to cause the death of or personal injury to, or damage to the property of, the Licensee or any person engaged in the Licensee's business, or materially to impair the quality of any telecommunication service provided by means of the Applicable Systems or any telecommunication system (other than the Operator's system) connected thereto and the Director has not expressed a contrary opinion; or (b) in the opinion of the Licensee: (i) it would require an adjustment to, or modification of, the Applicable Systems whether by incorporation of apparatus or otherwise or the provision by the Licensee of services or information which in any particular case would not be reasonably required; or (ii) it would not be reasonably practicable to require the Licensee to do that thing, or permit it to be done, at the time or in the manner required by the Operator, having regard to the state of technical development of the Applicable Systems or any other relevant matter, and the Director has not expressed a contrary opinion. 5.3 The Licensee may require that an agreement under paragraph 5.1 should be subject to such terms and conditions as are, in the opinion of the Director, reasonable. 5.4 Apparatus shall not be regarded as approved for connection to any system for the purposes of paragraph 5.1 unless that apparatus is Compliant Terminal Equipment or has been so approved: (a) by the Secretary of State; or (b) by some other person by virtue of an authorisation given by the Secretary of State being an authorisation which required the person authorised, before approving any apparatus or designating any standard to which apparatus must conform if it is to be approved, to be satisfied that connection of the apparatus to the system would not be likely: (i) to cause the death of, or personal injury to, or damage to the property of the Licensee or any person engaged in the running of that system; or (ii) materially to impair the quality of any telecommunication service provided by means of that system or any system connected to it (other than the system being connected). 5.5 No apparatus or system is required under paragraph 5.1 to be, or to be permitted to be, connected or kept connected to the Applicable Systems if the apparatus, or any apparatus comprised in that system, as the case may be: (a) conformed to the relevant standard or standards at the time when the connection to the Applicable Systems was made but no longer does so and does not conform to the relevant standard or standards (if any) for the time being designated under section 22(6) of the Act; or (b) was at the time when the connection to the Applicable Systems was made but has since ceased to be Complaint Terminal Equipment; or (c) while continuing to conform to the relevant standard is in the opinion of the Licensee liable to cause the death of, or personal injury to, or damage to the property of, the Licensee, or any person engaged in the running of the Applicable Systems or materially to impair the quality of any telecommunication service provided by means of the Applicable Systems and the Director has not directed otherwise. 5.6 An agreement made pursuant to this Condition shall not contain any restrictive provision unless, before the agreement is made, the Director has expressly consented to the inclusion of such a provision. For the purposes of this paragraph, a provision in an agreement is a restrictive provision if by virtue of the existence of such a provision (taken alone or with other provisions) the agreement is one to which the Restrictive Trade Practices Act 1976 would apply but for paragraph 1(l) of Schedule 3 to that Act. 5.7 Where the Director so directs the Crown shall be treated for the purposes of this Condition as a person authorised to run a Relevant Connectable System and where he does so he may also direct that the Crown is to be treated as a Long Line Public Telecommunications Operator for those purposes. Condition 6 PROVISION BY OTHERS OF SERVICES BY MEANS OF THE APPLICABLE SYSTEMS 6.1 The Licensee shall permit any person, who is licensed to run a Connectable System under a Licence which authorises it to provide telecommunication services to others, including Connection Services, to provide such services whilst that Connectable System is connected to the relevant Applicable System. 6.2 The Licensee shall permit any person: (a) using telecommunication apparatus which has been lawfully connected to the Applicable Systems or which is connected to another telecommunication system which itself has been lawfully connected to the Applicable Systems; or (b) running a telecommunication system which is so connected, to provide by means of the Applicable Systems any service other than the installation, maintenance, adjustment, repair, alteration, moving, removal or replacement of telecommunication apparatus comprised in the Applicable Systems. Condition 7 PUBLICATION OF CHARGES, TERMS AND CONDITIONS TO BE APPLIED 7.1 The Licensee shall, subject to paragraph 7.2, except insofar as the Director may otherwise consent in writing and except in respect of charges, terms and conditions in agreements made or modified to comply with Condition 5: (a) publish in the manner and at the times specified in paragraph 7.4 a notice specifying, or specifying the method that is to be adopted for determining, the charges and other terms and conditions on which it offers: (i) to provide each description of telecommunication services by means of the Applicable Systems; or (ii) to maintain, adjust, repair or replace any apparatus comprised in the Applicable Systems; or (iii) to connect to the Applicable Systems any other system which is not and is not to be comprised in the Applicable Systems; or (iv) to grant permission to connect such systems to, or to provide services by means of, the Applicable Systems; where such things are done in accordance with an obligation imposed by or under this Licence. (b) Where the Licensee does any of the things described in paragraphs 7.1(a)(i) to 7.1(a)(iv) it shall do those things at the charges and on the other terms and conditions so published and not depart therefrom. Provided that this obligation will not be breached by variations to the charges, terms and conditions referred to in paragraph 7(1)(a) to the extent that the method which is adopted for determining those variations has been disclosed to the Director, except insofar as those charges, terms and conditions relate to a particular market in respect of which the Director has made a determination that the Licensee is a Well Established International Operator. 7.2 Where the Director has made a determination that the Licensee is a Well Established International Operator in a particular market the Licensee shall specify the precise amount of such charges in accordance with paragraph 7.1(a), insofar as they relate to the market in respect of which such a determination has been made. 7.3 The requirement to publish under paragraph 7.1 shall not apply in respect of any service which is materially different from any service already provided by the Licensee by means of the Applicable Systems until such time as it is provided and a copy of the notice shall be sent to the Director at that time. 7.4 Publication of the notice shall be effected by: (a) sending a copy thereof to the Director to arrive not more than 28 days after the date on which the Licensee first provides services under the Licence and thereafter not less than one day before any proposal to amend any charge, term or condition or the method of determining the same is to become effective: provided that where the Director has made a determination that the Licensee is a Well Established International Operator in a particular market, this sub-paragraph shall have effect as if the words "28 days" were substituted for the words "one day" insofar as any such proposal relates to the provision of services in relation to the market in respect of which such a determination has been made; (b) placing as soon as practicable thereafter a copy thereof in a publicly accessible part of every Major Office of the Licensee in such a manner and in such a place that it is readily available for inspection free of charge by members of the general public during such hours as the Secretary of State may by order prescribe under section 19(4) of the Act that the register of Licences and final and provisional orders is to be open to public inspection, or in the absence of any such order having been made by the Secretary of State, during normal office hours; and (c) sending a copy thereof or such part or parts thereof as are appropriate to any person who may request such a copy. 7.5 The obligations imposed on the Licensee by this Condition are without prejudice to any determination which the Director may make under Condition 9 of this Licence. Condition 8 PROHIBITION ON UNDUE PREFERENCE AND UNDUE DISCRIMINATION 8.1 The Licensee shall not (whether in respect of the charges or other terms or conditions applied or otherwise) show undue preference to, or exercise undue discrimination against, particular persons or persons of any class or description as respects: (a) the connection to the Applicable Systems of any other system which is not and is not to be comprised in the Applicable Systems in accordance with an obligation imposed by or under this Licence; or (b) the maintenance, adjustment, repair or replacement of any apparatus comprised in the Applicable Systems in accordance with an obligation imposed by or under this Licence; or (c) the provision by means of the Applicable Systems of any telecommunication service in accordance with an obligation imposed by or under this Licence; or (d) the granting of permission to connect such systems to, or to provide services by means of the Applicable Systems in accordance with an obligation imposed by or under this Licence. 8.2 The Licensee may be deemed to have shown such undue preference or to have exercised such undue discrimination if it unfairly favours to a material extent a business carried on by it in relation to the doing of any of the things mentioned in paragraph 8.1 so as to place at a significant competitive disadvantage persons competing with that business. 8.3 Any question relating to whether any act done or course of conduct pursued by the Licensee amounts to such undue preference or such undue discrimination shall be determined by the Director, but nothing done in any manner by the Licensee shall be regarded as undue preference or undue discrimination if and to the extent that the Licensee is required or permitted to do the thing in that manner by or under any provision of this Licence. 8.4 The obligations imposed on the Licensee by this Condition are without prejudice to any determination which the Director may make under Condition 9 of this Licence. PART 3: OTHER CONDITIONS INCLUDED UNDER SECTION 7 OF THE ACT Condition 9 MAINTENANCE OF EFFECTIVE COMPETITION WHERE THE LICENSEE OPERATES A SYSTEM OR PROVIDES SERVICE OVERSEAS 9.1 This Condition shall apply where the Licensee or any Associated Person is the operator of any telecommunication system or provides telecommunication services in a country or territory outside the United Kingdom 9.2 Where it appears to the Director that as a result of any act or omission of the Licensee either by itself or with or through any Associated Person competition in the provision of any telecommunication service or any particular description of telecommunication services in the United Kingdom is being or is likely to be restricted, distorted or prevented he may make a determination to that effect. 9.3 Where the Director makes a determination under paragraph 9.2 the Licensee shall take such steps as the Director may direct for the purpose of remedying the situation. In particular (and without prejudice to the generality of the foregoing) any such direction may require compliance by the Licensee with any other Condition, as appropriate, including in particular any Condition providing for publication of charges, terms and conditions or prohibiting undue discrimination and undue preference, in relation to the provision of any telecommunication service within the United Kingdom notwithstanding that any condition precedent to the application of that Condition is not otherwise satisfied. Condition 10 FAIR TRADING 10.1 The Licensee shall not do any thing, whether by act or omission, which has or is intended to have or is likely to have the effect of preventing, restricting or distorting competition where such act or omission is done in the course of, as a result of or in connection with, providing telecommunication services, or any particular description of telecommunication service, or running a telecommunication system. For the purpose of this Condition such an act or omission will take the form of:- (a) any abuse by the Licensee, either alone or with other undertakings, of a dominant position within the United Kingdom or a substantial part of it. Such abuse may, in particular, consist in: (i) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (ii) limiting production, markets or technical development to the prejudice of consumers; (iii) applying dissimilar conditions to equivalent transactions with other parties, thereby placing them at a competitive disadvantage; or (iv) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts; or (b) the making (including the implementation) of any agreement, the compliance with any decision of any association of undertakings or the carrying on of any concerted practice with any other undertaking which has the object or effect of preventing, restricting or distorting competition within the United Kingdom. 10.2 (a) An act or omission of a kind described in paragraph 10.1 is not prohibited where: (i) it has or would have no appreciable effect on competition; or (ii) it has or would have no effect on competition between persons engaged in commercial activities connected with telecommunications and it would have no effect on users of telecommunication services. (b) An act or omission of a kind described in paragraph 10.1(b) is not prohibited by this Condition if the agreement decision or concerted practice contributes to improving the provision of any goods or services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and does not: (i) impose on the parties concerned restrictions which are not indispensable to attaining those objectives; and (ii) afford such parties the possibility of eliminating competition in respect of a substantial part of the goods or services in question. (c) This Condition shall not apply to any provision of an agreement insofar as it is a provision by virtue of which the Restrictive Trade Practices Act 1976 applies to that agreement. (d) This Condition shall not apply to a merger situation qualifying for investigation under the Fair Trading Act 1973. 10.3 Whether any act or omission is prohibited by this Condition shall be determined: (a) with a view to securing that there is no inconsistency with the general principles having application to similar questions of directly applicable competition law, in particular those laid down by the Court of Justice of the European Communities on the scope of the competition rules contained in the EC Treaty and block exemptions adopted by the European Commission under Article 85(3); and (b) having regard to - (i) any decision taken, or notice issued, by the European Commission in applying the competition rules contained in the EC Treaty and any relevant pronouncement of the Director General of Fair Trading or report of the Monopolies and Mergers Commission; and (ii) any guidelines on the application of this Condition issued from time to time by the Director. 10.4 (a) If it appears to the Director that an act or omission of the Licensee is or was prohibited by this Condition he may make an initial determination to that effect (an "Initial Determination"). (b) Before making an Initial Determination the Director shall give a notice to the Licensee: (i) stating that he is investigating a possible contravention of this Condition; (ii) setting out the reasons why it appears to him that this Condition may be being, or may have been, breached, including any matters of fact or law which he thinks relevant; (iii) requesting within a reasonable period laid down by the Director such further information as he may require from the Licensee in order to complete his Determination; and (iv) where appropriate, setting out the steps he believes the Licensee would have to take in order to remedy the alleged breach. 10.5 (a) Within 28 days of the Director - (i) making an Initial Determination; (ii) making a provisional order; or (iii) giving notice of his proposal to make a final order under section 17(1) of the Act in respect of the contravention in question, the Licensee may notify the Director that it - (iv) requires him to make a final determination (a "Final Determination") of the matter; (v) requires that in making the Final Determination he take into account a report of a body of experts appointed by him to consider the matter ("the Advisory Body"). (b) Before making a Final Determination the Director shall - (i) give a notice to the Licensee setting out the matters referred to in paragraph 10.4(b); and (ii) if the Licensee has given notice under sub- paragraph (a)(v) above, take into account the report of the Advisory Body on the matter. (c) The Director shall then determine whether he is satisfied that the act or omission in respect of which the Initial Determination was made is or was prohibited by this Condition. 10.6 (a) Before making his Initial Determination or Final Determination the Director shall give the Licensee, and any other person whom he considers it appropriate to consult, such period within which to make representations (both orally and in writing) in response to the notice as he considers reasonable in all the circumstances. (b) The Director shall notify the Licensee and any other person whom he considers it appropriate to notify of every Initial Determination and Final Determination made by him and of his reasons for making it; and he shall, if so requested by the Licensee, publish any report of the Advisory Body on the matter, subject to such exclusions as he may consider it appropriate to make of matters of a kind mentioned in section 48(2) of the Act. 10.7 The Director shall publish a description of his office's procedures for the enforcement of this Condition including the steps taken to ensure that he has access to appropriate independent advice in enforcing this Condition. 10.8 This Condition shall not limit or affect in any way the Licensee's obligations arising under any other Condition of this Licence nor limit the Director's powers of enforcement under sections 16 to 18 of the Act. 10.9 (a) On the coming into force of any Act or subordinate legislation which - (i) contains a prohibition enforceable by the Director, or gives to the Director the power to enforce an existing prohibition, of any behaviour prohibited under paragraph 10.1; (ii) gives to third parties in respect of a breach of that prohibition at least the rights they have under section 18 of the Act in respect of a breach of a provisional or final order; and (iii) permits the imposition on the Licensee of monetary penalties in respect of the breach of that prohibition this Condition shall cease to apply to the behaviour prohibited by or the prohibition enforceable by such Act or subordinate legislation. (b) If this Condition still has effect on 31st July 2001, it shall cease to have effect after that date. 10.10 (a) This Condition shall come into force on 31st December 1996. (b) The prohibition in paragraph 10.1(b) shall not apply to acts or omissions done prior to the expiry of three months from the date of this Licence in pursuance of agreements entered into prior to the date of this Licence. Condition 11 ESSENTIAL INTERFACES 11.1 This Condition operates without prejudice to the provisions of Condition 5. 11.2 The Director may, having first notified the Licensee of his proposal and given the Licensee not less than 28 days in which to make representations, specify an Essential Interface. 11.3 Where in pursuance of paragraph 11.2 the Director specifies an interface as an Essential Interface, and the Licensee thereafter makes that interface available to an Operator in relation to its Applicable Systems, it shall do so in such a manner as it considers appropriate, but shall ensure such availability in compliance with a Relevant Standard if the Operator so requires. 11.4 For the purposes of paragraph 11.3 "Relevant Standard" means: (a) an appropriate European or other international standard; or (b) in the absence of such a standard, any other standard specified by the Director after he has notified the Licensee of his proposal to make the specifications in question and allowed the Licensee not less than 28 days in which to make representations, provided that the Director shall not specify a standard if an appropriate European or other international standard is expected to be promulgated within a reasonable time, including, by way of example, if the European Telecommunications Standards Institute have published a work programme for the development of such a standard, to the extent that such a standard is necessary to ensure interoperability. 11.5 Where in pursuance of paragraph 11.4(b) the Director specifies a standard as a Relevant Standard, he shall include in that Relevant Standard a technical specification, using all reasonable endeavours to obtain the agreement of the Licensee and other relevant licensees to a technical specification applicable to that Relevant Standard, being a specification defined if possible by reference to: (a) an appropriate European or other international specification; or (b) in the absence of such a specification, a specification defined by reference to any other standard having currency within the European Community at the time. 11.6 Where after a reasonable time the Director has been unable in accordance with paragraph 11.5 to secure the agreement of the Licensee and other relevant licensees to a technical specification, the Director shall adopt for inclusion in the Relevant Standard an appropriate technical specification which has been promulgated by a recognised standards body, including, by way of example, the European Telecommunications Standards Institute, or the British Standards Institution, or other such body as the Director considers to be representative of all relevant telecommunications interests. 11.7 The Director shall specify a Relevant Standard in pursuance of paragraph 11.4 only if the owners of relevant intellectual property rights have agreed to grant any necessary licences in respect thereof to the Licensee on reasonable terms. 11.8 For the avoidance of doubt this Condition shall not: (a) without prejudice to paragraph 11.3, prevent the Licensee using such interfaces as it considers appropriate in relation to the Applicable Systems; or (b) where it makes available to an Operator an interface which the Director has specified as an Essential Interface, require the Licensee to comply with the Relevant Standard if the Operator does not require it to do so. 11.9 When implementing an Essential Interface, the Licensee shall not be obliged to conform with the Relevant Standard: (a) if to do so would necessitate the Licensee: (i) acquiring apparatus, software or other goods or supplies of any kind, or implementing any operation, incompatible with, as the case may be, apparatus, software or such other goods or supplies already in use at the time, or the subject of contracts for their procurement for use, in connection with the Applicable Systems, or, in the case of an operation, incompatible with any other operation being carried out at the time in connection therewith; or (ii) incurring any cost, or having to resolve technical difficulties, disproportionate to the benefits to be gained from the implementation of the Relevant Standard, provided that the Licensee shall take reasonable steps to incorporate the Relevant Standard in its plans for network development, with a view to implementation of that Standard in connection with the Applicable Systems, but without the Licensee incurring any incremental expenditure which, but for the implementation of the Relevant Standard, would not have been incurred; (b) if the Relevant Standard is inappropriate for the particular application for any reason, including, without limitation: (i) that it does not afford the Licensee adequate protection for the security of the Applicable Systems; (ii) that its implementation would be liable to cause material impairment in the quality of any telecommunication service provided by means of the Applicable Systems; (iii) that it does not cater adequately for billing, metering or other customer administration systems; or (iv) that it is technically inadequate in the light of technical developments which have taken place since it was originally created; (c) if the Essential Interface concerned is of a genuinely innovative nature and accordingly the use in connection with it of the Relevant Standard would not be appropriate; (d) if compliance with the Relevant Standard would involve the infringement by the Licensee of any intellectual property right vested in any person; or (e) if the Director so agrees. 11.10 Where paragraph 11.9(b) or 11.9(c) applies, the Licensee shall notify the Director thereof in writing, providing an explanation why. 11.11 It is a precondition of any obligation on the Licensee under this Condition that an equivalent Condition to this Condition is included in the respective Licences of all Operators running telecommunication systems that are connected to the Applicable Systems. Condition 12 CUSTOMER INTERFACE STANDARDS 12.1 This Condition shall only apply where the Applicable Systems are connected to a telecommunication system not run under a licence issued to a particular person. 12.2 The Licensee shall ensure that on each occasion on which it introduces an interface provided or to be provided at a Network Termination Point on the Applicable Systems not previously so provided a notice is published specifying the technical characteristics of the interface introduced. 12.3 The technical characteristics to be included in such a notice shall include: (a) physical, electrical and other relevant characteristics; (b) network interworking and service management protocols; and (c) reference to national and international standards and recommendations with which the interface complies, in sufficient detail for compatible terminal apparatus to be produced, tested and approved. 12.4 Subject to paragraph 12.5, any notice under this Condition shall be published in a manner appropriate for bringing the matters to which the notice relates to the attention of persons likely to be affected by or to have an interest in them. 12.5 Where the Director following any representation or observation made to him reasonably concludes that a notice under paragraph 12.2 has not been published in an appropriate manner he may direct the Licensee to carry out such further publication as he considers reasonably necessary to meet the requirements of paragraph 12.4. Condition 13 METERING AND BILLING ARRANGEMENTS 13.1 This Condition shall only apply where the Applicable Systems are connected to a telecommunication system not run under a Licence issued to a particular person. 13.2 As regards any description of Meter in use on a date specified by the Director in connection with the Applicable Systems and which has been specified by the Director, the Licensee shall apply for Approval as soon as is practicable and in any case not later than such date as the Director may determine in relation to that description of Meter. 13.3 As regards any description of Meter specified by the Director and not in use in connection with the Applicable Systems on the date specified under paragraph 13.2, the Licensee shall, unless the Director consents otherwise, apply for Approval not later than such date as is further specified by the Director or not fewer than six months before the date on which the Licensee intends to bring that Meter into such use, whichever shall be the later. 13.4 The Licensee shall not after such date as the Director may determine in relation to any description of Meter so specified by him, keep in use or bring into use in connection with the Applicable systems, any Meter of a description so specified which is not Approved or for which the Licensee has not made an application for Approval. 13.5 Where Approval is not granted to or is withdrawn from a particular description of Meter the Licensee shall, as soon as is reasonably practicable, either; (a) inform the Director of the action to be taken by the Licensee to remedy the absence of Approval in relation to that description of Meter and the anticipated date of such Approval; or (b) inform the Director that the Licensee intends to cease use of that description of Meter in connection with the Applicable Systems within a time reasonably practicable for the Licensee whereupon, on request of the Director, the Licensee shall provide the Director with a timetable for the withdrawal of that description of Meter. 13.6 The Licensee shall not render any bill in respect of any description of telecommunication Service provided by means of the Applicable Systems unless every amount (other than an indication of unit charge) stated in that bill is no higher than an amount which represents the true extent of any such Service actually provided by the Licensee to the customer in question. In this paragraph "customer" does not include an Operator. 13.7 Without prejudice to the generality of paragraph 13.6 the Licensee shall at all times maintain in operation such a Billing Process as facilitates compliance by the Licensee with, and is calculated to prevent contravention by it of, that paragraph. 13.8 The Licensee shall not be regarded as being in contravention of its obligation under paragraph 13.6 except where the failure is in relation to the Billing Process and the Licensee has failed to take all reasonable steps to prevent a contravention of that obligation. 13.9 The Licensee shall keep such records as may be necessary or as may be determined by the Director to be necessary for the purpose of satisfying the Director that the Billing Process has the characteristics required by paragraph 13.7, provided that nothing in this paragraph shall require the Licensee to retain any records for more than 2 years from the date on which they came into being. 13.10 For the purpose of giving the Director an independent quality assurance from time to time that the Billing Process has the characteristics required by paragraph 13.7, the Licensee shall, where the Director has prima facie grounds to believe the Billing Process does not have those characteristics and has so notified the Licensee, extend its prompt co-operation to the Director and, in particular, on request by the Director shall; (a) furnish the Director in accordance with the Director's reasonable requirements any Information, document (including any facility enabling him to read data not held in readable form) or other thing; (b) carry out (or cause to be carried out by such person having such special expertise as the Director may specify and to whom the Director has raised no reasonable objection) in such manner as the Director may specify an examination of the whole or of any part of the Billing Process and as soon as practicable after the conclusion of such examination furnish to the Director a written report by the Licensee or that specified person, as the case may be, of the results of such examination; (c) on reasonable notice by him allow at all reasonable times the Director and, in the case of any member of his staff, on production of his special authority in that behalf, access to any relevant premises, plant or equipment of the Licensee; (d) on reasonable notice by him allow at all reasonable times the Director and, in the case of any member of his staff, on production of his special authority in that behalf, to examine or test the whole or any part of the Billing Process including any plant or equipment whether or not forming part of the Applicable Systems; (e) for the purpose of paragraphs 13.10(c) and 13.10(d), allow the Director to be accompanied by any person as the Director may specify and to whom the Licensee has raised no reasonable objection whose assistance he might reasonably require for the purpose described at the beginning of this paragraph provided that the Director shall have given the Licensee notice (save in exceptional circumstances) of at least 5 working days of the identity of that person; and (f) install and keep installed any equipment (whether or not supplied by the Director) for the purpose of verifying; (i) the accuracy and reliability of any equipment or apparatus (including any Meter) of the Licensee; (ii) in the case of any Meter which is or is required to be Approved and is in use in connection with the Applicable Systems, compliance with any conditions or other matters which may be required as regards such use of that Meter. 13.11 In this Condition: (a) "Approval" and "Approved" mean approval and approved under section 24 of the Act; (b) "Billing Process" means Metering systems and Billing Systems taken together, where "Billing System" means the totality of all apparatus, data, procedures and activities which the Licensee employs to determine the charges to be sought for Service usage recorded by a Metering System based on published or previously negotiated pricing structures and to present these charges on customers' bills and "Metering System" means the totality of all apparatus, data, procedures and activities which the Licensee employs to determine the extent of any telecommunication Services provided by means of the Applicable Systems; (c) "Information" includes accounts, estimates and returns; (d) "Meter" means any system or apparatus constructed or adapted for use in ascertaining the extent of telecommunication Services provided by means of the Applicable Systems; and (e) "Service" includes any service provided by any person to whom the Licensee is bound to account for any part of the amount charged by the Licensee. Condition 14 NUMBERING ARRANGEMENTS 14.1 This Condition shall only apply where the Applicable Systems are connected to a telecommunication system not being run under a Licence issued to a particular person, or where the Licensee has been granted Numbers by the Director. 14.2 The Licensee shall from the day on which it first provides a switched telecommunication service or any other telecommunication service in connection with which the Licensee allocates to users Numbers adopt a Numbering Plan and shall furnish details thereof to the Director and on request to any other person having a reasonable interest. 14.3 The Numbering Plan shall describe the method adopted and to be adopted for allocating and re-allocating in respect of each Network Termination Point such Number or Numbers as may be necessary for each item of Relevant Apparatus or each Relevant System that is or is to be connected by means of that Network Termination Point to any of the switched Applicable Systems. 14.4 The Licensee shall install, maintain or adjust its switched Applicable Systems so that those Systems convey Messages to Network Termination Points in respect of which Numbers have been allocated in accordance with the Numbering Plan. 14.5 The Licensee shall from time to time consult: (a) the Director about the arrangements for the allocation and reallocation of Numbers within the Numbering Plan; and (b) in one body approved by the Director for the purpose and representative of telecommunications operators and other persons whom the Director considers appropriate about any developments of, additions to or replacements of, the Numbering Plan. 14.6 The Licensee shall from time to time prepare, taking into account the consultations mentioned in paragraph 14.5(b), and furnish to the Director proposals for developing, adding to or replacing the Numbering Plan and changing the switched Applicable Systems to the extent necessary to secure that: (a) sufficient Numbers are made available, having regard to the anticipated growth in demand for telecommunication services, for a Number or Numbers to be allocated without undue delay; (b) Numbers include as few digits as practicable and their allocation does not confer any undue advantage on the Licensee or undue disadvantage on persons running Relevant Systems; (c) the cost of changing any of the switched Applicable Systems or any Relevant Apparatus or Relevant System in order to accommodate the revised Numbering Plan is reasonable; and (d) inconvenience caused by the alteration of the Numbering Plan to the Licensee and to persons using Relevant Apparatus or Relevant Systems in respect of which Numbers have previously been allocated is minimised. 14.7 If the Director determines that the Numbering Plan with any developments, additions and replacements submitted in accordance with paragraph 14.6 is sufficient to provide compatibility with the numbering arrangements applied or to be applied by telecommunications operators and to meet the objectives specified in paragraph 14.6 the Licensee shall adopt the Numbering Plan but, if the Director determines that it is not compatible with numbering arrangements applied or to be applied by another public telecommunications operator or will not be sufficient to achieve the objectives specified in paragraph 14.6, then the Licensee shall adopt the Numbering Plan with such developments, additions or replacements as the Director may determine are best calculated to secure the objectives specified in paragraph 14.6. 14.8 Before making a determination under paragraph 14.7 the Director shall take account of: (a) the state of technical development of the Applicable Systems and the Licensee's plans for their commercial development; (b) the balance of advantage between: (i) making developments of, additions to or replacements of numbering arrangements applied or to be applied, or making changes to systems run, by others; and (ii) making any requirement of the Licensee; (c) the cost to the Licensee and to those to whom the Licensee provides telecommunication services arising from any determination; (d) any obligations and recommendations of the International Telecommunication Union which apply to Her Majesty's Government and are accepted by it and any other standard to which the Director consents for the purpose from time to time; and (e) the views of the Licensee and such other persons (including operators of telecommunication systems, those to whom telecommunication services are provided or telecommunication apparatus is supplied and producers of telecommunication apparatus) as appear to the Director to have an interest in the matter. 14.9 Where the Licensee has adopted a Numbering Plan in accordance with paragraph 14.7, or the Director has made a determination under that paragraph (by virtue of which the Licensee shall adopt the Numbering Plan), the Numbering Plan so adopted shall be the Licensee's Numbering Plan until the Licensee adopts a Numbering Plan pursuant to the following provisions of this Condition. The Numbering Plan referred to in the following provisions of this Condition is the Numbering Plan adopted pursuant to those provisions. 14.10 The Director may determine a Specified Numbering Scheme (the "Scheme") in accordance with the National Numbering Conventions (the "Conventions") published in accordance with paragraph 14.14 and he will allocate Numbers from this Scheme to the Licensee in accordance with the Conventions. The initial allocation of Numbers to the Licensee shall be of those Numbers to which the Numbering Plan referred to in paragraph 14.3 relates and of any other Numbers to which any other Numbering Plan in force immediately before such allocation relates, provided that, at such time of initial allocation, those Numbers are currently in use by the Licensee, and where not so in use, the Director shall have due regard to the Licensee's plans and future requirements for its use and allocation of additional Numbers. The Director shall, at the request from time to time of the Licensee, allocate to it: (a) such quantity of additional Numbers as it may require; and (b) in accordance with the Conventions, such specific Numbers as it may request and which the Director is satisfied are not required for other purposes. 14.11 The Licensee shall adopt a Numbering Plan for such Numbers as the Director may allocate to it from time to time in accordance with the Conventions. It shall within three months of being notified of such allocation furnish details of the Numbering Plan to the Director, and keep him informed of material changes to the Numbering Plan as they occur. The Licensee shall also furnish details of the Numbering Plan together with any material changes to that Numbering Plan on request to any other person having a reasonable interest. Except where the Director agrees otherwise, the Numbering Plan shall be consistent with the Conventions published in accordance with paragraph 14.14. If the Numbering Plan is not consistent with those Conventions, the Director may direct the Licensee to adopt and furnish him with a new Numbering Plan or to take such other reasonable remedial action which does not cause undue inconvenience to the Licensee's customers, as may be necessary to ensure consistency. 14.12 The Licensee shall install, maintain and adjust its switched Applicable Systems so that those Systems route Messages and otherwise operate in accordance with the Numbering Plan. The Licensee shall not use Numbers other than those allocated to it from the Scheme except: (a) with the written consent of the Director; or (b) where the use of those Numbers is the subject of an agreement to which Condition 5 applies. 14.13 (a) The Licensee shall provide to the Director, on request, such information about its operations under its Numbering Plan as he may reasonably require to administer the Scheme and in particular on: (i) the percentages of Numbers in significant ranges which have already been allocated to end-users or which for other reasons are unavailable for further allocation; (ii) any allocation of blocks of Numbers to any person for purposes other than end use; (iii) Numbers whose use has been transferred at an end-user's request to another Operator; and (iv) the Licensee's current forecasts of all of the above matters. (b) The Licensee shall not be required to provide information about individual end-user customers. (c) In making any such request the Director shall ensure that no undue burden is imposed on the Licensee in procuring and furnishing such information and, in particular, that the Licensee is not required to procure or furnish information which would not normally be available to it, unless the Director is satisfied that such information is essential to the administration of the Scheme. 14.14 (a) The Conventions referred to in this Condition will be a set of principles and rules published from time to time by the Director after consultation with interested parties who are members of the Telecommunications Numbering and Addressing Body and, if deemed appropriate, with end-users. (b) In consulting the said interested parties, the Director shall afford a reasonable period, not being less than 28 days, for them to make representations, and he shall take the said representations into account when publishing the Conventions. The Conventions shall govern the specification and application of the Scheme and the Numbering Plan of the Licensee and may also include such other matters relating to the use and management of Numbers as (but not limited to): (i) criteria and procedures relating to the application for, allocation of and withdrawal of Numbers; (ii) dialling plans; (iii) access codes; (iv) prefixes; (v) standard ways of recording Numbers for convenience or ease of use, such as the grouping of digits in Numbers of particular lengths; and (vi) methods of enabling end-users to understand the meaning implicit in Numbers or other dialled digits, and in particular the rate at which a call to a particular Number will be chargeable. (c) The Director may from time to time amend or withdraw a Convention already published, after consultation with interested parties who are members of the Telecommunications Numbering and Addressing Body. The Licensee shall not be required to comply with any such amendment or withdrawal unless the Licensee has been given a reasonable period of notice, such notice not being less than three months. Numbers allocated to the Licensee may only be withdrawn after similar consultation and notice, and the Director shall consult end-users affected by such withdrawal. Subject to overriding national interests, or where there is no alternative solution available, the power to withdraw Numbers shall not apply to any Numbers which the Director has approved from time to time as part of a specific service of the Licensee, which, as a result of investment by the Licensee, has a recognised identity and quality associated with that particular Number and which the Licensee is using and plans to continue to use. 14.15 In deciding on the details of and any subsequent changes to the Scheme and the Conventions, and when making or changing Number allocations within the Scheme or making determinations under this Condition, the Director shall ensure that the Scheme complies with the Conventions and shall have regard to: (a) the need for sufficient Numbers to be made available, having regard to the anticipated growth in demand for telecommunication services, together with the need for good husbandry of that supply at any time; (b) the need to ensure Compatibility with the Numbering Plans adopted or to be adopted by telecommunications operators; (c) the convenience and preferences of end-users; (d) the requirements of effective competition; (e) the practicability of implementing the Conventions in licensed systems by the date when the Conventions are intended to apply; (f) any costs or inconvenience imposed on the Licensee, other telecommunications operators, end-users and other interested parties (including those overseas); (g) any relevant international agreements, recommendations or standards; (h) the views of the Licensee and other interested parties; and (i) any other matters he regards as relevant. 14.16 The Licensee shall not, unless the Director consents otherwise, charge any person for a Number which is allocated to him (other than a coveted Number allocated to a person who is not a public telecommunications operator at the request of such a person), but nothing in this Condition shall preclude the Licensee from recovering from the operator of a Relevant System the reasonable costs associated with allocating Numbers to and routing calls to that System; save that in the case of any dispute or difference as to those costs the Director may determine them and the Licensee shall not be obliged so to allocate Numbers and route calls unless such operator agrees to bear the costs so determined. 14.17 For the purposes of this Condition, "Telecommunications Numbering and Addressing Body" means a body approved by the Director as representative of the Licensee and other persons whom the Director considers it appropriate to include in consultations about the content of the Conventions and the Scheme. 14.18 For the avoidance of doubt, it is hereby declared that this Condition applies notwithstanding any arrangements for numbering arising by virtue of any agreement to which Condition 5 applies. But nothing in this paragraph shall affect the operation of any such agreements entered into before the coming into force of this Licence. 14.19 The Numbers to which this Condition applies are Numbers: (a) of a class described in CCITT Recommendation E.160, E.163, E.164, E.165, E.166 or F.69 or their functional successors; or (b) which are of a class described in CCITT Recommendation X.121 and which include any Data Network Identification Code which has been: (i) allocated before 14 November 1986 in accordance with a Numbering Plan furnished to the Director; or (ii) specified by the Director for the purposes of this Licence and described in a list kept for that purpose by the Director and made available by him for inspection to the general public. Condition 15 ARRANGEMENTS FOR PROPORTIONATE RETURN 15.1 This Condition shall apply in respect of the conveyance of Messages to or from each country and territory in the world other than as specified from time to time by the Secretary of State. 15.2 Except insofar as the Director may otherwise consent in writing, the Licensee shall ensure (using the most up-to-date information available) that over each quarterly period for each Accounting Rate Service the First Ratio shall be no greater than the Second Ratio. 15.3 Where it appears to the Director that in respect of any country or territory the obligation imposed by paragraph 15.2 is being breached, he may make a determination to that effect and the Licensee shall take such steps as the Director may direct for the purpose of remedying the situation. In particular, and without prejudice to the generality of the foregoing, any such direction may require the Licensee to cease to convey any Messages to that country or territory. 15.4 In this Condition: "First Ratio" means the volume of Messages comprised in each Accounting Rate Service which are conveyed by the Applicable Systems and are delivered to the United Kingdom divided by the volume of all Messages comprised in each Accounting Rate Service which are delivered to the United Kingdom; and "Second Ratio" means the volume of all Messages comprised in each Accounting Rate Service which are conveyed by the Applicable Systems and are sent from the United Kingdom divided by the volume of all Messages comprised in each Accounting Rate Service which are sent from the United Kingdom. Condition 16 ARRANGEMENTS FOR ACCOUNTING IN RESPECT OF INTERNATIONAL CONVEYANCE SERVICES 16.1 This Condition shall apply in respect of the conveyance of Messages to or from each country and territory in the world other than as specified from time to time by the Secretary of State. 16.2 The Licensee shall inform the Director of accounting rates and methods of settlement and division of the accounting rates agreed for all Accounting Rate Services, before those rates are put into operation. 16.3 As soon as practicably possible after making any correspondent arrangement with an overseas operator, the Licensee shall inform the Director and all other holders of a Licence authorising the provision of International Conveyance Services in the United Kingdom and who are operating, or who have announced an intention to operate on that particular route, of the terms of that arrangement, in particular and without prejudice to the generality of the foregoing, including details of any changes to existing accounting rates or methods of settlement or division of the accounting rates. 16.4 Where it appears to the Director that any accounting rate or methods of settlement or division of the accounting rates agreed by the Licensee in respect of any Accounting Rate Service has or is likely to have an effect to the detriment of providers and users of International Conveyance Services in the United Kingdom, he may make a determination to that effect and the Licensee shall take such steps as the Director may direct for the purpose of remedying the situation. In particular, and without prejudice to the generality of the foregoing, any such direction may require the Licensee to cease to convey any Messages to that country or territory. Condition 17 PROHIBITION OF EXCLUSIVE DEALING IN INTERNATIONAL SERVICES 17.1 The Licensee shall not enter into any agreement or arrangement with any person running an Authorised Overseas System on terms or conditions which unfairly preclude or restrict the provision by another public telecommunications operator of International Conveyance Services. 17.2 The Licensee shall not unreasonably exclude any other public telecommunications operator who is authorised by a licence to connect his system to another telecommunication system situated outside the United Kingdom so as to convey Messages to that other system from a reasonable opportunity to participate in any international arrangements into which it proposes to enter after the date on which this Licence enters into force for the installation and operation of any submarine cable linking any of the Applicable Systems to any telecommunication system outside the United Kingdom. Condition 18 NOTIFICATION OF CHANGES IN SHAREHOLDINGS 18.1 The Licensee shall notify the Secretary of State if an undertaking becomes a Parent Undertaking in relation to the Licensee. 18.2 Subject to paragraph 18.3, the Licensee shall notify the Secretary of State of: (a) any change in the proportion of the Shares held in a Relevant Company by any person; (b) the acquisition of any Shares in a Relevant Company by a person not already holding any such Shares, and the proportion of any such Shares held by that person immediately after that acquisition. 18.3 The Licensee shall be obliged to notify the Secretary of State of any acquisition of Shares or change in the Shareholding of a Relevant Company by any person only if, by reason of that acquisition or change, the total number of Shares in that Relevant Company held by that person otherwise than as trustee or nominee for another person together with any Shares held by any nominee or trustee for that person immediately after that change or acquisition: (a) exceeds 15 per cent of the total number of Shares in that company (where it did not exceed 15 per cent prior to that change or acquisition); (b) exceeds 30 per cent of the total number of Shares in that company (where it did not exceed 30 per cent prior to that change or acquisition); or (c) exceeds 50 per cent of the total number of Shares in that company (where it did not exceed 50 per cent prior to that change or acquisition), provided that where a Relevant Company is a public company as defined in section 1 of the Companies Act 1985, the obligation shall be discharged by forwarding to the Secretary of State as soon as practicable all information in respect of that acquisition or that change as is entered on or received for entry on the register required to be maintained by that Relevant Company under section 211 of the Companies Act 1985. 18.4 In any case referred to in paragraph 18.1 or 18.2, notification shall be given by a date which is 30 days prior to the taking effect of such change or acquisition, as the case may be, or as soon as practicable after that date. Condition 19 LICENSEE'S GROUP 19.1 Without prejudice to the Licensee's obligations under these Conditions in respect, in particular, of anything done on its behalf, where: (a) the Director determines either: (i) that a member of the Licensee's Group has done something which would, if it had been done by the Licensee, be prohibited or not be authorised under these Conditions; or (ii) that a member of the Licensee's Group has done something which would, if it had been done by the Licensee, require the Licensee to take or refrain from taking a particular action under these Conditions and that neither the Licensee nor the member has met that further requirement; and (b) the Director is not satisfied that the Licensee has taken all reasonable steps to prevent any member acting in that way, then the Director may direct the Licensee to take such steps as the Director deems appropriate for the purpose of remedying the matter, including refraining from carrying on with that member such commercial activities connected with telecommunications as the Director may determine. 19.2 Where these Conditions apply in respect of the Applicable Systems they do not apply in respect of any other telecommunication system, whether run by the Licensee or another. 19.3 Where any person becomes a member of the Licensee's Group then the Licensee shall not be subject to paragraph 19.1 before that is reasonably practicable but shall be so not later than one year after that person becomes such a member or such later date as the Director may determine. 19.4 This Condition shall not apply to any particular member of the Licensee's Group if and to the extent that the Director so determines. Condition 20 PAYMENT OF FEES 20.1 The Licensee shall pay the following amounts to the Secretary of State at the times stated: (a) on the grant of this Licence the sum of 7,000; (b) on 1 April 1997 a renewal fee of (at the option of the Director) either 8,000 or such amount which shall represent a fair proportion, to be determined each year by the Director according to a method that has been disclosed to the Licensee, of the estimated costs to be incurred in that fiscal year by the Director in the regulation and enforcement of telecommunication licences and in the exercise of his other functions under the Act. The first renewal fee shall be reduced by the proportion which the period from the date of granting of this Licence until the next following 1 April 1997 bears to the period of one year; and (c) when the Director so determines, a special fee which shall represent a fair proportion, to be determined by the Director according to a method that has been disclosed to the Licensee of the amount, if any, by which the aggregate of: (i) the costs estimated to have been already incurred in that fiscal year by the Director in the regulation and enforcement of telecommunication licences and in the exercise of his other functions under the Act; (ii) the costs estimated to have been already incurred in that fiscal year by the Monopolies and Mergers Commission following licence modification references under section 13 of the Act; and (iii) the estimated costs to be incurred in the remainder of that fiscal year: (A) by the Director in the regulation and enforcement of telecommunication licences and in the exercise of his other functions under the Act; and (B) by the Monopolies and Mergers Commission following licence modification references under section 13 of the Act, exceeds the renewal fee for that year, save always that the aggregate of the renewal fee and the special fee for any fiscal year shall not exceed 0.08% of the annual turnover of the Systems Business in the financial year before the last complete financial year of the Licensee before the renewal fee is payable, or 35,000 (adjusted in the manner described in paragraph 20.1(b), whichever is the greater (the "normal aggregate fee"), unless the Director determines that the costs incurred in any fiscal year by him and the Monopolies and Mergers Commission in respect of the Licensee's activities exceeds the normal aggregate fee, in which case the aggregate of the renewal fee and the special fee for the following year shall be such amount as the Director determines is sufficient to take account of that excess as well as of the other costs to be incurred as mentioned in this paragraph. Condition 21 REQUIREMENT TO FURNISH INFORMATION TO THE DIRECTOR 21.1 Without prejudice to Condition 22, the Licensee shall furnish to the Director, in such manner and at such times as the Director may reasonably request, such documents. accounts, estimates, returns or other information and procure and furnish to him such reports as he may reasonably require for the purpose of exercising the functions assigned or transferred to him by or under Parts II and III of the Act. 21.2 In making any such request the Director shall ensure that no undue burden is imposed on the Licensee in procuring and furnishing such information and, in particular, that the Licensee is not required to procure or furnish a report which would not normally be available to it unless the Director considers the particular report essential to enable him to exercise his functions. Condition 22 REQUIREMENT TO SUBMIT ACCOUNTS TO THE DIRECTOR 22.1 The Licensee shall maintain such accounting records dealing separately with its International Business carried on in the United Kingdom as will enable it to show separately and explain, in response to any request from the Director under paragraph 22.4. all the transactions to which paragraph 22.2 refers. 22.2 This paragraph refers to: (a) all transactions between each Relevant International Function run as part of the Licensee's International Business; and (b) all transactions between the Licensee's International Business and: (i) any other business carried on by the Licensee whether in the United Kingdom or elsewhere; or (ii) the business of any Associated Person whether in the United Kingdom or elsewhere. 22.3 The Licensee shall update the accounting records referred to in paragraph 22.1 no less frequently than monthly and those records shall include in particular the costs (including capital costs), revenue and a reasonable assessment of assets employed in and liabilities attributable to the International Business and, separately, the amount of any material item of revenue, cost, asset or liability which has been either: (a) charged from or to any other business of the Licensee or Associated Person together with a description of the basis of the value on which the charge was made; or (b) determined by apportionment or attribution from an activity common to the business and any other business of the Licensee or any Associated Person and, if not otherwise disclosed, the basis of the apportionment or attribution. 22.4 The Director may at any time request from the Licensee copies of any of the accounting records and detailed attribution policies and procedures which the Licensee is obliged to maintain by this Condition, covering any period between: (a) the date on which the Licensee first carried on any International Business in the United Kingdom or, if later, the date of this Licence; and (b) the date on which such records were, or should have been, last updated in accordance with paragraph 22.3. The Licensee shall provide any such records requested by the Director within 28 days of receiving such a request in writing. 22.5 (i) Accounting records submitted to the Director shall, so far as reasonably practicable, be prepared in the formats and in accordance with the accounting principles and rules which apply to the annual statutory accounts of the Licensee and shall state the attribution policies and procedures used and where the Licensee is a body corporate incorporated outside the United Kingdom the preparation and adoption of those accounts shall comply with the requirements of sections 226 and 231 to 234A of the Companies Act 1985 as if that body corporate were incorporated in the United Kingdom. (ii) The Licensee shall procure in respect of each set of accounting records submitted to the Director an audit report which shall conform to UK auditing standards by the Auditor in which he shall state whether in his opinion the record complies with paragraph 22.1 and is fairly presented in accordance with the formats, accounting principles, rules and requirements referred to in paragraph 22.5(i). 22.6 Where it appears to the Director that to do so would be beneficial to the promotion or maintenance of competition he may direct the Licensee to publish the accounting statements submitted to the Director in such way as he sees fit. In so directing the Licensee the Director shall have regard to the need for excluding, so far as that is practicable, any matter where publication of that matter might, in the opinion of the Director, seriously and prejudicially affect the interests of the Licensee or any Associated Person. Condition 23 EXCEPTIONS AND LIMITATIONS ON OBLIGATIONS IN SCHEDULE 1 23.1 Unless the context otherwise requires and subject to paragraph 23.9, the Licensee's obligations under these Conditions have effect subject to the following exceptions and limitations. 23.2 The Licensee is not obliged to do anything which is not practicable. 23.3 The Licensee shall not be held to have failed to comply with an obligation imposed upon it by or under these Conditions if and to the extent that the Licensee is prevented from complying with that obligation by any physical, topographical or other natural obstacle, by the malfunction or failure of any apparatus or equipment owing to circumstances beyond the control of the Licensee, by the act of any national authority, local authority or international organisation or as the result of fire, flood, explosion, accident, emergency, riot or war. 23.4 An obligation to provide any telecommunication service shall not apply: (a) where there is no reasonable demand for it; or (b) where provision of the service requested would expose any person engaged in its provision to undue risk to health or safety; or (c) where the Licensee is unable to obtain (either because it has not been developed or for some other reason beyond the Licensee's control) anything necessary to provide a service of the quality or standard required by the person who requests the provision of the service and, in the event of dispute, the Director's decision as to whether anything is necessary shall be final; or (d) where the person to whom the Licensee would otherwise be under an obligation to provide any service requests a service at a place in which the apparatus necessary to provide that service in that area has not been installed (or in which the installation of such apparatus has not been completed) or as the case may be such apparatus has not been adapted or modified to make it capable of providing that service or the trained manpower necessary to provide that service is not available in that area, provided that in every case where the Licensee declines to provide a service to which this paragraph relates it shall have published, or furnished to the Director, within 28 days (or such longer period as the Director considers reasonable) following receipt by it of the request that that service be provided, proposals for: (i) progressively installing, or completing the installation, adaptation or modification of, the apparatus; or (ii) the allocation of the trained manpower, necessary for the provision of that service in that area and the Director has not determined that those proposals are unreasonable or are not being effectively carried out; or (e) where the person to whom the Licensee would otherwise be under an obligation to provide any service requests a service at a place in an area in which the demand or the prospective demand for the service is not sufficient, having regard to the revenue likely to be earned from the provision of the service in that area, to meet all the costs reasonably to be incurred by the Licensee in providing the service there, including: (i) the cost of apparatus necessary for the provision of the service there; (ii) the cost of installing, maintaining and operating such apparatus for the purpose of providing the service there; and (iii) the cost of the trained manpower necessary to provide the service there; or (f) where in the opinion of the Director it is not reasonably practicable in all the circumstances for the Licensee to provide the service requested at the time or place demanded. 23.5 The Licensee shall not be obliged to connect or to keep connected to the Applicable Systems or to permit to be so connected or kept connected any telecommunication system or telecommunication apparatus or to provide telecommunication services or to permit the provision of any service if the person to or for whom that is or is to be done: (a) has not entered or will not enter into a contract for the purpose with the Licensee for reasons other than the unreasonable refusal of the Licensee to agree terms for the purpose but this paragraph does not apply in a case where the Director is satisfied that: (i) the Licensee has not published standard terms and conditions which it proposes to apply for the purpose in question, or the transaction is not fit to be governed by such terms and conditions; and (ii) the Licensee has unreasonably refused to agree terms and conditions for the purpose; (b) is, or in the Director's opinion has given reasonable cause to believe that he may become: (i) in breach of a contract with the Licensee for the provision of telecommunication services by the Licensee; or (ii) in default in regard to any debt or liability owed to the Licensee in respect of any such contract; (c) is using, or permitting the use of, apparatus so connected or kept connected for any illegal purpose or has done so in the past and is likely to do so again; or (d) has obtained, or attempted to obtain, any telecommunication service from the Licensee by corrupt, dishonest or illegal means at any time. 23.6 Nothing in these Conditions shall prevent the Licensee from withdrawing from, or declining to provide to, any person any telecommunication service which the Licensee has notified the Director that it is providing in a limited area, or to a limited class of customers, for the purpose of evaluating the technical feasibility of, or the commercial prospects for, that service. 23.7 Nothing in these Conditions shall require the Licensee to provide any telecommunication service, or to provide any telecommunication service of any particular class or description, if it provides instead a service, or a service of a class or description, which satisfies the purposes of that requirement at least to the same extent. 23.8 This Condition shall apply without prejudice to any limitation or qualification of the requirements imposed by or under any other Condition. 23.9 This Condition does not apply to Condition 5, 8 or 10 and: (a) only paragraphs 23.1, 23.2, 23.3 and 23.8 apply to Conditions 7, 13.2, 13.3, 19, 20 and 21; (b) only paragraphs 23.1, 23.5(a) and 23.8 apply to Condition 4.2; (c) only paragraphs 23.1, 23.2, 23.3, 23.5 and 23.8 apply to Condition 14; (d) only paragraphs 23.1, 23.2, 23.3, 23.4(b), 23.5(a) and 23.8 apply to Condition 3; and (e) only paragraphs 23.1, 23.2, 23.3, 23.4, 23.6 and 23.8 apply to Condition 4.1; but paragraph 23.2 does not apply to Condition 9 or Condition 22. SCHEDULE 2: REVOCATION 1. Notwithstanding paragraph 3 of the Licence the Secretary of State may at any time revoke this Licence by at least 30 days' notice given to the Licensee in writing in any of the following circumstances: (a) if the Licensee agrees in writing with the Secretary of State that this Licence should be revoked; or (b) if either (i) an undertaking has become a Parent Undertaking in relation to the Licensee; or (ii) a change or acquisition of a description specified in paragraphs 18.2 and 18.3 of Condition 18 of Schedule 1 to this Licence has taken place; and either (iii) the Licensee has duly notified the Secretary of State in accordance with those paragraphs; or (iv) the Licensee has failed to notify the Secretary of State that such event, change or acquisition has taken place in accordance with an obligation under that Condition; and (v) the Secretary of State has notified the Licensee in writing that he is minded to revoke this Licence on the grounds either that: (A) the event, change or acquisition would in his opinion be against the interests of national security or relations with the government of a country or territory outside the United Kingdom; or (B) the Licensee has committed a breach of Condition 18 of Schedule 1; and (vi) the event, change or acquisition has not been reversed or remedied within 30 days of the receipt by the Licensee of such notification; or (c) if, following a change or acquisition of the type referred to in Condition 18 of Schedule 1 to this Licence, the Secretary of State considers, or the Director has notified the Secretary of State that the Director considers, that the Licensee is relying, has relied or is likely to rely on this Licence in circumstances in which an effect of such reliance is, was or may be that the Licensee or any member of the Licensee's Group is or was relieved wholly or in part of any obligation, limitation or restriction imposed by a Licence issued to the Licensee or any member of the Licensee's Group; or (d) where the Licensee has failed to comply with a final order (or a provisional order confirmed) under section 16 of the Act and the Secretary of State has given the Licensee not less than 30 days' notice in writing that, if the Licensee fails to comply with the order within that period of 30 days, he intends to revoke the Licence, provided that no such notice of intention shall be given where the question of the validity of the order is the subject of any court proceedings, and where that question becomes so subject during the 30 day notice period, that period shall cease to run until the final disposal of those proceedings (including any Appeal); or (e) if the Licensee: (i) is deemed to be unable to pay its debts (within the meaning of section 123 of the Insolvency Act 1986 as applied for the purposes of this Licence by paragraph 2(b)), convenes any meeting with its creditors generally with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of its creditors generally; or (ii) enters into administration, receivership or liquidation; or (iii) ceases to provide telecommunication services of the type authorised in paragraph 3 of Schedule 3 to this Licence; or (f) if the Licensee or any other person takes any action for the voluntary winding-up or dissolution of the Licensee; or (g) if the Licensee enters into any scheme of arrangement under the Insolvency Act 1986 (other than in any such case for the purpose of reconstruction or amalgamation upon terms and within such period as may previously have been approved in writing by the Secretary of State); or (h) if an administrator, receiver, trustee or similar officer of the Licensee, or of all or any material part of the revenues and assets of it, is appointed; or (i) if any order is made for the compulsory winding-up or dissolution of the Licensee; or (j) if any amount payable under Condition 20 of Schedule 1 is unpaid 30 days after it becomes due and remains unpaid for a period of 14 days after the Secretary of State notifies the Licensee that the payment is overdue. 2 For the purposes of paragraph 1(e)(i), in applying section 123 of the Insolvency Act 1986: (a) if a written demand served on the Licensee is satisfied prior to the expiry of the notice of revocation the Secretary of State shall not revoke the Licence; and (b) the figure of " 750", or such other money sum as may be specified from time to time pursuant to sections 123(3) and 416 of the Insolvency Act 1986, shall be deemed to be replaced by " 250,000" or such higher figure as the Director may from time to time determine. 3 In this Schedule: (a) "Group" means a parent undertaking and its subsidiary undertaking or undertakings within the meaning of section 258 of the Companies Act 1985 as substituted by section 21 of the Companies Act 1989; and "Licensee's Group" means a Group in respect of which the Licensee is either a parent undertaking or a subsidiary undertaking; and (b) "Parent Undertaking" has the same meaning as in section 258 of the Companies Act 1985 as substituted by section 21 of the Companies Act 1989. 4 For the purposes of this Schedule "Appeal" includes further appeal and application for leave to appeal or further to appeal. SCHEDULE 3: AUTHORISATION TO CONNECT OTHER TELECOMMUNICATION SYSTEMS AND APPARATUS TO THE APPLICABLE SYSTEMS AND TO PROVIDE TELECOMMUNICATION SERVICES BY MEANS OF THE APPLICABLE SYSTEMS 1 Nothing in this Licence removes any need to obtain any other licence that may be required under any other enactment. Connection Authorisation 2 Subject to paragraph 1, this Licence authorises the connection to the Applicable Systems of (a) any telecommunication system run under a Licence; (b) any telecommunication system outside the United Kingdom except a telecommunication system which the Secretary of State has notified the licensee should not, or as the case may be should cease to, be connected to the Applicable Systems; (c) any earth orbiting apparatus, provided that: (i) the relevant requirements, if any, for consultation and compliance with specified operating parameters under the INTELSAT Agreement, INMARSAT Convention and EUTELSAT Convention have been and continue to be satisfied; (ii) the relevant rules and standards, if any, issued under the INTELSAT Operating Agreement, INMARSAT Operating Agreement and EUTELSAT Operating Agreement have been and continue to be satisfied; and (iii) it is not earth orbiting apparatus to which the Secretary of State has notified the Licensee that the Licensee should not, or as the case may be should cease to, connect the Applicable Systems; (d) any telecommunication system run by the Crown; (e) telecommunication apparatus of every description which is comprised in a telecommunication system mentioned in paragraphs 2(a) to 2(d); (f) any telecommunication apparatus not comprised in the Applicable Systems which is for the time being Compliant Terminal Equipment or approved for connection to the Applicable Systems in accordance with section 22 of the Act; and (g) any hearing aid. Service Authorisation 3 Subject to paragraph 1, this Licence authorises the provision by means of the Applicable Systems of any telecommunication services except: (a) International Simple Voice Resale Services; (b) International Simple Data Resale Services; (c) conveyance of Messages for the delivery of one or more of the services specified in paragraphs (a) to (c) of section 72(2) of the Broadcasting Act 1990 for simultaneous reception in two or more Dwelling-Houses; (d) conveyance of Messages which have originated in the United Kingdom and are subsequently to be terminated in the United Kingdom, unless: i) such Messages are also to be conveyed over a telecommunications system outside the United Kingdom; or ii) such Messages are conveyed in compliance with any obligations imposed under Condition 2, Condition 3 or Condition 4 in Schedule 1 of this Licence; and (e) any Mobile Radio Tails Service. Definitions and interpretation 4 In this Schedule unless the context otherwise requires: (a) "Applicable Terminal Equipment" means apparatus which is applicable terminal equipment within the meaning of regulation 4 of the Telecommunications Terminal Equipment Regulations 1992; (b) "Compliant Terminal Equipment" means Applicable Terminal Equipment which satisfies the requirements of regulation 8 of the Telecommunications Terminal Equipment Regulations 1992, (c) "Dwelling-House" has the same meaning as in section 202 of the Broadcasting Act 1990; (d) "EUTELSAT Convention" means the Convention establishing the European Telecommunications Satellite Organisation EUTELSAT including its Preamble and its Annexes, opened for signature by governments at Paris, France on 15 July 1982, and any subsequent amendments made to it; (e) "EUTELSAT Operating Agreement" means the Operating Agreement relating to the European Telecommunications Satellite Organisation EUTELSAT, including its Preamble and Annexes, opened for signature at Paris, France on 15 July 1982, and any subsequent amendments made to it; (f) "INMARSAT Convention" means the Convention establishing the International Mobile Satellite Organisation (formerly the International Maritime Satellite Organisation) INMARSAT including its Preamble and its Annex, opened for signature by governments at London, England on 3 September 1976, and any subsequent amendments made to it; (g) "INMARSAT Operating Agreement" means the Agreement, including its Annex, opened for signature at London, England on 3 September 1976 by entities designated by governments party to the INMARSAT Convention, and any subsequent amendments made to it; (h) "INTELSAT Agreement" means the Agreement including its Annexes but excluding all titles of Articles, opened for signature by governments at Washington DC, USA, on 20 August 1971 by which the International Telecommunications Satellite Organisation INTELSAT was established, and any subsequent amendments made to it; (i) "International Private Leased Circuit" means a communication facility which is: (i) comprised both in a public telecommunication system and in an equivalent telecommunication system in a country or territory other than the United Kingdom; (ii) for the conveyance of Messages between points, all of which are points of connection between telecommunication systems referred to in paragraph 4(i)(i) and other telecommunication systems; (iii) made available to a particular person or particular persons; (iv) such that all of the Messages transmitted at any of the points mentioned in paragraph 4(i)(ii) are received at every other such point; and (v) such that the points mentioned in paragraph 4(i)(ii) are fixed by the way in which the facility is installed and cannot otherwise be selected by persons or telecommunication apparatus sending Messages by means of that facility; (j) "International Simple Data Resale Services" means telecommunication services consisting in the conveyance of Messages which do not include two-way live speech, but include only such switching, processing, data storage or protocol conversion as is necessary for the conveyance of those Messages in real time, which have been or are to be conveyed by means of all of the following; (i) a Public Switched Network; (ii) an International Private Leased Circuit; and (iii) the equivalent of a Public Switched Network in another country or territory; provided that conveyance of a Message by means of a Public Switched Network or, as the case may be, the equivalent of a Public Switched Network in another country or territory shall be disregarded where that Message is so conveyed in circumstances specified for the time being by the Secretary of State as not being material for the purposes of paragraph 3 and included in a list kept for the purpose by the Director and made available by him for inspection by the general public: (k) "International Simple Voice Resale Services" means telecommunication services consisting in the conveyance of Messages which include two-way live speech which have been or are to be conveyed by means of all of the following: (i) a Public Switched Network; (ii) an International Private Leased Circuit; and (iii) the equivalent of a Public Switched Network in another country or territory; provided that conveyance of a Message by means of a Public Switched Network or, as the case may be, the equivalent of a Public Switched Network in another country or territory shall be disregarded where that Message is so conveyed in circumstances specified for the time being by the Secretary of State as not being material for the purposes of paragraph 3 and included in a list kept for the purpose by the Director and made available by him for inspection by the general public; (l) "Message" means anything falling within paragraphs (a) to (d) of section 4(1) of the Act; (m) "Mobile Radio Tails Service" means a telecommunication service consisting in the conveyance of Messages through the agency of Wireless Telegraphy to or from the Applicable Systems directly from or to any apparatus designed or adapted to be capable of being used while in motion; (n) "Private Leased Circuit" means a communication facility which is: (i) provided by means of one or more public telecommunications systems; (ii) for the conveyance of Messages between points, all of which are points of connection between telecommunication systems referred to in paragraph 4(n)(i) and other telecommunication systems; (iii) made available to a particular person or particular persons; (iv) such that all of the Messages transmitted at any of the points mentioned in paragraph 4(n)(ii) are received at every other such point; and (v) such that the points mentioned in paragraph 4(n)(ii) are fixed by the way in which the facility is installed and cannot otherwise be selected by persons or telecommunication apparatus sending Messages by means of that facility; (o) "Public Switched Network" means a public telecommunication system by means of which two-way telecommunication services are provided whereby Messages are switched incidentally to their conveyance, and, for the avoidance of doubt, a Public Switched Network does not include Private Leased Circuits or International Private Leased Circuits; and (p) "Wireless Telegraphy" has the same meaning as in the Wireless Telegraphy Act 1949. 5 Expressions cognate with those referred to in this Schedule shall be construed accordingly. EX-10 14 Exhibit 10-40 SATISFACTION: The indebtedness secured by this Leasehold Mortgage has been satisfied in full. By: Name: Title: Date: This instrument was prepared by and when recorded please return to: Michael L. Flynn, Esq. Kennedy Covington Lobdell & Hickman, L.L.P. Suite 4200 100 North Tryon Street Charlotte, NC 28202-4006 LEASEHOLD MORTGAGE [NEW YORK] This Leasehold Mortgage is made and entered into as of this 14th day of January, 1997, by and among ACC NATIONAL TELECOM CORP., Delaware corporation ("Mortgagor"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Mortgagee"), as Administrative Agent for the financial institutions (the "Lenders") as are, or may from time to time become, parties to the Credit Agreement (as defined below). WHEREAS, Mortgagor and certain Affiliates thereof are indebted to the Lenders in the principal sum of up to One Hundred Million Dollars ($100,000,000), as evidenced by the Notes of even date executed by the Mortgagor and such Affiliates in favor of the Lenders, and such other documents as may have been executed or given by Mortgagor in connection with the transactions contemplated by the Credit Agreement of even date between the Mortgagor and such Affiliates as Borrowers thereunder (collectively, the "Borrowers"), the Lenders and the Mortgagee, as Administrative Agent for the Lenders (as amended or supplemented, the "Credit Agreement", and collectively with the Notes and such other documents, the "Loan Documents"), the terms and conditions of which are incorporated herein by reference; NOW, THEREFORE, as security for the payment and performance of up to $500,000 of the Obligations (as defined in the Credit Agreement), the Mortgagor has created a security interest in, bargained, sold, given, granted, assigned and conveyed and does by these presents create a security interest in, bargain, sell, give, grant, assign and convey unto the Mortgagee, its or his successors and assigns, all of Mortgagor's right, title and interest in and to that certain leasehold estate under a lease agreement (as amended or supplemented, the "Lease"), dated July 1, 1994, between the Mortgagor as successor to ACC Albany Telecom Corp. and Twin Towers Associates Limited Partnership of Albany of the Premises commonly known as One Commerce Plaza, Albany, New York (the "Leasehold Estate"), which is more particularly described on Exhibit A attached hereto and incorporated herein by reference. TO HAVE AND TO HOLD the Leasehold Estate described herein unto the Mortgagee, its heirs and successors in interest forever. THIS CONVEYANCE IS MADE UPON THIS SPECIAL TRUST, that if the Mortgagor shall satisfy all Obligations secured hereby, and shall comply with all of the covenants, terms and conditions of this Leasehold Mortgage and the Loan Documents, then this conveyance shall be null and void and shall be canceled of record at the request and cost of Mortgagor. But if at any time there shall be any default in satisfaction of any Obligations or under this instrument or under the terms and conditions of any instrument secured hereby, which default shall not have been cured within any applicable grace period (if any) provided therefor, then, at the option of Mortgagee, with the consent of the Required Lenders, the entire indebtedness hereby secured shall immediately become due, payable and collectible without further notice, regardless of maturity, and this Mortgage may be foreclosed by judicial proceedings, or the Mortgagee is hereby authorized and empowered to expose to sale and to sell the Leasehold Estate described herein at public sale for cash, in compliance with the requirements of Article 14 of the New York Real Property Actions and Proceedings Laws, or any subsequently enacted statute relating to nonjudicial foreclosure sales in effect on the date foreclosure is commenced, and at the time and place fixed for the sale to sell the Leasehold Estate described herein to the highest bidder for cash, and Mortgagee shall execute a conveyance of said Leasehold Estate to and deliver possession of same to the purchaser. Mortgagee may bid and become the purchaser at any under this Leasehold Mortgage. The proceeds of the sale shall, after the Mortgagee retains a reasonable compensation, together with reasonable attorneys, fees incurred by Mortgagee in such proceeding, be applied first to the payment of the costs and expenses of such sale; second, to the payment to the whole amount of Obligations then owing by the Mortgagor to the Lenders and secured hereby; and third to the payment of the surplus, if any, to the Mortgagor or to whomever else may be lawfully entitled thereto. This Leasehold Mortgage is made as additional collateral to secure the payment and performance of the Obligations. Other terms capitalized but not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. MORTGAGOR ACKNOWLEDGES, COVENANTS AND AGREES WITH MORTGAGEE AS FOLLOWS: 1. Mortgagor represents and warrants that there have been no prior encumbrances, conveyances or assignments of its interest in the Lease which are still in effect, and that the Lease is a valid and enforceable agreement, that neither Mortgagor nor, to its knowledge, any other party, is in material default thereunder and that all covenants, conditions and agreements have been performed as required therein, except those not due to be performed until after the date hereof. 2. No change in the terms of the Lease shall be valid without the written approval of Mortgagee, with the consent of the Required Lenders, and Mortgagor shall not assign, sell, pledge, mortgage or otherwise transfer or encumber its interest in the Lease so long as this Leasehold Mortgage is in effect except as permitted by the Credit Agreement. 3. Mortgagor shall give prompt notice to Mortgagee of any notice of default received by it under the Lease, together with a complete copy of any such notice of default. 4. Mortgagor shall perform each and all of the covenants and obligations of the tenant under the Lease for so long as this Leasehold Mortgage is in effect, including, without limitation, the obligations to maintain, rebuild and insure the improvements which constitute a portion of the premises thereunder. 5. Should Mortgagor fail to make any payment or to do act as herein provided, then Mortgagee may, but without obligation to do so and without notice to or demand on Mortgagor and without releasing Mortgagor from any Obligation, make or do the same, including, without limitation, appearing in and defending any action purporting to affect the security hereof or the rights or powers of Mortgagee hereunder and performing any obligation of Mortgagor under the Lease, and in exercising any such powers, paying all necessary costs and expenses, including, without limitation, attorneys' fees. Mortgagor will pay immediately upon demand all sums expended by Mortgagee under the authority hereof, and the same shall be added to the Obligations and shall be secured hereby and by the Loan Documents. 6. Upon the occurrence and continuation of an Event of Default, Mortgagee may, with the consent of the Required Lenders, at its option, without notice and without regard to the adequacy of security for the Obligations, either in person or by agent and with or without bringing any action or proceeding, or by a receiver to be appointed by a court, enter upon, take possession of, and operate the premises which are the subject of the Lease, make, enforce, modify and accept any provision of, or surrender, the Lease, and do any other act or acts which Mortgagee deems proper to protect the security hereof until all Obligations have been paid or performed in full. The entering upon and taking possession of such premises shall not cure or waive any default or waive, modify or affect any notice of default under the Credit Agreement or any other security instrument, nor invalidate any act done pursuant to any such notice. 7. Mortgagor hereby irrevocably constitutes and appoints Mortgagee as its attorney-in-fact to demand, receive, and enforce Mortgagor's rights with respect to the Lease for and on behalf of and in the name of Mortgagor or, with the same force and effect as Mortgagor could do if this Leasehold Mortgage had not been made. Mortgagee may, without affecting any of its rights or remedies against Mortgagor under any other instrument, document or agreement, exercise its rights under this Leasehold Mortgage as Mortgagor's attorney-in- fact in any other manner permitted by law, and in addition Mortgagee shall have and possess, without limitation, any and all rights and remedies of a secured party under the Uniform Commercial Code or otherwise as provided by law. 8. At Mortgagor's sole cost and expense, Mortgagor will appear in and defend any action growing out of or in any manner connected with the Lease or the obligations or liabilities of Mortgagor thereunder. In addition, Mortgagor shall indemnify and hold Mortgagee harmless from and against any and all claims, demands, liabilities, losses, lawsuits, judgments, and costs and expenses, including, without limitation, reasonable attorneys' fees to which Mortgagee may become exposed or which Mortgagee may incur in exercising any of its rights under this Leasehold Mortgage. 9. This Leasehold Mortgage is for security purposes only. Accordingly, Mortgagee shall not have the right under this Leasehold Mortgage to enforce the provisions of said Lease or exercise rights hereunder unless and until there shall have occurred an Event of Default. 10. Subject to the limitation on further assignment by Mortgagor set forth above, this Leasehold Mortgage shall be binding upon and inure to the benefit of the legal representatives, assigns and successors in interest of Mortgagor and Mortgagee, including any subsequent holders of Notes. 11. All notices hereunder shall be sent to the addresses and pursuant to the procedures set forth in Section 13.1 of the Credit Agreement. 12. Mortgagor warrants and represents that it is the Lessee of the Leasehold Estate under the Lease; such Leasehold Estate is free and clear of all liens, charges and encumbrances whatsoever, except those which have been approved by Mortgagee; and Mortgagor has full right and power to make this conveyance. 13. In addition to the rights and remedies set forth herein, Mortgagee shall have all rights and remedies set forth in the Loan Documents. IN WITNESS WHEREOF, Mortgagor has executed and sealed this Leasehold Mortgage this 14th day of January, 1997. ACC NATIONAL TELECOM CORP. [CORPORATE SEAL] By: /s/ John J. Zimmer Name: John J. Zimmer ATTEST:/s/ Daniel J. Venuti Title: Vice President Name: Daniel J. Venuti Title:Assistant Secretary STATE OF NORTH CAROLINA) ) COUNTY OF MECKLENBURG ) I, Betty G. Smith, a Notary Public of the county and state aforesaid, certify that Daniel J. Venuti personally came before me this day and acknowledged that he is Assistant Secretary of ACC NATIONAL TELECOM CORP., a Delaware corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Vice President, sealed with its corporate seal and attested by himself as its Assistant Secretary. WITNESS my hand and official stamp, this 14th day of January, 1997. /s/ Betty G. Smith Notary Public My commission expires: August 5, 1997 Exhibit A to Leasehold Mortgage between ACC National Telecom Corp. and First Union National Bank of North Carolina, as Administrative Agent Description of Leased Premises One Commerce Plaza Albany, New York EX-10 15 Exhibit 10-41 SATISFACTION: The indebtedness secured by this Leasehold Mortgage has been satisfied in full. By: Name: Title: Date: This instrument was prepared by and when recorded please return to: Michael L. Flynn, Esq. Kennedy Covington Lobdell & Hickman, L.L.P. Suite 4200 100 North Tryon Street Charlotte, NC 28202-4006 LEASEHOLD MORTGAGE [NEW YORK] This Leasehold Mortgage is made and entered into as of this 14th day of January, 1997, by and among ACC LONG DISTANCE CORP., Delaware corporation ("Mortgagor"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Mortgagee"), as Administrative Agent for the financial institutions (the "Lenders") as are, or may from time to time become, parties to the Credit Agreement (as defined below). WHEREAS, Mortgagor and certain Affiliates thereof are indebted to the Lenders in the principal sum of up to One Hundred Million Dollars ($100,000,000), as evidenced by the Notes of even date executed by the Mortgagor and such Affiliates in favor of the Lenders, and such other documents as may have been executed or given by Mortgagor in connection with the transactions contemplated by the Credit Agreement of even date between the Mortgagor and such Affiliates as Borrowers thereunder (collectively, the "Borrowers"), the Lenders and the Mortgagee, as Administrative Agent for the Lenders (as amended or supplemented, the "Credit Agreement", and collectively with the Notes and such other documents, the "Loan Documents"), the terms and conditions of which are incorporated herein by reference; NOW, THEREFORE, as security for the payment and performance of up to $500,000 of the Obligations (as defined in the Credit Agreement), the Mortgagor has created a security interest in, bargained, sold, given, granted, assigned and conveyed and does by these presents create a security interest in, bargain, sell, give, grant, assign and convey unto the Mortgagee, its or his successors and assigns, all of Mortgagor's right, title and interest in and to that certain leasehold estate under a lease agreement (as amended or supplemented, the "Lease"), dated April 12, 1988 and as amended on December 21, 1994, between the Mortgagor and 69 Delaware Associates of the Premises commonly known as 69 Delaware Avenue, Buffalo, New York (the "Leasehold Estate"), which is more particularly described on Exhibit A attached hereto and incorporated herein by reference. TO HAVE AND TO HOLD the Leasehold Estate described herein unto the Mortgagee, its heirs and successors in interest forever. THIS CONVEYANCE IS MADE UPON THIS SPECIAL TRUST, that if the Mortgagor shall satisfy all Obligations secured hereby, and shall comply with all of the covenants, terms and conditions of this Leasehold Mortgage and the Loan Documents, then this conveyance shall be null and void and shall be canceled of record at the request and cost of Mortgagor. But if at any time there shall be any default in satisfaction of any Obligations or under this instrument or under the terms and conditions of any instrument secured hereby, which default shall not have been cured within any applicable grace period (if any) provided therefor, then, at the option of Mortgagee, with the consent of the Required Lenders, the entire indebtedness hereby secured shall immediately become due, payable and collectible without further notice, regardless of maturity, and this Mortgage may be foreclosed by judicial proceedings, or the Mortgagee is hereby authorized and empowered to expose to sale and to sell the Leasehold Estate described herein at public sale for cash, in compliance with the requirements of Article 14 of the New York Real Property Actions and Proceedings Laws, or any subsequently enacted statute relating to nonjudicial foreclosure sales in effect on the date foreclosure is commenced, and at the time and place fixed for the sale to sell the Leasehold Estate described herein to the highest bidder for cash, and Mortgagee shall execute a conveyance of said Leasehold Estate to and deliver possession of same to the purchaser. Mortgagee may bid and become the purchaser at any under this Leasehold Mortgage. The proceeds of the sale shall, after the Mortgagee retains a reasonable compensation, together with reasonable attorneys, fees incurred by Mortgagee in such proceeding, be applied first to the payment of the costs and expenses of such sale; second, to the payment to the whole amount of Obligations then owing by the Mortgagor to the Lenders and secured hereby; and third to the payment of the surplus, if any, to the Mortgagor or to whomever else may be lawfully entitled thereto. This Leasehold Mortgage is made as additional collateral to secure the payment and performance of the Obligations. Other terms capitalized but not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. MORTGAGOR ACKNOWLEDGES, COVENANTS AND AGREES WITH MORTGAGEE AS FOLLOWS: 1. Mortgagor represents and warrants that there have been no prior encumbrances, conveyances or assignments of its interest in the Lease which are still in effect, and that the Lease is a valid and enforceable agreement, that neither Mortgagor nor, to its knowledge, any other party, is in material default thereunder and that all covenants, conditions and agreements have been performed as required therein, except those not due to be performed until after the date hereof. 2. No change in the terms of the Lease shall be valid without the written approval of Mortgagee, with the consent of the Required Lenders, and Mortgagor shall not assign, sell, pledge, mortgage or otherwise transfer or encumber its interest in the Lease so long as this Leasehold Mortgage is in effect except as permitted by the Credit Agreement. 3. Mortgagor shall give prompt notice to Mortgagee of any notice of default received by it under the Lease, together with a complete copy of any such notice of default. 4. Mortgagor shall perform each and all of the covenants and obligations of the tenant under the Lease for so long as this Leasehold Mortgage is in effect, including, without limitation, the obligations to maintain, rebuild and insure the improvements which constitute a portion of the premises thereunder. 5. Should Mortgagor fail to make any payment or to do act as herein provided, then Mortgagee may, but without obligation to do so and without notice to or demand on Mortgagor and without releasing Mortgagor from any Obligation, make or do the same, including, without limitation, appearing in and defending any action purporting to affect the security hereof or the rights or powers of Mortgagee hereunder and performing any obligation of Mortgagor under the Lease, and in exercising any such powers, paying all necessary costs and expenses, including, without limitation, attorneys' fees. Mortgagor will pay immediately upon demand all sums expended by Mortgagee under the authority hereof, and the same shall be added to the Obligations and shall be secured hereby and by the Loan Documents. 6. Upon the occurrence and continuation of an Event of Default, Mortgagee may, with the consent of the Required Lenders, at its option, without notice and without regard to the adequacy of security for the Obligations, either in person or by agent and with or without bringing any action or proceeding, or by a receiver to be appointed by a court, enter upon, take possession of, and operate the premises which are the subject of the Lease, make, enforce, modify and accept any provision of, or surrender, the Lease, and do any other act or acts which Mortgagee deems proper to protect the security hereof until all Obligations have been paid or performed in full. The entering upon and taking possession of such premises shall not cure or waive any default or waive, modify or affect any notice of default under the Credit Agreement or any other security instrument, nor invalidate any act done pursuant to any such notice. 7. Mortgagor hereby irrevocably constitutes and appoints Mortgagee as its attorney-in-fact to demand, receive, and enforce Mortgagor's rights with respect to the Lease for and on behalf of and in the name of Mortgagor or, with the same force and effect as Mortgagor could do if this Leasehold Mortgage had not been made. Mortgagee may, without affecting any of its rights or remedies against Mortgagor under any other instrument, document or agreement, exercise its rights under this Leasehold Mortgage as Mortgagor's attorney-in- fact in any other manner permitted by law, and in addition Mortgagee shall have and possess, without limitation, any and all rights and remedies of a secured party under the Uniform Commercial Code or otherwise as provided by law. 8. At Mortgagor's sole cost and expense, Mortgagor will appear in and defend any action growing out of or in any manner connected with the Lease or the obligations or liabilities of Mortgagor thereunder. In addition, Mortgagor shall indemnify and hold Mortgagee harmless from and against any and all claims, demands, liabilities, losses, lawsuits, judgments, and costs and expenses, including, without limitation, reasonable attorneys' fees to which Mortgagee may become exposed or which Mortgagee may incur in exercising any of its rights under this Leasehold Mortgage. 9. This Leasehold Mortgage is for security purposes only. Accordingly, Mortgagee shall not have the right under this Leasehold Mortgage to enforce the provisions of said Lease or exercise rights hereunder unless and until there shall have occurred an Event of Default. 10. Subject to the limitation on further assignment by Mortgagor set forth above, this Leasehold Mortgage shall be binding upon and inure to the benefit of the legal representatives, assigns and successors in interest of Mortgagor and Mortgagee, including any subsequent holders of Notes. 11. All notices hereunder shall be sent to the addresses and pursuant to the procedures set forth in Section 13.1 of the Credit Agreement. 12. Mortgagor warrants and represents that it is the Lessee of the Leasehold Estate under the Lease; such Leasehold Estate is free and clear of all liens, charges and encumbrances whatsoever, except those which have been approved by Mortgagee; and Mortgagor has full right and power to make this conveyance. 13. In addition to the rights and remedies set forth herein, Mortgagee shall have all rights and remedies set forth in the Loan Documents. IN WITNESS WHEREOF, Mortgagor has executed and sealed this Leasehold Mortgage this 14th day of January, 1997. ACC LONG DISTANCE CORP. [CORPORATE SEAL] By: /s/ John J. Zimmer Name: John J. Zimmer ATTEST:/s/ Daniel J. Venuti Title: Controller Name: Daniel J. Venuti Title:Assistant Secretary STATE OF NORTH CAROLINA) ) COUNTY OF MECKLENBURG ) I, Betty G. Smith, a Notary Public of the county and state aforesaid, certify that Daniel J. Venuti personally came before me this day and acknowledged that he is Assistant Secretary of ACC LONG DISTANCE CORP., a Delaware corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Controller, sealed with its corporate seal and attested by himself as its Assistant Secretary. WITNESS my hand and official stamp, this 14th day of January, 1997. /s/ Betty G. Smith Notary Public My commission expires: August 5, 1997 Exhibit A to Leasehold Mortgage between ACC Long Distance Corp. and First Union National Bank of North Carolina, as Administrative Agent Description of Leased Premises 69 Delaware Avenue Buffalo, New York EX-10 16 Exhibit 10-42 SATISFACTION: The indebtedness secured by this Leasehold Mortgage has been satisfied in full. By: Name: Title: Date: This instrument was prepared by and when recorded please return to: Michael L. Flynn, Esq. Kennedy Covington Lobdell & Hickman, L.L.P. Suite 4200 100 North Tryon Street Charlotte, NC 28202-4006 LEASEHOLD MORTGAGE [NEW YORK] This Leasehold Mortgage is made and entered into as of this 14th day of January, 1997, by and among ACC NATIONAL TELECOM CORP., Delaware corporation ("Mortgagor"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Mortgagee"), as Administrative Agent for the financial institutions (the "Lenders") as are, or may from time to time become, parties to the Credit Agreement (as defined below). WHEREAS, Mortgagor and certain Affiliates thereof are indebted to the Lenders in the principal sum of up to One Hundred Million Dollars ($100,000,000), as evidenced by the Notes of even date executed by the Mortgagor and such Affiliates in favor of the Lenders, and such other documents as may have been executed or given by Mortgagor in connection with the transactions contemplated by the Credit Agreement of even date between the Mortgagor and such Affiliates as Borrowers thereunder (collectively, the "Borrowers"), the Lenders and the Mortgagee, as Administrative Agent for the Lenders (as amended or supplemented, the "Credit Agreement", and collectively with the Notes and such other documents, the "Loan Documents"), the terms and conditions of which are incorporated herein by reference; NOW, THEREFORE, as security for the payment and performance of up to $500,000 of the Obligations (as defined in the Credit Agreement), the Mortgagor has created a security interest in, bargained, sold, given, granted, assigned and conveyed and does by these presents create a security interest in, bargain, sell, give, grant, assign and convey unto the Mortgagee, its or his successors and assigns, all of Mortgagor's right, title and interest in and to that certain leasehold estate under a lease agreement (as amended or supplemented, the "Lease"), dated December 20, 1996, between the Mortgagor and Paramount Group, Inc., as agent for Old Slip Associates, L.P., of the Premises commonly known as 32 Old Slip, New York, New York (the "Leasehold Estate"), which is more particularly described on Exhibit A attached hereto and incorporated herein by reference. TO HAVE AND TO HOLD the Leasehold Estate described herein unto the Mortgagee, its heirs and successors in interest forever. THIS CONVEYANCE IS MADE UPON THIS SPECIAL TRUST, that if the Mortgagor shall satisfy all Obligations secured hereby, and shall comply with all of the covenants, terms and conditions of this Leasehold Mortgage and the Loan Documents, then this conveyance shall be null and void and shall be canceled of record at the request and cost of Mortgagor. But if at any time there shall be any default in satisfaction of any Obligations or under this instrument or under the terms and conditions of any instrument secured hereby, which default shall not have been cured within any applicable grace period (if any) provided therefor, then, at the option of Mortgagee, with the consent of the Required Lenders, the entire indebtedness hereby secured shall immediately become due, payable and collectible without further notice, regardless of maturity, and this Mortgage may be foreclosed by judicial proceedings, or the Mortgagee is hereby authorized and empowered to expose to sale and to sell the Leasehold Estate described herein at public sale for cash, in compliance with the requirements of Article 14 of the New York Real Property Actions and Proceedings Laws, or any subsequently enacted statute relating to nonjudicial foreclosure sales in effect on the date foreclosure is commenced, and at the time and place fixed for the sale to sell the Leasehold Estate described herein to the highest bidder for cash, and Mortgagee shall execute a conveyance of said Leasehold Estate to and deliver possession of same to the purchaser. Mortgagee may bid and become the purchaser at any under this Leasehold Mortgage. The proceeds of the sale shall, after the Mortgagee retains a reasonable compensation, together with reasonable attorneys, fees incurred by Mortgagee in such proceeding, be applied first to the payment of the costs and expenses of such sale; second, to the payment to the whole amount of Obligations then owing by the Mortgagor to the Lenders and secured hereby; and third to the payment of the surplus, if any, to the Mortgagor or to whomever else may be lawfully entitled thereto. This Leasehold Mortgage is made as additional collateral to secure the payment and performance of the Obligations. Other terms capitalized but not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. MORTGAGOR ACKNOWLEDGES, COVENANTS AND AGREES WITH MORTGAGEE AS FOLLOWS: 1. Mortgagor represents and warrants that there have been no prior encumbrances, conveyances or assignments of its interest in the Lease which are still in effect, and that the Lease is a valid and enforceable agreement, that neither Mortgagor nor, to its knowledge, any other party, is in material default thereunder and that all covenants, conditions and agreements have been performed as required therein, except those not due to be performed until after the date hereof. 2. No change in the terms of the Lease shall be valid without the written approval of Mortgagee, with the consent of the Required Lenders, and Mortgagor shall not assign, sell, pledge, mortgage or otherwise transfer or encumber its interest in the Lease so long as this Leasehold Mortgage is in effect except as permitted by the Credit Agreement. 3. Mortgagor shall give prompt notice to Mortgagee of any notice of default received by it under the Lease, together with a complete copy of any such notice of default. 4. Mortgagor shall perform each and all of the covenants and obligations of the tenant under the Lease for so long as this Leasehold Mortgage is in effect, including, without limitation, the obligations to maintain, rebuild and insure the improvements which constitute a portion of the premises thereunder. 5. Should Mortgagor fail to make any payment or to do act as herein provided, then Mortgagee may, but without obligation to do so and without notice to or demand on Mortgagor and without releasing Mortgagor from any Obligation, make or do the same, including, without limitation, appearing in and defending any action purporting to affect the security hereof or the rights or powers of Mortgagee hereunder and performing any obligation of Mortgagor under the Lease, and in exercising any such powers, paying all necessary costs and expenses, including, without limitation, attorneys' fees. Mortgagor will pay immediately upon demand all sums expended by Mortgagee under the authority hereof, and the same shall be added to the Obligations and shall be secured hereby and by the Loan Documents. 6. Upon the occurrence and continuation of an Event of Default, Mortgagee may, with the consent of the Required Lenders, at its option, without notice and without regard to the adequacy of security for the Obligations, either in person or by agent and with or without bringing any action or proceeding, or by a receiver to be appointed by a court, enter upon, take possession of, and operate the premises which are the subject of the Lease, make, enforce, modify and accept any provision of, or surrender, the Lease, and do any other act or acts which Mortgagee deems proper to protect the security hereof until all Obligations have been paid or performed in full. The entering upon and taking possession of such premises shall not cure or waive any default or waive, modify or affect any notice of default under the Credit Agreement or any other security instrument, nor invalidate any act done pursuant to any such notice. 7. Mortgagor hereby irrevocably constitutes and appoints Mortgagee as its attorney-in-fact to demand, receive, and enforce Mortgagor's rights with respect to the Lease for and on behalf of and in the name of Mortgagor or, with the same force and effect as Mortgagor could do if this Leasehold Mortgage had not been made. Mortgagee may, without affecting any of its rights or remedies against Mortgagor under any other instrument, document or agreement, exercise its rights under this Leasehold Mortgage as Mortgagor's attorney-in- fact in any other manner permitted by law, and in addition Mortgagee shall have and possess, without limitation, any and all rights and remedies of a secured party under the Uniform Commercial Code or otherwise as provided by law. 8. At Mortgagor's sole cost and expense, Mortgagor will appear in and defend any action growing out of or in any manner connected with the Lease or the obligations or liabilities of Mortgagor thereunder. In addition, Mortgagor shall indemnify and hold Mortgagee harmless from and against any and all claims, demands, liabilities, losses, lawsuits, judgments, and costs and expenses, including, without limitation, reasonable attorneys' fees to which Mortgagee may become exposed or which Mortgagee may incur in exercising any of its rights under this Leasehold Mortgage. 9. This Leasehold Mortgage is for security purposes only. Accordingly, Mortgagee shall not have the right under this Leasehold Mortgage to enforce the provisions of said Lease or exercise rights hereunder unless and until there shall have occurred an Event of Default. 10. Subject to the limitation on further assignment by Mortgagor set forth above, this Leasehold Mortgage shall be binding upon and inure to the benefit of the legal representatives, assigns and successors in interest of Mortgagor and Mortgagee, including any subsequent holders of Notes. 11. All notices hereunder shall be sent to the addresses and pursuant to the procedures set forth in Section 13.1 of the Credit Agreement. 12. Mortgagor warrants and represents that it is the Lessee of the Leasehold Estate under the Lease; such Leasehold Estate is free and clear of all liens, charges and encumbrances whatsoever, except those which have been approved by Mortgagee; and Mortgagor has full right and power to make this conveyance. 13. In addition to the rights and remedies set forth herein, Mortgagee shall have all rights and remedies set forth in the Loan Documents. IN WITNESS WHEREOF, Mortgagor has executed and sealed this Leasehold Mortgage this 14th day of January, 1997. ACC NATIONAL TELECOM CORP. [CORPORATE SEAL] By: /s/ John J. Zimmer Name: John J. Zimmer ATTEST:/s/ Daniel J. Venuti Title: Vice President Name: Daniel J. Venuti Title:Assistant Secretary STATE OF NORTH CAROLINA) ) COUNTY OF MECKLENBURG ) I, Betty G. Smith, a Notary Public of the county and state aforesaid, certify that Daniel J. Venuti personally came before me this day and acknowledged that he is Assistant Secretary of ACC NATIONAL TELECOM CORP., a Delaware corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Vice President, sealed with its corporate seal and attested by himself as its Assistant Secretary. WITNESS my hand and official stamp, this 14th day of January, 1997. /s/ Betty G. Smith Notary Public My commission expires: August 5, 1997 Exhibit A to Leasehold Mortgage between ACC National Telecom Corp. and First Union National Bank of North Carolina, as Administrative Agent Description of Leased Premises 32 Old Slip New York, New York EX-10 17 LAND TITLE ACT Exhibit 10-43 FORM B [Section 219.1] Province of British Columbia MORTGAGE - PART 1 (THIS AREA FOR LAND TITLE OFFICE USE) PAGE 1 OF 30 pages - -------------------------------------------------------------------------- 1. APPLICATION: (Name, address, phone number and signature of applicant, applicant's solicitor or agent) FRASER & BEATTY Barristers and Solicitors 1500 - 1040 West Georgia Street Vancouver, British Columbia V6E 4H8 __________________________________ Telephone (604) 687-4460 signature of applicant, applicant's solicitor or agent 2. (a) PARCEL IDENTIFIER(S) AND LEGAL DESCRIPTION(S) OF THE MORTGAGED LAND:* (PID) (LEGAL DESCRIPTION) 017-759-374 Lot 1, Except Portion in Air Space Plan LMP3376 and Plan LMP9029 and LMP10273, DL 541 and of the Public Harbour of Burrard Inlet, Plan LMP3374 017-759-552 Air Space Parcel 1, DL 541 and of the Public Harbour of Burrard Inlet Air Space Plan LMP3377 ____________________________________________________________________________ 3. BORROWER(S) [MORTGAGOR(S)]: (including postal address(es) and postal code(s))* ACC TELENTERPRISES LTD./TELENTREPRISES ACC LTEE. (Reg. No. ) 5343 Dundas Street West, Suite 600, Etobicoke, Ontario, M9B 6K5 ____________________________________________________________________________ 4. LENDER(S) [MORTGAGEE(S)]: (including occupation(s), postal address(es) and postal code(s))* FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association organized under the laws of the United States, One First Union Center, 301 S. College Street, Charlotte, North Carolina, U.S.A. 28288
5. Payment Provisions:** (a)Principal Amount: (b)Interest Rate: (c)Interest Y M D Adjustment $30,000,000 U.S. 25% per annum Date: N/A (d)Interest Calculation (e)Payment Dates: (f)First Payment Date: Period: Monthly See Schedule See Schedule (g)Amount of each period (h)INTEREST ACT (Canada) (i)Last Payment Date: 2001 9 30 payment: Statement: The equivalent rate of interest calculated See Schedule half yearly not in advance is n/a% per premium. (j)Assignment of Rents which (k)Place of payment: (l)Balance Due Date: 2001 9 30 the applicant wants registered? Postal Address in Item 4 YES NO X If yes, page & paragraph no.:
* If space insufficient, enter "SEE SCHEDULE" and attach schedule in Form E. ** If space insufficient, continue executions on additional page(s) in Form D. - 1 - MORTGAGE - PART 1 PAGE 2 6. MORTGAGE contains 7. MORTGAGE secures a current floating charge on land? YES NO X or running account? YES X NO___ -- -- - ----------------------------------------------------------------------------- 8. INTEREST MORTGAGED: Freehold Other (specify) X* Lease No. -- ---------------- - ---------------------------------------------------------------------------- 9. MORTGAGE TERMS: Part 2 of this mortgage consists of (select one only): (a) Prescribed Standard Mortgage Terms ___ (b) Filed Standard Mortgage Terms ___ D.F. Number: (c) Express Mortgage Terms X (annexed to this mortgage as Part 2) A selection of (a) or (b) includes any additional or modified terms referred to in Item 10 or in a schedule annexed to this mortgage. - ------------------------------------------------------------------------------- 10. ADDITIONAL OR MODIFIED TERMS:* N/A - ----------------------------------------------------------------------------- 11. PRIOR ENCUMBRANCES PERMITTED BY LENDER:* NONE - ----------------------------------------------------------------------------- 12. EXECUTION(S):**This mortgage charges the Borrower's interest in the land mortgaged as security for payment of all money due and performance of all obligations in accordance with the mortgage terms referred to in Item 9 and the Borrower(s) and every other signatory agree(s) to be bound by, and acknowledge(s) receipt of a true copy of, those terms.
Officer Signature(s) Execution Date Borrower(s) Signature(s) Y M D ACC TELENTERPRISES LTD./ /S/ BETTY G. SMITH TELENTREPRISES ACC LTEE. Print Name/Address: 97 1 8 by its authorized signatory(ies): Betty G. Smith Charlotte, NC /S/ JOHN J. ZIMMER Print Name: John J. Zimmer Notary Seal Assistant Controller 97 1 8 /S/ DANIEL J. VENUTI Print Name: Daniel J. Venuti Authorized Signatory
OFFICER CERTIFICATION: Your signature constitutes a representation that you are solicitor, notary public or other person authorized by the EVIDENCE ACT, R.S.B.C. 1979, c. 116, to take affidavits for use in British Columbia and certifies the matters set out in Part 5 of the LAND TITLE ACT as they pertain to the execution of this instrument. * If space insufficient, enter "SEE SCHEDULE" and attach schedule in Form E. ** If space insufficient, continue executions on additional page(s) in Form D. LAND TITLE ACT FORM E SCHEDULE Page 3 - ------------------------------------------------------------------------------- Enter the Required Information the Same Order as the Information Must Appear on the Freehold Transfer Form, Mortgage Form or General Document Form. Unless otherwise indicated, all terms on this Form E Schedule shall have the same meanings as contained in the Prescribed Mortgage Terms. 5. PAYMENT PROVISIONS: (e) Payment Dates INTEREST Interest on each "Base Rate Loan" (as that term is defined in the credit agreement) shall be payable in U.S. Dollars in arrears on the last business day of each calendar quarter commencing March 31, 1997 and interest on each "LIBOR Rate Loan" (as that term is defined in the credit agreement) shall be payable on the last day of each "Interest Period" (as that term is defined in the credit agreement) 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 U.S. Dollars or Canadian Dollars shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed, and (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. PRINCIPAL PAYMENTS The principal payments under this mortgage shall be due and payable by quarterly instalments on each of the following dates equal to the amount required to reduce the "Sublimit" (as that term is defined in the credit agreement) of the borrower to the following "Reduced Sublimit Amounts": DATE REDUCED SUBLIMIT AMOUNTS (U.S. Dollars) December 31, 1998 $27,600,000 March 31, 1999 25,200,000 June 30, 1999 22,800,000 September 30, 1999 20,400,000 December 31, 1999 18,000,000 March 31, 2000 15,600,000 June 30, 2000 13,200,000 September 30, 2000 10,800,000 December 31, 2000 8,100,000 March 31, 2001 5,400,000 June 30, 2001 2,700,000 September 30, 2001 0 LAND TITLE ACT FORM E SCHEDULE Page 4 - ---------------------------------------------------------------------------- Enter the Required Information the Same Order as the Information Must Appear on the Freehold Transfer Form, Mortgage Form or General Document Form. The foregoing "Reduced Sublimit Amounts" may be revised in accordance with the terms of the credit agreement and, in such a case, the quarterly instalments shall be equal to the amount required to reduce the "Sublimit" (as that term is defined in the credit agreement) of the borrower to such revised "Reduced Sublimit Amounts." (f) First Payment Date INTEREST The first payment date for interest shall be March 31, 1997. PRINCIPAL PAYMENTS The first payment date for the principal payments under this mortgage shall be December 31, 1998. (g) Amount of Each Periodic Payment INTEREST Interest on each "Base Rate Loan" (as that term is defined in the credit agreement) calculated as provided in the credit agreement shall be payable in U.S. Dollars in arrears on the last business day of each calendar quarter commencing March 31, 1997 and interest on each "LIBOR Rate Loan" (as that term is defined in the credit agreement) calculated as provided in the credit agreement shall be payable on the last day of each "Interest Period" (as that term is defined in the credit agreement) 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 U.S. Dollars or Canadian Dollars shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed, and (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. PRINCIPAL PAYMENTS The principal payments under this mortgage shall be due and payable by quarterly instalments on each of the following dates equal to the amount required to reduce the "Sublimit" (as that term is defined in the credit agreement) of the borrower to the following "Reduced Sublimit Amounts": DATE REDUCED SUBLIMIT AMOUNTS (U.S. Dollars) December 31, 1998 $27,600,000 March 31, 1999 25,200,000 June 30, 1999 22,800,000 September 30, 1999 20,400,000 December 31, 1999 18,000,000 March 31, 2000 15,600,000 LAND TITLE ACT FORM E SCHEDULE Page 5 - ----------------------------------------------------------------------------- Enter the Required Information the Same Order as the Information Must Appear on the Freehold Transfer Form, Mortgage Form or General Document Form. June 30, 2000 13,200,000 September 30, 2000 10,800,000 December 31, 2000 8,100,000 March 31, 2001 5,400,000 June 30, 2001 2,700,000 September 30, 2001 0 The foregoing "Reduced Sublimit Amounts" may be revised in accordance with the terms of the credit agreement and, in such a case, the quarterly instalments shall be equal to the amount required to reduce the "Sublimit" (as that term is defined in the credit agreement) of the borrower to such "Reduced Sublimit Amounts". Page 6 MORTGAGE TERMS - PART 2 EXPRESS MORTGAGE TERMS THIS MORTGAGE made as of January 14, 1997 IN PURSUANCE OF THE "LAND TRANSFER FORM ACT" BETWEEN: ACC TELENTERPRISES LTD./TELENTREPRISES ACC LTEE, having an address at 5343 Dundas Street West, Suite 600, Etobicoke, Ontario, M9B 6K5 (Reg. No. ) (the "borrower") AND: FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association organized under the laws of the United States, One First Union Center, 301 S. College Street, Charlotte, North Carolina, U.S.A. 28288, as Administrative Agent for the benefit of itself and the financial institutions as are, or may from time to time become, lenders under the "credit agreement" (as that term is hereinafter defined) (the "lender") NOW THEREFORE THIS MORTGAGE WITNESSES that in consideration of the lender advancing to the borrower any portion of the principal amount (the receipt and sufficiency of which is hereby acknowledged) and other good and valuable consideration: INTERPRETATION In this mortgage: "borrower mailing address" means the postal address of the borrower set out above or the most recent postal address provided in a written notice given by the borrower to the lender under this mortgage; "borrower's promises and agreements"means any one or more of the borrower's obligations, promises and agreements contained in this mortgage; "court" means a court or judge having jurisdiction in any matter arising out of this mortgage; Page 7 "credit agreement" means the amended and restated credit agreement as defined in Section 2.1; "default" includes each of the events of default listed in Section 7.1; "interest" means interest at the interest rate set out in Section 2.1; "interest adjustment date" means the interest adjustment date set out in Section 2.1, if applicable; "interest calculation period" means the period or periods for the calculation of interest set out in Section 2.1; "interest rate" means the interest rate set out in Section 2.1; "land" means all the borrower's present and future interest in the land described in Section 1.1 including every incidental right, benefit or privilege attaching to that land or running with it and all buildings and improvements that are now or later constructed on or made to that land; "lease" means the leasehold interest of the borrower referred to in Section 1.1; "lender mailing address" means the postal address shown on page 1 of this mortgage or the most recent postal address provided in a written notice given by the lender to the borrower under this mortgage; "loan payment" means the amount of each periodic payment shown in Section 2.2; "maturity date" means the balance due date shown in Section 2.2 and is the date on which all unpaid mortgage money becomes due and payable, or such earlier date on which the lender can lawfully require payment of the mortgage money; "mortgage money" means the principal amount, interest and any other money owed by the borrower under this mortgage, the payment of which is secured by this mortgage; "payment date" means such payment date set out in Section 2.2 of this mortgage; "place of payment" means the lender's mailing address or any other place specified in a written notice given by the lender to the borrower under this mortgage; "principal amount" means the amount of money shown as the principal amount in Section 2.1 as reduced by payments made by the borrower from Page 8 time to time as contemplated by Section 2.1, or increased by the advance or readvance of money to the borrower by the lender from time to time, and includes all money that is later added to the principal amount under this mortgage; "receiver" means a receiver or receiver manager appointed by the lender under this mortgage; "taxes" means all taxes, rates and assessments of every kind which are payable by any person in connection with this mortgage, the land or its use and occupation, or arising out of any transaction between the borrower and the lender, but does not include the income tax of the lender or any lender party to the credit agreement. In this mortgage, the singular includes the plural and vice versa. 1.0 MORTGAGE OF LAND 1.1 The borrower grants, mortgages, demises, subleases and charges unto the lender as security for the repayment of the mortgage money and for performance of all the borrower's promises and agreements, all right, title and interest of the borrower in and to those certain parcels or tracts of lands and premises situate in the City of Vancouver, British Columbia and more particularly known and described as: Parcel Identifier: 017-759-374 Lot 1, Except Portion in Air Space Plan LMP3376 and Plan LMP9029 and LMP10273, District Lot 541 and of the Public Harbour of Burrard Inlet, Plan LMP3374 and Parcel Identifier: 017-759-552 Air Space Parcel 1, District Lot 541 and of the Public Harbour of Burrard Inlet Air Space Plan LMP3377 (the "land") pursuant to a sublease dated as of March 1, 1994 between Waterfront Centre Leaseholds Ltd., as sublandlord, which assigned its interest to Ontrea Inc., and ACC Long Distance Ltd./Interurbains ACC Ltee., as tenant, which amalgamated with ACC Long Distance Inc./Interurbains ACC Inc. to form ACC Long Distance Inc./Interurbains ACC Inc., which is a pre-amalgamating company of the borrower, as amended by a lease modification agreement dated May 1, 1994, and as may be amended from time to time (the "lease") with respect to a portion of the second floor of the building located on the land. 2.0 PROVISO FOR REDEMPTION 2.1 Provided this mortgage shall be void upon payment as hereinafter provided of: Page 9 (a) the borrower's "Obligations" (as that term is defined in the "credit agreement" (as that term is hereinafter defined)) under or pursuant to that certain amended and re-stated credit agreement dated January 14, 1997 among ACC Corp. and certain subsidiaries thereof (including, without limitation, the borrower), as borrowers, ACC Corp. as guarantor, the lenders referred to therein, First Union National Bank of North Carolina, as managing and administrative agent, and Fleet National Bank, as managing and documentation agent (such amended and re-stated credit agreement as it may be amended, supplemented, replaced or re-stated from time to time be and herein called the "credit agreement") up to the principal sum of $30,000,000 U.S., plus interest thereon and other costs payable under this mortgage; and (b) interest, both before and after maturity, default and judgment, on the principal amount outstanding from time to time, at the interest rate of 25% per annum (the "interest rate"), payable in U.S. dollars on each "Base Rate Loan" (as that term is defined in the credit agreement) in arrears on the last day of each calendar quarter commencing March 31, 1997 and on each "LIBOR Rate Loan" (as that term is defined in the credit agreement) in arrears on the last day of each "Interest Period" (as that term is defined in the credit agreement) applicable thereto, and if such "Interest Period" extends over three (3) months, at the end of each three (3) 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 U.S. dollars or Cdn. dollars shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed, and (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 (the "interest calculation period") all of which shall be payable on the later of the maturity date and the date that the mortgage money payable hereunder has been paid in full; (c) payment of the mortgage money as the lender may be entitled to by virtue of this mortgage, as and when such mortgage money shall become due and payable; and (d) payment of taxes; and (e) observance and performance of all covenants, provisos and conditions herein contained. 2.2 The principal payments under this mortgage shall be due and payable by quarterly instalments (the "loan payment") on each of the following dates equal to the amount required to reduce the "Sublimit" (as that term is defined in the credit agreement) of the borrower to the following "Reduced Sublimit Amounts": DATE REDUCED SUBLIMIT AMOUNTS (U.S. Dollars) December 31, 1998 $27,600,000 March 31, 1999 25,200,000 Page 10 June 30, 1999 22,800,000 September 30, 1999 20,400,000 December 31, 1999 18,000,000 March 31, 2000 15,600,000 June 30, 2000 13,200,000 September 30, 2000 10,800,000 December 31, 2000 8,100,000 March 31, 2001 5,400,000 June 30, 2001 2,700,000 September 30, 2001 0 The foregoing "Reduced Sublimit Amounts" may be revised in accordance with the terms of the credit agreement and, in such a case, the quarterly instalments shall be equal to the amount required to reduce the "Sublimit" (as that term is defined in the credit agreement) of the borrower to such revised "Reduced Sublimit Amounts." 2.3 If the interest mortgaged is described in Section 1.1 as a leasehold interest, the grant in Section 1.1 shall be construed as a charge of the unexpired term of the lease less the last month of that term, provided that the borrower shall hold the remainder in trust for the lender and deal with same as directed by the lender. If any of the property charged under Section 1.1 at any time includes property which cannot be effectively charged without consent, such a charge shall not become effective until, but shall become effective immediately when, all consents necessary for the validity and effectiveness of such charge have been obtained. 2.4 This means that: (a) this mortgage shall be a charge on the land; and (b) the borrower releases to the lender all the borrower's claim to the land until the borrower has paid the mortgage money to the lender and each of the lenders party to the credit agreement, in accordance with these mortgage terms, and has performed all of the borrower's promises and agreements. 2.5 The borrower may continue to remain in possession of the land as long as the borrower performs all of the borrower's promises and agreements. 2.6 When the borrower has paid the mortgage money and performed all the borrower's promises and agreements under this mortgage and neither the lender nor any lender party to the credit agreement has any obligation to make any further advances or readvances, the lender will no longer be entitled to enforce any rights under this mortgage and the borrower will be entitled, at the borrower's cost, to receive a discharge of this mortgage. If this mortgage is registered in the land title office, the discharge must be signed by the lender and must be registered by the borrower in the land title office to cancel the registration of this mortgage against the land. 3.0 INTEREST 3.1 Interest is chargeable on the mortgage money and is payable by the borrower. Page 11 3.2 Interest is not payable in advance. This means that interest must be earned before it is payable. 3.3 Interest on advances or readvances of the principal amount starts on the date and on the amount of each advance or readvance and accrues on the principal amount until the borrower has paid all the mortgage money. 3.4 Interest payable on any part of the principal amount advanced before the interest adjustment date is due and payable to the lender on the interest adjustment date. 3.5 At the end of each interest calculation period, unpaid accrued interest will be added to the principal amount and bear interest. This is known as compound interest. 4.0 PAYMENT OF THE MORTGAGE MONEY 4.1 The borrower promises to pay the mortgage money to the lender at the place of payment in accordance with the payment provisions set out in Sections 2.1 and 2.2. 5.0 PROMISES OF THE BORROWER 5.1 The borrower promises: (a) to pay all taxes when they are due and to send to the lender at the place of payment, or at any other place the lender requires, all notices of taxes which the borrower receives; (b) if the lender requires the borrower to do so, to pay to the lender: (i) on each payment date the amount of money estimated by the lender to be sufficient to permit the lender to pay the taxes when they are due; and (ii) any money in addition to the money already paid towards taxes so that the lender will be able to pay the taxes in full; (c) to apply for all government grants, assistance and rebates in respect of taxes; (d) to comply with all terms and conditions of any charge or encumbrance that ranks ahead of this mortgage; (e) to keep all buildings and improvements which form part of the land in good condition and to repair them as the lender reasonably requires; (f) to sign any other document that lender reasonably requires to ensure that payment of the mortgage money is secured by this mortgage or by any other document the borrower has agreed to give as security; (g) not to do anything that has the effect of reducing the value of the land; (h) not to tear down any building or part of a building which forms part of the land; Page 12 (i) not to make any alteration or improvement to any building which forms part of the land without the written consent of the lender; (j) if the borrower has rented the land to a tenant, to keep, if required by the lender, records of all rents received and of all expenses paid by the borrower in connection with the land and, at least annually, have a statement of revenue and expenses for the land prepared by a professional accountant if the lender requires and to give a copy of the statement to the lender if the lender requires the borrower to do so; (k) to insure and keep insured against the risk of fire and other risks and losses that the lender asks the borrower to insure against, with an insurance company licensed to do business in British Columbia, all buildings and improvements on the land to their full insurable value on a replacement cost basis and to pay all insurance premiums when due; (l) to send a copy of each insurance policy and renewal certificate to the lender at the place of payment; (m) to pay all of the costs of the lender and each lender party to the credit agreement, including legal fees on solicitor and own client basis to: (i) if this mortgage at some future date can be registered, prepare and register this mortgage, including all necessary steps to advance and secure the mortgage money and to report to the lender; (ii) collect the mortgage money; (iii)enforce the terms of this mortgage, including efforts to compel the borrower to perform the borrower's promises and agreements; (iv) do anything which the borrower has promised to do but has not done; and (v) prepare and give the borrower a discharge of this mortgage when the borrower has paid all money due under this mortgage and the borrower wants it to be discharged; (n) if the lender requires the borrower to do so; to: (i) give the lender in each year post-dated cheques for all loan payments due for that year and for taxes; and (ii) arrange for all loan payments to be made by pre-authorized chequing; (o) to pay any money which, if not paid, would result in a default under any charge or encumbrance having priority over this mortgage or which might result in the sale of the land if not paid; and Page 13 (p) to pay and cause to be discharged any charges or encumbrances described in Section 5.2(b) which are not prior encumbrances permitted under this mortgage. 5.2 The borrower declares to the lender and each lender party to the credit agreement that: (a) the borrower has an interest in the land and has the right to mortgage the land to the lender; (b) the borrower's title to the land is subject only to: (i) those charges and encumbrances that are registered in the land title office at the time the borrower signed this mortgage; and (ii) any unregistered charges and encumbrances that the lender, with the consent of the required lenders, has agreed to in writing; and (c) subject to paragraph (b), the borrower: (i) has not given any other charge or encumbrance against the land; and (ii) has no knowledge of any other claim against the land. 5.3 The insurance policy or policies required by subsection 5.1(k) shall contain a mortgage clause approved by the lender and states that payment of any loss shall be made to the lender at the place of payment or any other place the lender requires. 5.4 The borrower gives up any statutory right to require the insurance proceeds to be applied in any particular manner. 6.0 AGREEMENTS BETWEEN THE BORROWER AND THE LENDER 6.1 The lender will use the money paid to the lender under Section 5.1(b) to pay taxes unless there is a default in which case the lender may apply the money in payment of the mortgage money. 6.2 By this mortgage, the borrower grants and mortgages any additional or greater interest in the land that the borrower may later acquire. 6.3 Any money paid to the lender under this mortgage shall: (a) prior to a default, be applied first in payment of interest, secondly in payment of the principal amount and thirdly in payment of all other money owed by the borrower under this mortgage; and (b) after a default, be applied in any manner the lender chooses, with the consent of the required lenders. Page 14 6.4 The lender may at any reasonable time inspect the land and any buildings and improvements which form part of it. 6.5 If the lender takes possession of the land, the lender shall not be responsible for maintaining and preserving the land and need only account to the borrower for any money which the lender actually receives in connection with this mortgage or the land. 6.6 The lender may spend money to perform any of the borrower's promises and agreements which the borrower has not performed and any money so spent shall be added to the principal amount, bear interest from the date that the money was so spent, and be immediately due and payable to the lender. 6.7 If the borrower wants to give any notice to the lender, the borrower must do so having it delivered to the lender personally or by sending it by registered or certified mail to the lender mailing address or to any other address later specified in writing by the lender to the borrower. 6.8 If the lender wants to give any notice to the borrower, the lender must do so by having it delivered to the borrower personally or by sending it by registered or certified mail to the borrower mailing address or to any other address later specified in writing by the borrower to the lender. 6.9 Any notice sent by mail is considered to have been received five days after it is mailed. 6.10 Any notice to be given by the borrower to the lender or vice versa during a mail strike or disruption must be delivered rather than sent by mail. 6.11 The borrower is not released from the borrower's promises and agreements only because the borrower sells the land. 6.12 If the borrower has mortgaged anything else to the lender better to secure payment of the mortgage money, the lender may take all lawful proceedings under any of the mortgages in any order that the lender chooses. 6.13 Neither the lender nor the lenders party to the credit agreement have to advance or readvance the principal amount or the rest or any further part of the principal amount to the borrower unless the lender and the lenders want to even though: (a) the borrower has signed this mortgage; (b) this mortgage is registered in the land title office; or (c) the lender and the lenders have advanced to the borrower part of the principal amount. 6.14 The lender may deduct from any advance of the principal amount: Page 15 (a) any taxes that are due; (b) any interest that is due and payable to the date of the advance; (c) the legal fees and disbursements to prepare and register this mortgage including other necessary steps to advance and secure the mortgage money and to report to the lender; and (d) any insurance premium. 6.15 The lender's right of consolidation applies to this mortgage and to any other mortgages given by the borrower to the lender. This means that if the borrower has mortgaged other property to the lender, the borrower will not have the right, after default to pay off this mortgage or any mortgage of other property unless the borrower pays the lender and each of the lenders party to the credit agreement all money owed by the borrower under this mortgage and all of the mortgages of other property. 7.0 DEFAULTS 7.1 A default occurs under this mortgage if: (a) there is the occurrence of an "event of default" (as that term is defined in the credit agreement); (b) the borrower defaults in the observance or performance in any material respect of any of its covenants, agreements or other obligations under this mortgage, provided however that if such default is curable, such default has not been remedied within 30 days after the lender has given notice to the borrower specifying the default; (c) the borrower makes an assignment for the benefit of its creditors, is declared a bankrupt, makes a proposal or otherwise takes advantage of provisions for relief under BANKRUPTCY AND INSOLVENCY ACT, the COMPANIES CREDITORS' ARRANGEMENT ACT or similar legislation in any jurisdiction, or makes an authorized assignment; (d) the land is abandoned or is left unoccupied for 30 or more consecutive days; (e) the land or any part of it is expropriated; (f) the borrower sells or agrees to sell all or any part of the land or if the borrower leases it or any part of it without the prior written consent of the lender; (g) the borrower gives another mortgage of the land to someone other than the lender without the prior written consent of the lender; (h) the borrower does not discharge any judgment registered in the land title office against the land within 30 days after receiving notice of its registration; or Page 16 (i) the borrower allows any claim of builders lien to remain undischarged on title to the land for more than 30 days unless the borrower: (i) diligently disputes the validity of the claim by taking all necessary legal steps to do so; (ii) gives reasonable security to the lender to pay the claim in full if it is found to be valid; and (iii)authorizes the lender to use the security to pay the lien in full. 7.2 If a default occurs under this mortgage, it will have the same effect as though a default had occurred under any other mortgage or agreement between the borrower and the lender or any lender party to the credit agreement. 8.0 CONSEQUENCES OF A DEFAULT 8.1 If a default occurs, all the mortgage money then owing to the lender and each of the lenders party to the credit agreement will, if the lender chooses, with the consent of the required lenders, at once become due and payable. 8.2 If a default occurs the lender may, in any order that the lender chooses, do any one or more of the following: (a) demand payment of all the mortgage money; (b) sue the borrower for the amount of money due; (c) take proceedings and any other legal steps to compel the borrower to keep the borrower's promises and agreements; (d) enter upon and take possession of the land; (e) sell the land and other property by public auction or private sale, or lease the land on terms decided by the lender: (i) on 30 days notice to the borrower if the default has continued for 30 days; or, (ii) without notice to the borrower if the default has continued for 60 days or more; (f) apply to the court for an order that the land be sold on terms approved by the court; (g) apply to the court to foreclose the borrower's interest in the land so that when the court makes its final order of foreclosure the borrower's interest in the land will be absolutely vested in and belong to the lender; Page 17 (h) appoint a receiver of the land; (i) enter upon and take possession of the land without the permission of anyone and make any arrangements the lender considers necessary to: (i) inspect, lease, collect rents or manage the land; (ii) complete the construction of any building on the land; or (iii)repair any building on the land; (j) take whatever action is necessary to take, recover and keep possession of the land. 8.3 Nothing in Section 8.2 affects the jurisdiction of the court. 8.4 If the lender sells the land by public auction or by private sale the lender will use the amount received from the sale to pay: (a) any real estate agent's commission; (b) all adjustments usually made on the sale of land; (c) all of the lender's expenses and costs described in Section 8.2; and (d) the mortgage money; and will pay any surplus (e) according to any order of the court if the land is sold by an order of the court; or (f) to the borrower if the land is sold other than by an order of the court. 8.5 If the money available to pay the mortgage money after payment of the commission, adjustments and expenses referred to in Section 8.4(a) to (c) is not sufficient to pay all the mortgage money, the borrower will pay to the lender and the lenders party to the credit agreement on demand the amount of the deficiency. 8.6 The borrower will pay to the lender and each lender party to the credit agreement on demand all expenses and costs incurred by the lender or such lender in enforcing this mortgage. These expenses and costs include the lender's or such lender's cost of taking and keeping possession of the land, the cost of the time and services of the lender or such lender or the lender's or such lender's employees for so doing, the lender's or such lender's legal fees and disbursements on a solicitor and own client basis, unless the court allows legal fees and disbursements be paid on a different basis, and all other costs and expenses incurred by the lender or such lender to protect the lender's or such lender's interest under this mortgage. These expenses and costs will be added to the principal amount, be payable on demand and bear interest until they are fully paid. Page 18 8.7 If the lender obtains judgment against the borrower as a result of a default, the remedies described in Section 8.2 may continue to be used by the lender to compel the borrower to perform the borrower's promises and agreements. The lender the lenders will continue to be entitled to receive interest on the mortgage money until the judgment is paid in full. 8.8 If the lender does not exercise any of the lender's rights on the happening of a default or does not ask the borrower to cure it, the lender is not prevented from later compelling the borrower to cure that default or exercising any of those rights in connection with the default or any later default of the same or any other kind. 9.0 CONSTRUCTION OF BUILDING OR IMPROVEMENTS 9.1 The borrower will not construct, alter or add to any buildings or improvements on the land without the prior written consent of the lender, and then only in accordance with accepted construction standards, building codes and municipal or government requirements and plans and specifications approved by the lender. 9.2 If this mortgage is intended to finance any construction, alteration or addition, the lender may make advances of the principal amount to the borrower based on the progress of construction. The lender will decide whether or not any advances will be made, the amount of the advances, and when they will be made. 10.0 LEASEHOLD MORTGAGE 10.1 This section applies if the interest mortgaged shown in the mortgage form is or includes a leasehold interest. 10.2 The borrower represents to the lender and each of the lenders party to the credit agreement that: (a) the lease is owned by the borrower subject only to those charges and encumbrances that are registered in the land title office at the time the borrower signs the mortgage form; (b) the lease is in good standing; (c) the borrower has compiled with all the borrower's promises and agreements contained in the lease; (d) the borrower has paid all rent that is due and payable under the lease; (e) the lease is not in default; and (f) the borrower has the right to mortgage the lease to the lender. 10.3 The borrower will: (a) comply with the lease and not do anything that would cause the lease to be terminated; Page 19 (b) immediately give to the lender a copy of any material notice or request received from the landlord; (c) immediately notify the lender if the landlord advises the borrower of the landlord's intention to terminate the lease before the term expires; and (d) sign any other document the lender requires to ensure that any greater interest in the land that is acquired by the borrower is charged by this mortgage. 10.4 Any default under the lease is a default under this mortgage. 10.5 The borrower promises the lender and each lender party to the credit agreement that the borrower will not, without first obtaining the written consent of the lender; (a) surrender or terminate the lease; or (b) agree to change the terms of the lease; or (c) assign, transfer or otherwise dispose of its leasehold interest in the lease, or any portion thereof. 10.6 The lender may perform any promise or agreement of the borrower under the lease. 10.7 Nothing done by the lender under this section will make the lender a mortgagee in possession. 11.0 RECEIVER 11.1 The borrower appoints both the lender and any agent of the lender as the borrower's attorney to appoint a receiver of the land. 11.2 The lender of the lender's agent may, if any default happens, appoint a receiver of the land and the receiver: (a) will be the borrower's agent and the borrower will be solely responsible for the receiver's acts or omissions; (b) has power, either in the borrower's name or in the name of the lender, to demand, recover and receive income from the land and start and carry on any action or court proceeding to collected that income; (c) may give receipts for income which the receiver receives; (d) may carry on any business which the borrower conducted on the land; (e) may lease or sublease the land or any part of it on terms and conditions that the receiver chooses; Page 20 (f) may complete the construction of or repair any building or improvement on the land; (g) may take possession of all or part of the land; (h) may manage the land and maintain it in good condition; (i) has the power to perform, in whole or in part, the borrower's promises and agreements; and (j) has the power to do anything that, in the receiver's opinion, will maintain and preserve the land or will increase or preserve the value or income potential of the land or the borrower's business on the land. 11.3 From income received the receiver may do any of the following in any order the receiver chooses: (a) retain a commission of 5% of the gross income or any higher commission approved by the court; (b) retain enough money to pay or recover the cost to collect the income and to cover other disbursements; (c) pay all taxes and the cost of maintaining the land in good repair, completing the construction of any building or improvement on the land, supplying goods, utilities and services to the land and taking steps to preserve the land from damage by weather, vandalism or any other cause; (d) pay any money that might, if not paid, result in a default under any charge or encumbrance having priority over this mortgage or that might result in the sale of the land if not paid; (e) pay taxes in connection with anything the receiver is entitled to do under this mortgage; (f) pay interest to the lender that is due and payable; (g) pay all or part of the principal amount to the lender whether or not it is due and payable; (h) pay any other money owed by the borrower under this mortgage; (i) pay insurance premiums. 11.4 The receiver may borrower money for the purpose of doing anything the receiver is authorized to do. Page 21 11.5 Any money borrowed by the receiver, and any interest charged on that money and all the costs of borrowing, will be added to and be part of the mortgage money. 11.6 A receiver appointed by the lender may be removed by the lender and the lender may appoint another in the receiver's place. 11.7 The commission and disbursements of the receiver will be a charge on the land and will bear interest at the interest rate. 11.8 Nothing done by the receiver under this section will make the lender a mortgagee in possession. 12.0 STRATA LOT PROVISIONS 12.1 This section applies if the land described in the mortgage form is or becomes a strata lot created under the CONDOMINIUM ACT. 12.2 The borrower will fulfil all of the borrower's obligations as a strata lot owner under the CONDOMINIUM ACT and the by-laws, rules and regulations of the strata corporation and will pay all money owed by the borrower to the strata corporation. 12.3 The borrower gives to the lender the right to vote for the borrower under the by-laws of the strata corporation, but the lender is not required to do so or to attend or vote at any meeting or to protect the borrower's interest. 12.4 At the request of the lender, the borrower will give the lender copies of all notices, financial statements and other documents given by the strata corporation to the borrower. 12.5 The borrower appoints the lender to be the borrower's agent to inspect or obtain copies of any records or other documents of the strata corporation that the borrower is entitled to inspect or obtain. 12.6 If the strata corporation transfers, charges or adds to the common property, or amends its by-laws without the consent of the lender, and if, in the lender's opinion, the value of the land is reduced, the mortgage money shall, at the lender's option, immediately become due and payable to the lender on demand. 12.7 Nothing done by the lender under this section will make the lender a mortgagee in possession. 13.0 SUBDIVISION 13.1 If the land is subdivided: (a) this mortgage will charge each subdivided lot as security for payment of all the mortgage money; and (b) the lender is not required to discharge this mortgage as a charge on any of the subdivided lots unless all the mortgage money is paid. Page 22 13.2 Even though the lender is not required to discharge any subdivided lot from this mortgage, the lender may agree to do so in return for payment of all or a part of the mortgage money. If the lender discharges a subdivided lot, this mortgage will continue to charge the subdivided lot or lots that have not been discharged. 14.0 CURRENT AND RUNNING ACCOUNT 14.1 This mortgage secures a current or running account and the lender may, on one or more occasions, advance and readvance all or part of the principal amount and this mortgage: (a) will be security for payment of the principal amount as advanced and readvanced and for all other money payable to the lender and the lenders party to the credit agreement under this mortgage; (b) will not be considered to have been redeemed only because: (i) the advances and readvances made to the borrower have been repaid; or (ii) the accounts of the borrower with the lender and the lenders party to the Credit Agreement cease to be in debit; and (c) remains effective security for further advances and readvances until the borrower has received a discharge of this mortgage. 15.0 GENERAL 15.1 This mortgage binds the borrower and its successors and assigns. 15.2 Each person who signs this mortgage as a borrower is jointly and severally liable for all of the borrower's promises and agreements as though each such borrower had been the only borrower to sign. 15.3 If any part of this mortgage is not enforceable, all other parts will remain in effect and be enforceable against the borrower. 15.4 This mortgage shall be governed by and construed in accordance with the laws of the Province of British Columbia and the laws of Canada applied to therein. 15.5 All terms, unless specifically defined herein, shall have the same meaning as set out in the credit agreement. 16.0 CURRENCY INDEMNITY 16.1 The borrower agrees that if any monies owing hereunder are received by the lender or any lender party to the credit agreement in a currency (the "payment currency") other than lawful money of Canada (the "obligation currency") whether as a result of any realization, judgment or order, or the enforcement thereof or otherwise, and the amount produced by converting the payment currency so received, at the time of receipt, into the obligation currency is less than the relevant amount of the obligation currency, then the borrower shall indemnify the lender and the lenders party to the credit agreement for the Page 23 deficiency and in respect of any loss sustained as a result. This indemnity will constitute a separate covenant and obligation of the borrower independent from the borrower's other covenants and obligations hereunder. END OF DOCUMENT EX-13 18 Selected Consolidated Financial Data The selected data presented below for and as of the end of each of the five years ended December 31, 1996, 1995, 1994, 1993,and 1992 are derived from the consolidated financial statements of the company, which statements have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports thereon. This data should be read in conjunction with the related consolidated financial statements and notes appearing in this report. CONSOLIDATED INCOME STATEMENT DATA For the Years Ended December 31, 1996 1995 (1) 1994 1993 1992 (Amounts in 000s except per share data)
Revenue $308,767 $188,866 $126,444 $105,946 $81,680 Operating expenses before asset write-down and equal access costs 294,543 188,648 132,598 104,925 75,892 Equal access costs - - 2,160 - - Asset write-down - - - 12,807 - Income (loss) from continuing operations before taxes and minority interest 10,859 (4,825) (10,244) (3,751) 5,867 Provision for (benefit from) income taxes 2,185 396 3,456 (3,743) 2,267 Minority interest in (earnings) loss of consolidated subsidiary (909) (133) 2,371 1,661 - Income (loss) from continuing operations 7,765 (5,354) (11,329) 1,653 3,600 Discontinued operations, net of tax - - - 10,222 (1,660) Net income (loss) $7,765 ($5,354) ($11,329) $11,875 $1,940 Net income(loss) per common and common equivalent share: Continuing operations 0.34 (0.50) (1.07) 0.16 0.35 Discontinued operations 0.00 0.00 0.00 0.97 (0.16) Net income (loss) 0.34 (0.50) (1.07) 1.13 0.19 Weighted average number of common shares 15,641,119 11,684,829 10,602,722 10,537,388 10,323,050 CONSOLIDATED BALANCE SHEET DATA (2) 1996 1995 (1) 1994 1993 1992 as of December 31, (Amounts in 000s except per share data) Current assets $61,933 $45,726 $28,045 $22,476 $16,251 Current liabilities 77,394 56,074 32,016 23,191 27,889 Net working capital (deficit) (15,461) (10,348) (3,971) (715) (11,638) Accounts receivable, net 51,474 38,978 20,499 16,005 14,104 Property and equipment, net 80,452 56,691 44,081 27,077 21,951 Total assets 204,031 123,984 84,448 61,718 45,450 Short-term debt 4,251 4,885 1,613 2,424 11,525 Long-term debt 6,007 28,050 29,914 1,795 12,747 Redeemable preferred stock - 9,448 - - - Shareholders' equity 117,863 26,407 19,086 31,506 22,711 OTHER FINANCIAL DATA 1996 1995 (1) 1994 1993 1992 as of December 31, (Amounts in 000s except per share data) Class A Common Stock cash dividends declared - $243 $831 $4,233 $735 Cash dividends declared per share of Class A Common Stock - $0.02 $0.08 $0.41 $0.07 (1) Includes the results of operations of Metrowide Communications from August 1, 1995, the date of acquisition. (2) Balance sheet data from discontinued operations is excluded
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion includes certain forward-looking statements. For a discussion of important factors including, but not limited to, continued development of the Company's markets, actions of regulatory authorities and competitors, and dependence on management information systems, which could cause actual results to differ materially from the forward-looking statements, see the discussion of the following "Risk Factors" in Item 1 of the Company's Report on Form 10-K for its year ended December 31, 1996 as filed with the Securities and Exchange Commission ("SEC"): "Recent Losses; Potential Fluctuations in Operating Results;" "Substantial Indebtedness; Need for Additional Capital;" "Dependence on Transmission Facilities-Based Carriers and Suppliers;" "Potential Adverse Effects of Regulation;" "Increasing Domestic and International Competition;" "Risks of Growth and Expansion;" "Risks Associated with International Operations;" "Dependence on Effective Information Systems;" "Risks Associated with Acquisitions, Investments, and Strategic Alliances;" "Technological Changes May Adversely Affect Competitiveness and Financial Results;" "Dependence on Key Personnel;" "Risks Associated With Financing Arrangements; Dividend Restrictions;" "Holding Company Structure; Reliance on Subsidiaries for Dividends;" "Potential Volatility of Stock Price;" and "Risks Associated with Derivative Financial Instruments;" as well as the Company's periodic reports filed with the SEC. 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 also from 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 US, Canadian, and UK operations during each of 1996, 1995, and 1994: Year Ended December 31, 1996 1995 1994 Amount Percent Amount Percent Amount Percent Total Revenue: United States $99,461 32.2% $65,975 34.9% $54,599 43.2% Canada 117,168 38.0 84,421 44.7 67,728 53.6 United Kingdom 92,138 29.8 38,470 20.4 4,117 3.2 Total $308,767 100.0% $188,866 100.0% $126,444 100.0% Billable Minutes of Use: United States 590,341 32.8% 486,618 41.2% 445,619 50.5% Canada 681,200 37.9 522,764 44.2 422,149 47.8 United Kingdom 527,905 29.3 172,281 14.6 15,225 1.7 Total 1,799,446 100.0% 1,181,663 100.0% 882,993 100.0% The following table presents certain information concerning toll revenue per billable minute and network cost per billable minute attributable to the Company's US, Canadian, and UK operations during each of 1996, 1995, and 1994: 1996 1995 1994 Toll Revenue Per Billable Minute: United States $.150 $.126 $.115 Canada .150 .146 .149 United Kingdom .174 .220 .268 Network Cost Per Billable Minute: United States $.104 $.075 $.070 Canada .106 .100 .108 United Kingdom .114 .149 .177 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. For US operations, 1996 revenue and network cost per minute include the effect of $9.0 million of non-recurring, lower margin international carrier sales in the second quarter. The Company believes that toll revenue per billable minute and network cost per billable minute will be lower in future periods, due to competitive pressures and due to the decreased focus on lower margin international carrier sales. 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 recent US legislation that further opens the market to competition, particularly from the regional operating companies ("RBOCs"). The Company expects competition based on price and service offerings to increase. 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. Although revenue per minute has increased from 1995 to 1996 due to changes in customer and product mix, the Company expects such downward pressure to return. However, it is expected that the pricing pressure may abate over time as the market matures. The impact of this pricing pressure on revenues of ACC Canada is being offset by an increase in the Canadian residential 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, beginning in February 1997, paging services. Toll revenue per billable minute attributable to residential and student customers in Canada generally exceeds the toll revenue per billable minute attributable to commercial customers. The Company believes that its network costs per billable minute in Canada may decrease during periods after 1996 if there is an anticipated increase in long distance transmission facilities available for lease from Canadian transmission facilities-based carriers as a result of expected growth in the number and capacity of transmission networks in that market. The foregoing forward-looking statements are based upon expectations of actions that may be taken by third parties, including Canadian regulatory authorities and transmission facilities-based carriers. If such third parties do not act as expected, the Company's actual results may differ materially from the foregoing discussion. The Company believes that, because deregulatory influences have only fairly recently begun to impact the UK telecommunications industry, the Company will continue to experience increases in total revenue from that market during the next several quarters. 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 revenues in the UK might not increase. If ACC UK were to 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 Telecommunications PLC ("British Telecom") and Mercury Communications Ltd. ("Mercury"), 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 time. 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 operations 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. Subsequent to year-end, 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 by preparing to enter the emerging German telecommunications marketplace 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 new German operation. 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. Revenues from other resellers accounted for approximately 42%, 12%, and 24% of the revenues of ACC US, ACC Canada, and ACC UK, respectively, in 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. Management believes that carrier revenue will represent less than 20% 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, 1996, certain statement of operations data expressed as a percentage of total revenue: Year Ended December 31, 1996 1995(1) 1994 Revenue: Toll revenue 91.5% 92.8% 93.6% Local service and other 8.5 7.2 6.4 Total revenue 100.0 100.0 100.0 Network costs 62.7 60.8 62.8 Gross profit 37.3 39.2 37.2 Other operating expenses: Depreciation and amortization 5.3 6.1 7.1 Selling expenses 11.0 11.4 11.5 General and administrative 16.4 20.8 23.5 Management restructuring --- 0.7 -- Equal access charges -- -- 1.7 Total other operating expenses 32.7 39.0 43.8 Income (loss) from operations 4.6 0.2 (6.6) Total other income (expense) (1.1) (2.7) (1.5) Loss from operations before provision for (benefit from) income taxes and minority interest 3.5 (2.5) (8.1) Provision for income taxes 0.7 0.2 2.7 Minority interest in (earnings) loss of consolidated subsidiary (0.3) (0.1) 1.9 Income (loss) from operations 2.5% (2.8)% (8.9)% (1)Includes the results of operations of Metrowide Communications from August 1, 1995, the date of acquisition. 1996 Compared With 1995 Revenue. Total revenue for 1996 increased by 63.5% 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 61.3% to $282.5 million from $175.2 million in 1995. In the United States, toll revenue increased 44.8% as a result of a 21.3% 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 30.1% over 1995. In Canada, toll revenue increased 34.1%, as a result of a 30.3% 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 142.0%, 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 93.4% 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, and is in the process of installing five new local exchange switching centers in the northeastern United States. 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 37.3% for 1996 from 39.2% 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 5.3% in 1996 from 6.1% 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 57.9% to $34.1 million compared with $21.6 million in 1995. Expressed as a percentage of revenue, selling expenses were 11.0% for 1996 compared to 11.4% 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 16.4% for 1996, compared to 20.8% 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 Class A Common Stock offering in May 1996. 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 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 loss 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 year-end. The purchase of the remaining shares was approved prior to year-end. 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. 1995 Compared With 1994 Revenue. Total revenue for 1995 increased by 49.4% to $188.9 million from $126.4 million in 1994, reflecting growth in both toll revenue and local service and other revenue. Toll revenue for 1995 increased by 48.1% to $175.2 million from $118.3 million in 1994. In the United States, toll revenue increased 19.3% as a result of a 9.2% increase in billable minutes of use and a more favorable mix of toll services provided, offset slightly by a decrease in prices per minute. The volume increases are primarily a result of increased revenue attributable to other US carriers (approximately $5.8 million); and commercial (approximately $33.8 million); residential (approximately $3.6 million); and student (approximately $10.5 million) customers in the Company's service region. In Canada, toll revenue increased 20.9%, primarily as a result of a 23.8% increase in billable minutes, offset by a slight decline in prices. The price declines are a result of the price competition in 1994 which decreased rates in the middle of that year. 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. In the United Kingdom, toll revenue increased 830.7% due to significant volume increases, offset by lower prices that resulted from entering the commercial and residential markets, and from competitive pricing pressure. Exchange rates did not have a material impact on the Company's consolidated revenue. For 1995, local service and other revenue increased by 67.6% to $13.6 million from $8.1 million in 1994. This increase was due to the Metrowide Communications acquisition as of August 1, 1995 (approximately $2.9 million from the date of acquisition through year-end), local service revenue (approximately $1.5 million) generated through the university program in the US, and the local exchange operations in upstate New York, which generated nominal revenues in 1994. Network Costs. Network costs increased to $114.8 million for 1995, from $79.4 million in 1994, due to the increase in billable long distance minutes. However, network costs, expressed as a percentage of revenue, decreased to 60.8% for 1995 from 62.8% in 1994 due to reduced contribution charges in Canada and increased volume efficiencies in the UK. Contribution charges represented 5.2% of revenue in 1995 as compared to 10.1% in 1994. These efficiencies were partially offset by reduced margins in the US due to increased carrier traffic. Other Operating Expenses. Depreciation and amortization expense increased to $11.6 million for 1995 from $8.9 million in 1994. Expressed as a percentage of revenue, these costs decreased to 6.1% in 1995 from 7.1% in 1994, reflecting the increases in revenue realized during 1995. The $2.7 million increase in depreciation and amortization expense was primarily attributable to assets placed in service in the fourth quarter of 1994 and during 1995, particularly equipment at US university sites, switching centers in London and Manchester in the UK, and switch upgrades in Rochester, Syracuse, Vancouver, and Toronto. Amortization of approximately $0.4 million associated with the customer base and goodwill recorded in the Metrowide Communications acquisition also contributed to the increase. Selling expenses for 1995 increased by 49.1% to $21.6 million compared with $14.5 million in 1994. Expressed as a percentage of revenue, selling expenses were 11.4% for 1995 compared to 11.5% for 1994. The $7.1 million increase in selling expenses was primarily attributable to increased marketing costs and sales commissions associated with the rapid growth of the Company's operations in Canada (approximately $1.7 million) and the UK (approximately $5.6 million). General and administrative expenses for 1995 were $39.2 million compared with $29.7 million in 1994. Expressed as a percentage of revenue, general and administrative expenses were 20.8% for 1995, compared to 23.5% in 1994. The increase in general and administrative expenses was primarily attributable to a $9.5 million increase in personnel and customer service costs associated with the growth of the Company's customer bases and geographic expansion in each country. Also included in general and administrative expenses for 1995 was approximately $1.8 million related to the Company's local service market sector in New York State. The Company also incurred in 1995 non-recurring costs of $1.3 million related to management restructuring. These costs consisted of a $0.8 million payment in consideration of a non- compete agreement with the chairman of the board which was negotiated and agreed to in connection with his resignation as chief executive officer. The remaining $0.5 million related to severance expenses relating to three other members of executive management, the terms of which were negotiated at the time of the executives' departures based on their existing agreements with the Company. In connection with the departure of one executive, the vesting schedule for options to purchase 16,150 shares of Class A Common Stock (out of the options to purchase a total of 33,600 shares which had been granted to the executive) were accelerated to allow him to exercise the options. During the third quarter of 1994, the Company initiated the process of enhancing its network to prepare for equal access for its Canadian customers. Equal access allows customers to place a call over the Company's network simply by dialing "1" plus the area code and telephone number. Before equal access was available, the Company needed to install a dialer on its customers' premises or require the customer to dial an access code before placing a long distance call. Costs associated with this process included maintaining duplicate network facilities during transition, recontacting customers, and the administrative expenses associated with accumulating the data necessary to convert the Company's customer base to equal access. This process was completed during the fourth quarter of 1994 at a total cost of $2.2 million, which has been reflected as a charge to income from operations for 1994. This network enhancement, the costs of which are non-recurring, will enable the Company to offer a broader range of services to Canadian customers and increase customer convenience in using the Company's telecommunications services. Other Income (Expense). Net interest expense increased to $4.9 million for 1995 compared to $1.9 million in 1994, due primarily to the Company's increased weighted average borrowings on revolving lines of credit related to financing of university projects in the US, expansion of the UK and the local service businesses during 1995 (approximately $3.1 million); write-off of deferred financing costs related to the Company's lines of credit which were refinanced in July 1995 (approximately $0.3 million); debt service costs associated with 12% subordinated notes issued in May 1995 (approximately $0.4 million); and contingent interest associated with the Credit Facility (approximately $0.3 million). On September 1, 1995, the subordinated notes were exchanged for Series A Preferred Stock and, consequently, there will be no further interest expense associated with the 12% subordinated notes. The Series A Preferred Stock accrues dividends at the rate of 12% per annum. Upon any conversion of Series A Preferred Stock, the accrued and unpaid dividends thereon will be extinguished and no longer deemed payable. 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 loss of $0.1 million for 1995, compared to a $0.2 million gain in 1994. 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 does not engage in speculative foreign currency transactions. During 1994, the Company increased its income tax provision to provide for a valuation allowance equal to 100% of the amount of the Company's foreign tax benefits which had been recorded at December 31, 1993. No income tax benefits have been recorded for the 1995 operating losses in Canada or the UK due to the uncertainty of recognizing the income tax benefit of those losses in the future. Minority interest in loss of consolidated subsidiary reflects the portion of the Company's Canadian subsidiary's income or loss attributable to the approximately 30% of that subsidiary's common stock that was publicly traded in Canada. For 1995, minority interest in earnings of the consolidated subsidiary was a loss of $0.1 million compared to a gain of $2.4 million in 1994. The Company's net loss for 1995 was $5.4 million, compared to $11.3 million in 1994. 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 In May 1996, the Company raised net proceeds of $63.1 million through the issuance of 3,018,750 shares of its Class A Common Stock. The proceeds from this offering were used to reduce all indebtedness under the Company's credit facility, for working capital needs, and capital expenditures. The Company also expended resources in 1996 to repurchase the minority interest in ACC Canada. Historically, the Company has satisfied its working capital requirements through cash flow from operations, through borrowings and financings from financial institutions, vendors and other third parties, and through the issuance of securities. The Company also received net proceeds of approximately $1.9 million from the exercise of options and warrants associated with the Class A Common Stock offering on behalf of selling shareholders in October 1996 and an additional $4.9 million from the exercise of employee stock options at various times throughout the year. Net cash flows provided by operations were $24.2 million for the year ended December 31, 1996 compared to $4.0 million for 1995. The increase of $20.2 million primarily resulted from improved profitability in all subsidiaries. During the year, the Company had a carrier customer which accumulated a significant accounts receivable balance. The Company has entered into a traffic exchange agreement with the customer, under which the Company terminates traffic over the customer's network as payment in kind for the accumulated receivable balance. The receivable balance was approximately $8.3 million at the beginning of the arrangement, but has been reduced to approximately $1.9 million as of December 31, 1996. Although the Company expects to have fully received the balance by the end of the first quarter of 1997, there are no assurances that the customer will be financially viable until that time. If the customer were to declare bankruptcy, a portion of the amount settled under the traffic exchange agreement may have to be repaid by the Company, and any remaining amounts receivable from the customer may not be collected. Net cash flows used in investing activities were $67.7 million and $15.3 million for the years ended December 31, 1996 and 1995, respectively. The increase of approximately $52.4 million in net cash flow used in investing activities during 1996 as compared to 1995 was primarily attributable to the repurchase of the Canadian minority interest (approximately $32.1 million), as well as an increase in capital expenditures incurred by the UK operation for a long distance switch (approximately $4.9 million); the US operation for local service switching equipment (approximately $6.9 million); the Canadian operation for a new billing system (approximately $2.7 million); and for the purchase of assets and customer base from Internet Canada. Accounts receivable increased by 32.1% at December 31, 1996 as compared to December 31, 1995 as a result of expansion of the Company's customer base due to sales and marketing efforts. Accounts payable at December 31, 1996 increased by $8.0 million over December 31, 1995 due to the inclusion of previously accrued network bills. In 1995, the principal vendor in the UK experienced delays in billing. These problems were corrected in 1996. Accrued expenses at December 31, 1996 increased by $19.2 million compared to December 31, 1995 due to the accrual of the remaining $6.5 million payment for the repurchase of the ACC Canada minority interest, a $2.1 million contingent interest payment, a $1.0 million payment due to the former chairman of the board, an increase in the bonus accrual, and the general increase in the size and operations of the Company during 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. The Company is anticipating significant growth in its CLEC business, which is capital-intensive. In addition, the Company's capital resources have been used for the repurchase of the minority interest in ACC Canada. During 1996, the Company paid approximately $32.0 million to acquire approximately 81.5% of the minority-held shares of ACC Canada. The remaining shares were acquired in January 1997 for approximately $6.5 million. Resources have also been used for the Metrowide Communications and Internet Canada acquisitions, and for capital expenditures. The Company made the required contingent interest payment of $2.1 million to the lenders of the credit facility in January 1997, in conjunction with the amendment to that facility which increased the borrowing availability to $100 million. This payment was fully accrued at December 31, 1996. The Company had a working capital deficit of $15.5 million at December 31, 1996 compared to a working capital deficit of approximately $10.3 million at December 31, 1995, due primarily to the repurchase of the minority interest in ACC Canada. The Company anticipates that during 1997, its capital expenditures will be approximately $44.0 million for the expansion of its network; the acquisition, upgrading, and development of switches and other telecommunications equipment as conditions warrant; the development, licensing, and integration of its management information system and other software; the development and expansion of its service offerings and customer programs; and other capital expenditures. ACC expects that it will continue to make significant capital expenditures during future periods, particularly for the installation and related expenses of switching equipment for the UK (located in Bristol) and local exchange switches in New York, New York; Albany, New York; Buffalo, New York; Boston, Massachusetts; and Springfield, Massachusetts. The Company's actual capital expenditures and cash requirements will depend on numerous factors, including the nature of future expansion 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. The Company has also announced that it has formed a German subsidiary in anticipation of deregulation in that marketplace, and anticipates that the initial capital and operating expenditures related to this operation will approximate $5.0 million. As of December 31, 1996, the Company had approximately $2.0 million of cash and cash equivalents and maintained the $35.0 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, as defined in the agreement), under which no borrowings were outstanding and $2.6 million was reserved for letters of credit. On January 15, 1997, the Company secured an amended $100 million credit facility. The facility provides additional working capital, capital for acquisitions and market expansion, and contains generally more favorable terms and conditions than the prior credit facility. The maximum aggregate principal amount of the new facility is required to be reduced by $8.0 million per quarter commencing on March 31, 1999 until December 31, 2000, and by $9.0 million per quarter commencing on March 31, 2001 until maturity of the loan in January 2002. In addition, the Company has $9.5 million of capital lease obligations which mature at various times from 1997 through 2000. Subsequent to December 31,1996, the Company prepaid a $4.0 million capitalized lease obligation using funds borrowed under the new credit facility. The Company's financing arrangements, which are secured by substantially all of the Company's assets and the stock of certain subsidiaries, require the Company to maintain certain financial ratios and prohibit the payment of dividends. 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 contracts at December 31, 1996 was $52.8 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, 1996, 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 reserves for losses are adequate. 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. The Company believes that, under its present business plan, cash from operations, together with borrowing availability under the amended credit facility, will be sufficient to meet anticipated working capital and capital expenditure requirements of its existing operations. The forward-looking information contained in the previous sentence may be affected by a number of factors, including the matters described in this paragraph. 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. 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. 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. If additional funds are raised through the issuance of equity securities, the percentage ownership of the Company's then-current shareholders may be reduced and such equity securities 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 acceptable terms or at all. 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 holders of debt of the Company. The Company's ability to effect acquisitions, strategic alliances, or investments may be dependent upon its ability to obtain such financing and, to the extent applicable, consents from its lenders. ACC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN 000s, EXCEPT PER SHARE DATA) For the Years Ended December 31, 1996 1995 1994
REVENUE: Toll revenue $282,497 $175,269 $118,331 Local service and other 26,270 13,597 8,113 Total revenue 308,767 188,866 126,444 Network costs 193,599 114,841 79,438 Gross profit 115,168 74,025 47,006 OTHER OPERATING EXPENSES: Depreciation and amortization 16,433 11,614 8,932 Selling expenses 34,072 21,617 14,497 General and administrative 50,439 39,248 29,731 Management restructuring 0 1,328 0 Equal access costs 0 0 2,160 Total other operating expenses 100,944 73,807 55,320 Income (loss) from operations 14,224 218 (8,314) OTHER INCOME (EXPENSE): Interest income 1,151 198 124 Interest expense (5,025) (5,131) (2,023) Terminated merger costs 0 0 (200) Foreign exchange gain (loss) 509 (110) 169 Total other income (expense) (3,365) (5,043) (1,930) Income (loss) from operations before provision for income taxes and minority interest 10,859 (4,825) (10,244) Provision for income taxes 2,185 396 3,456 Minority interest in (earnings) loss of consolidated subsidiary (909) (133) 2,371 NET INCOME (LOSS) 7,765 (5,354) (11,329) Less Series A Preferred Stock dividend (972) (401) - Less Series A Preferred Stock accretion (1,509) (139) - Net income (loss) applicable to Common Stock $5,284 ($5,894) ($11,329) Net income (loss) per common and common equivalent share $0.34 ($0.50) ($1.07) The accompanying notes to consolidated financial statements are an integral part of these statements
ACC CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) December 31, December 31, 1996 1995
CURRENT ASSETS: Cash and cash equivalents $2,035 $518 Accounts receivable, net of allowance for doubtful accounts of $3,795 in 1996 and $2,085 in 1995 51,474 38,978 Other receivables 3,792 3,965 Prepaid expenses and other assets 4,632 2,265 TOTAL CURRENT ASSETS 61,933 45,726 PROPERTY, PLANT, AND EQUIPMENT: At cost 119,398 83,623 Less-accumulated depreciation and amortization (38,946) (26,932) TOTAL PROPERTY, PLANT, AND EQUIPMENT 80,452 56,691 OTHER ASSETS: Goodwill and customer base, net 50,629 14,072 Deferred installation costs, net 4,312 3,310 Other 6,705 4,185 TOTAL OTHER ASSETS 61,646 21,567 TOTAL ASSETS 204,031 123,984 CURRENT LIABILITIES: Notes payable $730 $1,966 Current maturities of long-term debt 3,521 2,919 Accounts payable 15,351 7,340 Accrued network costs 22,908 28,192 Other accrued expenses 34,884 15,657 TOTAL CURRENT LIABILITIES 77,394 56,074 Deferred income taxes 2,767 2,577 Long-term debt 6,007 28,050 Redeemable Series A Preferred Stock, $1.00 par value, $1,000 liquidation value, cumulative, convertible, Authorized- 10,000 shares; Issued - no shares in 1996 and 10,000 shares in 1995 0 9,448 Minority interest 0 1,428 SHAREHOLDERS' EQUITY: Preferred Stock, $1.00 par value, Authorized - 1,990,000 shares; Issued - no shares 0 0 Class A Common Stock, $.015 par value Authorized - 50,000,000 shares; Issued - 17,684,361 in 1996 and 12,925,889 in 1995 265 194 Class B Common Stock, $.015 par value, Authorized - 25,000,000 shares; Issued - no shares 0 0 Capital in excess of par value 116,878 32,846 Cumulative translation adjustment (1,362) (950) Retained earnings (deficit) 3,692 (4,073) 119,473 28,017 Less- Treasury stock, at cost (1,089,884 shares) (1,610) (1,610) TOTAL SHAREHOLDERS' EQUITY 117,863 26,407 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 204,031 123,984 The accompanying notes to consolidated financial statements are an integral part of these balance sheets
ACC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (Amounts in 000s, except share and per share data)
Capital in Cumulative Retained Class A Common StockExcess of Translation Earnings Treasury Shares Amount Par Value Adjustment (Deficit) Stock Total Balance, December 31, 1993 11,306,208 $170 $19,500 ($565) $13,684 ($1,283) $31,506 Stock options exercised 153,563 2 363 - - - 365 Employee stock purchase plan shares issued 19,131 150 - - - 150 Repurchase of shares to exercise options - - - - (327) (327) Dividends ($.08 per common share) - - - (831) - (831) Cumulative translation adjustment - - (448) - - (448) Net loss - - - (11,329) - (11,329) 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 The accompanying notes to consolidated financial statements are an integral part of these statements.
ACC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $7,765 ($5,354) ($11,329) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 16,433 11,614 8,932 Deferred income taxes 3,110 609 3,906 Minority interest in earnings (loss) of consolidated subsidiary 909 133 (2,371) Unrealized foreign exchange (gain) loss (758) 180 150 Amortization of deferred financing costs 425 263 0 (INCREASE) DECREASE IN ASSETS: Accounts receivable, net (11,212) (17,437) (5,019) Other receivables 1,955 1,782 (3,621) Prepaid expenses and other assets (2,282) (1,057) 1,030 Deferred installation costs (2,631) (2,983) (1,147) Other (148) 846 (2,206) INCREASE (DECREASE) IN LIABILITIES: Accounts payable 7,511 (7,013) 7,784 Accrued network costs (5,837) 17,824 1,754 Other accrued expenses 9,008 4,560 3,230 Net cash provided by operating activities 24,248 3,967 1,093 CASH FLOWS FROM INVESTING ACTIVITIES: Cash received from sale of discontinued operations 0 0 2,538 Capital expenditures, net (33,030) (12,424) (20,682) Repurchase of minority interest (32,092) - (226) Payment for purchase of subsidiary, net of cash acquired - (2,313) - Acquisition of customer base (2,620) (557) (2,861) Net cash used in investing activities (67,742) (15,294) (21,231) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under lines of credit 26,375 113,602 72,156 Repayments under lines of credit (46,680) (119,204) (47,054) Repayment of notes payable (1,996) - - Repayment of long-term debt, other than lines of credit (3,704) (3,078) (1,591) Proceeds from issuance of common stock 72,669 13,261 189 Proceeds from issuance of convertible debt - 10,000 - Financing costs (495) (2,876) - Dividends paid - (451) (4,241) Net cash provided by financing activities 46,169 11,254 19,459 Effect of exchange rate changes on cash (1,158) (430) 233 Net increase (decrease) in cash 1,517 (503) (446) Cash and cash equivalents at beginning of year 518 1,021 1,467 Cash and cash equivalents at end of year $2,035 $518 $1,021 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $2,840 $4,146 $1,656 Income taxes $1,808 $203 $280 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Equipment purchased through capital leases - $7,389 $3,077 Fair value of assets acquired $5,136 $10,800 - Less - cash paid at acquisition date (3,001) (1,500) - Less - short term notes payable - (2,966) - Liabilities assumed $2,135 $6,334 - Other assets purchased with long-term debt $2,775 - $540 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.
Selected Quarterly Financial Data (unaudited) The following table sets forth certain unaudited quarterly financial data for the preceding eight quarters through the quarter ended December 31, 1996. In the opinion of management, the unaudited information set forth below has been prepared on the same basis as the audited information set forth elsewhere herein and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth herein. The operating results for any quarter are not necessarily indicative of results for any future period.
(Amounts in 000s except per share data) 1995 1996 March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 Revenue $39,708 $41,633 $45,911 $61,607 $66,855 $80,089 $77,285 $84,538 Gross profit 14,963 15,319 17,806 25,929 25,247 26,709 28,470 34,742 Depreciation and amortization 2,532 2,863 3,011 3,212 3,619 4,176 4,266 4,372 Income (loss) from operations (446) (855) (364) 1,876 2,991 3,179 3,209 4,845 Total other income (expense) (948) (1,473) (1,354) (1,265) (1,512) (896) (164) (793) Net income (loss) ($1,654)( $2,250) ($1,849) $395 $856 $1,458 $2,199 $3,252 Net income (loss) per common and common equivalent share ($0.16) ($0.19) ($0.15) $0.00 $0.03 $0.05 $0.06 $0.18 The Company's quarterly operating results have fluctuated and will continue to fluctuate from period to period depending upon factors such as the success of the Company's efforts to expand its geographic and customer base; changes in, and the timing of, expenses relating to, the expansion of the Company's network; regulatory and competitive factors; the development of new services and sales and marketing; and changes in pricing policies by the Company or its competitors. In view of the significant historic growth of the Company's operations, the Company believes that period-to-period comparisons of its financial results should not be relied upon as an indication of future performance and that the Company may experience significant period-to-period fluctuations in operating results in the future. Historically, a significant percentage of the Company's revenue has been derived from university and college administrators and students, which caused its business to be subject to seasonal variation. To the extent that the Company continues to derive a significant percentage of its revenues from university and college customers, the Company's results of operations could remain susceptible to seasonal variation. The acquisition of Metrowide Communications and the management restructuring charges in 1995, and the $9.0 million of non-recurring carrier revenue in the second quarter of 1996 affect the comparability of the quarterly financial data set forth above. See "Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 Long Distance Corp. and ACC National Telecom Corp. ("ACC US"), ACC TelEnterprises Ltd. ("ACC Canada"), and ACC Long Distance UK Ltd. ("ACC UK"). All operating subsidiaries are wholly-owned, with the exception of ACC TelEnterprises Ltd. (See B below). All significant intercompany accounts and transactions have been eliminated. The accompanying consolidated financial statements reflect the results of operations of acquired companies since their respective acquisition dates. B. 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, 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. Subsequent to December 31, these shares were purchased by the new subsidiary at a price of Cdn. $21.50 per share (see G below). 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. D. Other Receivables: 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). Other receivables at December 31, 1995 consisted of receivables related to financing of university projects (approximately $3.0 million), taxes receivable (approximately $0.7 million), and other individually nominal, miscellaneous receivables (approximately $0.3 million). E. Property, Plant, and Equipment: The Company's property, plant, and equipment consisted of the following at December 31, 1996 and 1995 (dollars in thousands): 1996 1995 Equipment $90,257 $69,174 Computer software and software licenses 12,682 6,869 Other 16,459 7,580 Total $119,398 $83,623 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, 1996 and 1995 is as follows (dollars in thousands): 1996 1995 Cost $14,336 $13,935 Less - accumulated amortization (6,194) (4,538) Total, net $8,142 $9,397 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. During 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The effect of adopting SFAS No. 121 was immaterial to the consolidated financial statements. 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 such events or changes in circumstances are present, a loss is recognized to the extent the carrying value of the asset is in excess of the sum of the undiscounted cash flows expected to result from the use of the asset and its eventual disposition. 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 $6.4 million and $4.5 million at December 31, 1996 and 1995, 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. 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 have been 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 have been 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 (in thousands, except 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 Accumulated amortization of all goodwill approximated US $0.5 million and $0.1 million at December 31, 1996 and 1995, respectively. The Company amortizes acquired customer bases on a straight-line basis over five to seven years. Accumulated amortization of customer base totaled approximately $5.5 million and $3.1 million at December 31, 1996 and 1995, respectively. H. Common and Common Equivalent Shares: Primary earnings per common share are based on the weighted average number of common shares outstanding during the year and the assumed exercise of dilutive stock options and warrants, less the number of treasury shares assumed to be purchased from the proceeds using the average market prices of the Company's Class A Common Stock. The weighted average number of common shares outstanding for the fiscal years ended December 31, 1996, 1995, and 1994 were approximately 15.641 million shares, 11.685 million shares, and 10.603 million shares, respectively. Primary earnings per share were computed by adjusting net income (loss) for dividends and accretion applicable to Series A Preferred Stock, prior to its conversion into common shares in October 1996. Fully diluted earnings per share are not presented for the years ended December 31, 1996, 1995, or 1994 because the effect on earnings per share of common stock equivalents and potentially dilutive securities would be anti-dilutive. All references to common and common equivalent 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 TelEnterprises Ltd. and ACC Long Distance UK Ltd., operating in Canada and the United Kingdom, 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 Statement of Financial Accounting Standards (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. The Company enters into contracts to buy and sell foreign currencies in the future in order to protect the US dollar value of certain currency positions and future foreign currency transactions. The gains and losses on these contracts are included in income in the period in which the exchange rates change. The discounts and premiums on the forward contracts are amortized over the life of the contracts. At December 31, 1996, the Company had foreign currency contracts outstanding to sell forward the US dollar equivalent of Cdn. $38.4 million and 14.5 million pounds sterling. These contracts mature throughout 1997. At December 31, 1995, the Company had foreign currency contracts outstanding to sell forward the US dollar equivalent of Cdn. $37.9 million and 5.3 million pounds sterling and to buy forward the US dollar equivalent of Cdn. $10.0 million and 2.7 million pounds sterling. The Company has entered into a cross-currency rate swap transaction with a financial institution which hedges a portion of intercompany debt from the Canadian subsidiary 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 Canadian dollar note and receives a variable rate of interest on a US dollar receivable. The Company's obligation is Cdn. $33.5 million, and quarterly interest payments at a rate of 6.98% are due, commencing on March 31, 1997. The Company's receivable under this agreement is $25.0 million, and interest is due quarterly at a rate of US prime, commencing on March 31, 1997. The net of the receivable and the payable is reflected on the balance sheet at December 31, 1996. The Company may use 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, 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: December 31, 1996 December 31,1995 (in 000s) Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Off balance sheet financial instruments: Foreign exchange forward contracts - $52,800 $ - $24,500 Foreign currency swap agreement receivable 25,000 25,000 - - Foreign currency swap agreement payable 24,516 24,516 - - Lines of credit 730 730 20,973 20,973 Long term debt, including current portion 9,528 9,528 11,962 11,962 Series A Preferred Stock - - 9,448 10,400
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. 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. In the current year, the Company has elected to comply with the disclosure provisions of the statement. The effects of SFAS 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 1994 to conform to the 1996 presentation. 2. Operating Information A. Description of Business ACC is a switch-based provider of telecommunications services in the United States, Canada, and the United Kingdom. The Company primarily offers 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 provider of local exchange services in upstate New York and as a reseller of local exchange Centrex services in Ontario and Quebec, Canada. 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, 1996, long distance revenues accounted for approximately 91% of total Company revenues, while local exchange revenues and data-line sales were 4% and 2%, respectively, of total Company revenues. ACC operates a telecommunications network consisting of seven long distance international and domestic switches located in the United States, Canada, and the United Kingdom; three local exchange switches in the United States; leased transmission lines; and network management systems designed to optimize traffic routing. The Company also has plans to install three additional long distance switches in Canada, the US and the UK and three additional local exchange switches in the northeastern US. At December 31, 1996, approximately $15.5 million of the Company's telecommunications equipment was located on 55 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"). The CRTC is in the process of examining the barriers to competition in the local telephone market and plans to announce rules for local competition in 1997 for implementation in 1998. 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 CRTC also mandated in 1996 that local phone companies provide pay phones with swipe access for competitors' calling cards. Implementation of these rules will enable ACC Canada to improve its competitive position in the calling card market. 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"). In 1997, it is expected that Oftel will address the issues of number portability for 800 numbers and equal access in the UK. In addition to regulation, the Company is subject to 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, 1996, approximately 31% of the Company's billed accounts receivable balance was due from resellers. B. Equal Access Costs: During 1994, the Company initiated the process of converting its network to equal access for its Canadian customers. Costs associated with this process were approximately $2.2 million and included maintaining duplicate network facilities during transition, recontacting customers, and the administrative expenses associated with accumulating the data necessary to convert the Company's customer base to equal access. 3. Debt, Lines of Credit, and Financing Arrangements A. Debt: The Company had the following debt outstanding as of December 31, 1996 and 1995 (dollars in thousands):
1996 1995 Senior credit facility $ - $20,973 Working capital lines of credit 730 - Capitalized lease obligations payable in total monthly installments of $369 including interest, with rates ranging from 7.0% to 28.0%, maturing through 2000, collateralized by related equipment 9,528 9,996 Notes payable to previous Metrowide owners, interest rates ranging from 7.5% to 9.0% - 1,966 $10,258 $32,935 Less current maturities (4,251) (4,885) $6,007 $28,050 Year Amount (dollars in thousands) Maturities of debt, including capital lease obligations, are as follows at December 31, 1996: 1997 $ 4,251 1998 3,216 1999 1,976 2000 815 Thereafter - $10,258
Subsequent to December 31, 1996, the Company made an early repayment, using funds borrowed under the amended credit facility, of a capitalized lease obligation which had total future payments, included in the above schedule, of approximately $4.0 million. 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 are limited individually to $5.0 million for ACC Long Distance UK Ltd. and $2.0 million for ACC National Telecom Corp., 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 have been, and will be, used to finance capital expenditures and to provide working capital. Fees associated with obtaining the financing are being amortized over the term of the agreement. In conjunction with the closing, 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. 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, 1996, the Company had available $32.4 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 .5%), with additional percentage points added based on a ratio of debt to operating cash flow, as defined in the agreement. The weighted average interest rate for borrowings during 1996 was 7.8%. Under the agreement, the Company is 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 amendment to the credit facility, and was reflected as an accrued expense on the accompanying balance sheet at December 31, 1996. In connection with the agreement, the Company must enter into hedging agreements with respect to interest rate exposure. The agreements have certain conditions regarding the interest rates, are subject to minimum aggregate balances of $10.0 million, and must have durations of at least two years. The Company entered into three interest rate swap agreements in 1995 to convert the variable interest rate charged on $11.5 million of the outstanding credit facility to a fixed rate. Under these agreements, the Company was required to pay a fixed rate of interest on a notional principal balance. In return, the Company receives a payment of an amount equal to the variable rate calculated as of the beginning of the month. These three interest rate swap agreements outstanding at December 31, 1995 were cancelled during 1996 when the outstanding balance on the line of credit was repaid using proceeds from the Class A Common Stock offering (see Note 6A). There were no interest rate swap agreements in place at December 31, 1996. At December 31, 1996, the Company had issued letters of credit totaling $2.6 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. On January 14, 1997, the Company signed an agreement with the same financial institution to provide a $100.0 million credit facility to the Company which will amend and restate the current $35.0 million facility discussed above. The amended credit facility is syndicated among five financial institutions. Borrowings can be made in US dollars, Canadian dollars, and British pounds, and are limited individually to $30.0 million for ACC Canada, $20.0 million for ACC UK, and $15.0 million for the local exchange business of the US operation, with total borrowings for the Company limited to $100.0 million. The amended facility will be used to finance capital expenditures, provide working capital, and to provide capital for acquisitions. The amended facility provides for financial covenants which are less restrictive than the existing facility. The maximum aggregate principal amount of the amended facility is required to be reduced by $8.0 million per quarter commencing on March 31, 1999 until December 31, 2000, and by $9.0 million per quarter commencing on March 31, 2001 until maturity of the loan in January 2002. C. Working Capital Lines of Credit: The Company has two working capital lines of credit for daily cash management. The first is 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 is a Cdn. $1.0 million facility, due on demand, with an interest rate equal to Canadian prime plus .5%. 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 (dollars in thousands): 1996 1995 1994 US $ 6,675 $ 1,510 $ 1,301 Non-US 4,184 (6,335) (11,545) $ 10,859 $(4,825) $(10,244) Provision for (benefit from) income taxes (dollars in thousands): 1996 1995 1994 Current: US $2,689 $581 $(867) Non-US - - - $2,689 $581 $(867) Deferred: US (504) (185) 1,298 Non-US - - 3,025 (504) (185) 4,323 $2,185 $396 $3,456 Provision for (benefit from) deferred income taxes (dollars in thousands): 1996 1995 1994 Difference between tax and book depreciation and amortization $526 $772 $2,178 Valuation allowance 98 2,223 6,851 Contingent interest (459) - - Severance costs (568) - - Software development costs - (502) 502 Other temporary differences (101) (103) 171 Net operating loss - (2,575) (5,379) ($504) ($185) $4,323 Reconciliation of US statutory income tax rate to effective income tax rate: 1996 1995 1994 US statutory income tax rate 34.0% (34.0% ) (34.0%) Non-deductible goodwill and customer base 2.6 2.7 1.2 Foreign income taxes, including valuation allowance (13.1) 44.6 66.6 State tax benefit - (2.4) - Other (3.4) (2.7) - Effective income tax rate 20.1% 8.2% 33.8% 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, 1996, the Company had unused tax benefits of approximately $6.7 million related to non-US net operating loss carryforwards totaling $16.5 million for income tax purposes, of which $7.2 million have an unlimited life, $2.8 million expire in 2000, $5.0 million expire in 2001, $0.9 million expire in 2002, and $0.5 million expire in 2003. In addition, the Company had $1.0 million of deferred tax assets related to non-US temporary differences. The valuation allowance was decreased by $3.3 million to approximately $7.7 million to reflect tax benefits recognized during 1996. The remaining valuation allowance reflects the uncertainty of realizing the benefit of the non-US loss carryforwards. The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31, 1996 and 1995 (dollars in thousands): 1996 1995 Deferred tax assets: Depreciation and amortization - non-US $967 $1,122 Contingent interest 459 - Severance costs 568 - Other non-deductible reserves and accruals 528 647 Non-US operating loss carryforwards 6,702 9,816 Less - valuation allowance for non-US deferred tax assets (7,669) (10,938) Net deferred tax assets 1,555 647 Deferred tax liabilities: Depreciation and amortization (2,767) (2,577) $(1,212) $(1,930) 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. 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. The Series A Preferred Stock outstanding as of December 31, 1995 is reflected on the accompanying balance sheet as redeemable preferred stock, and is shown inclusive of cumulative unpaid dividends and accretion to liquidation value, and net of unamortized issuance costs of approximately $1.1 million. Upon conversion in October 1996, these costs 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 FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below ( in thousands, except per share data): 1996 1995 Net income (loss) As reported $7,765 $(5,354) Pro forma $4,869 $(6,251) Net income (loss) per common and As reported $0.34 $(0.50) common equivalent share Pro forma $0.15 $(0.58) Fully diluted earnings per share are not presented because the effect is anti-dilutive. Compensation cost for stock incentive right agreements recognized in the statement of operations for the year ended December 31, 1996 was approximately $0.1 million. There were no stock incentive right agreements issued in 1995 or 1994. The Statement 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. 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 October 1994, the Company's shareholders approved an amendment to the Plan which increased shares reserved for issuance to 3,000,000 shares of Class A Common Stock. 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, bringing the total shares reserved for issuance to 4,500,000. 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, 1996, SIRs for 30,000 shares had been awarded. 50% of the shares vest over a three-year period which began on February 5, 1996, 25% vest over the four- year period beginning February 5, 1996, and the remaining 25% vest over the five-year period beginning February 5, 1996. 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 1996 and 1995: 1996 1995 Dividend yield 0% 0% Expected volatility 43% 44% Risk-free interest rate 5.6% 7.26% Expected life 3 years 3 years Changes in the status of the Plan during 1996, 1995, and 1994 are summarized as follows:
1996 1995 1994 Shares Wtd. Avg Shares Wtd. Avg Shares Wtd.Avg. (000s) Ex.Price (000s) Ex.Price (000s) Ex. Price Outstanding at beg. of year 1,606 $ 8.81 1,178 $ 9.02 696 $ 6.56 Granted 681 14.95 512 10.23 983 11.09 Exercised (588) 7.99 (50) 9.53 (154) 2.37 Forfeited (101) 8.72 (34) 10.42 (347) 12.73 Outstanding at end of year 1,598 13.97 1,606 8.81 1,178 9.02 Number of options at end of year: Exercisable 637 12.65 608 7.94 290 5.89 Available for grant 895 725 453 Weighted average fair value of options granted $7.09 $3.69 N/A
The following table summarizes information about stock options outstanding at December 31, 1996 (shares in thousands): Options Outstanding Options Exercisable Number Wgt-Avg. Number Range of Outstanding Remaining Wgt. Avg. Exercisable Wgt- Avg. Exer. Prices at 12/31/96 Cont. Life Exer. Price at 12/31/96 Exe. Price $0 to 9.50 282 6.9 years $ 8.30 128 $ 9.18 $9.83 to 12.50 724 7.7 10.72 390 10.94 $15.37 435 9.0 15.37 80 15.37 $28.83 102 9.5 28.83 25 28.83 $45.00 to 48.19 55 9.7 47.16 14 47.16 $0 to 48.19 1,598 8.1 13.97 637 12.65 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. Class A Common Stock reserved for future employee purchases aggregated 676,087 shares at December 31, 1996. There were 19,131 shares issued at an average price of $7.93 during the year ended December 31, 1994; 35,450 shares issued at an average price of $8.37 per share during the year ended December 31, 1995; and 19,341 shares issued at an average price of $17.69 per share during the year ended December 31, 1996. 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 1996 and 1995 were $3.80 and $1.86, respectively. 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 1996 and 1995: 1996 1995 Dividend yield 0% 0% Expected volatility 19% 18% Risk-free interest rate 5.77% 7.66% Expected life 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 1996 and 1995: 1996 1995 Dividend yield 0% - Expected volatility 44% - Risk-free interest rate 5.39% - Expected life 3 years - Changes in the status of the Directors' Stock Option Plan during 1996 are summarized as follows: Shares Weighted Average (000s) Exercise Price Outstanding at beginning of year - - Granted 60 $22.08 Exercised - - Forfeited - - Outstanding at end of year 60 $22.08 Number of options at end of year: Exercisable 60 $22.08 Available for grant 315 Range of prices: Granted during the year $15.33 - 28.83 Outstanding at end of year $15.33 - 28.83 Exercised during the year $ - Weighted average fair value of options granted $5.41 The table summarizing information about stock options outstanding, required by SFAS 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. The weighted average fair value of options offered in 1996 was $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 1996 and 1995: 1996 1995 Dividend yield 0% - Expected volatility 40.8% - Risk-free interest rate 6.45% - Expected life 3 years - 7. Treasury Stock In January 1994, an officer of the Company exercised stock options to acquire 148,500 shares of the Company's Class A Common Stock at $2.20 per share by delivering to the Company 24,813 common shares at the then current market price of $13.17 per share. The average cost of all treasury stock currently held by the Company is $1.48 per share. 8. Commitments and Contingencies A. Operating Leases: The Company leases office space and other items under various agreements expiring through 2004. At December 31, 1996, the minimum aggregate payments under non-cancelable operating leases are summarized as follows (dollars in thousands): Year Amount 1997 $ 3,927 1998 4,089 1999 3,970 2000 3,455 2001 3,294 Thereafter 7,970 $26,705 Rent expense for the years ending December 31, 1996, 1995, and 1994 was approximately $4,006,000, $1,965,000, and $1,640,000, respectively. B. Employment and Other Agreements: The Company has an agreement with its chairman and chief executive officer, which has a two year term expiring in October 1997 and which provides for continuation of salary and benefits for the term of the agreement, in the event of a change in control of the Company. At December 31, 1996, the Company's maximum potential liability under this agreement was approximately $300,000. The Company had a contract with the 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 has accrued the entire $1.0 million, and a payment of $0.3 million was made in January 1997. In consideration 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, 1996, the Company's estimated maximum potential liability under these agreements totaled approximately $3.0 million. C. Purchase Commitments: At December 31, 1996, the Company had outstanding purchase commitments totaling approximately $4.6 million related to the purchase of local exchange switches for the US business and the purchase of a long distance switch for the UK operation. 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 $240,000, $183,000, and $167,000 in 1996, 1995, and 1994, 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. $186,000, Cdn. $106,000, and Cdn. $62,000 in 1996, 1995, and 1994, respectively. E. Annual Incentive Plan: During 1996 and 1995, 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 $2.6 million, $1.4 million, and $0.6 million for the years ended December 31, 1996, 1995, and 1994, 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, 1996 will not have a material adverse effect on the Company's financial condition or results of operations. 9. Geographic Area Information (dollars in thousands) Year ended December 31, 1996:
United United States Canada Kingdom Eliminations Consolidated 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 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 Year ended December 31, 1995: United United States Canada Kingdom Eliminations Consolidated 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 Year ended December 31, 1994: United United States Canada Kingdom Eliminations Consolidated Revenue from unaffiliated customers $54,599 $67,728 $ 4,117 $ - $126,444 Intercompany revenue 6,698 2,175 1,004 (9,877) - Total revenue $ 61,297 $69,903 $5,121 $ (9,877) $126,444 Income (loss) from operations before income taxes $ 1,300 $ (5,742) $(5,802) $ - $(10,244) Identifiable assets at December 31, 1994 $119,021 $30,073 $10,422 $ (75,068) $ 84,448
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 and United Kingdom 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. 10. 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. Total rent and maintenance payments under this lease were approximately $0.8 million, $0.6 million, and $0.2 million during 1996, 1995, and 1994, 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, 1996, 1995, and 1994 relating to this vendor were $0, $44,000, and $0, 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. During 1994, the Company paid the software development company $132,000, all of which related to software development, which was expensed. The Company has notes receivable from two officers which total $370,000. These notes bear interest at a rate of 6.625% and are to be repaid in full on demand, no later than March 31, 1997. EX-21 19 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. New Hampshire 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 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 _______________________________ * A subsidiary of ACC National Long Distance Corp. ** A subsidiary of ACC TelEnterprises Ltd. EX-23 20 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 and No. 333-12295. Rochester, New York, March 27, 1997 Arthur Andersen LLP EX-27 21
5 1000 YEAR DEC-31-1996 DEC-31-1996 2,035 0 55,269 3,795 763 61,933 119,398 38,946 204,031 77,394 6,007 0 0 265 117,598 204,031 282,497 308,767 193,599 100,944 0 5,143 3,874 10,859 2,185 7,765 0 0 0 7,765 0.34 0 Add back allowance Gross Total long term debt Toll only Network costs Total operating expenses Unusual operating expenses Bad debt expense from consolidated income statement Net
-----END PRIVACY-ENHANCED MESSAGE-----