10-K405

 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K
                                 ANNUAL REPORT

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                    FOR FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-14567

                                   ACC CORP.
                                400 WEST AVENUE
                           ROCHESTER, NEW YORK 14611
                                  716-987-3000

Incorporated under the                                  Employer Identification
Laws of the State of Delaware                                 Number 16-1175232

        Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:

TITLE OF CLASS:  Class A Common Stock, par value $.015 per share
- --------------                                                  

Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.        Yes [X] No[  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.          [X]

Aggregate market value of all Class A Common Stock held by non-affiliates as of
March 18, 1998, was $879,112,800.

17,519,684 shares of $.015 par value Class A Common Stock were issued and
outstanding as of March 18, 1998.

The Index of Exhibits filed with this Report begins at page ___.

 
                                     PART I

Item 1.  BUSINESS.

     Certain of the information contained or incorporated by reference in this
Form 10-K, including the discussion which follows in this Item 1 of the
Company's plans and strategies for its business and related financing, and the
Management's Discussion and Analysis included herein, contain forward-looking
statements.  For a discussion of important factors that could cause actual
results to differ materially from such forward-looking statements, please
carefully review the discussion of Risk Factors contained in this Item 1, as
well as the other information contained in this Report and in the Company's
periodic reports filed with the Securities and Exchange Commission (the "SEC" or
"Commission").

GENERAL

     ACC is a switch-based provider of telecommunications services in the United
States, Canada, the United Kingdom (the "U.K."), and Germany. ACC primarily
provides long distance telecommunications services to a diversified customer
base of businesses, residential customers and educational institutions. ACC also
provides local telephone service as a switch-based local exchange reseller in
upstate New York and Massachusetts and as a reseller of local exchange services
in Ontario and Quebec, Canada. ACC entered the German market during 1997 as a
switchless reseller of long distance telecommunications services and became a
switch-based provider in Germany in February of 1998. ACC operates an advanced
telecommunications network, consisting of ten long distance international and
domestic switches located in the U.S., Canada, the U.K. and Germany, six local
exchange switches located in the U.S., leased transmission lines, indefeasible
rights of use in international submarine cables ("IRUs") and network management
systems designed to optimize traffic routing.

     ACC's objective is to grow its telecommunications customer base in its
existing markets and to establish itself in deregulating Western European
markets that have high density telecommunications traffic when ACC believes that
business and regulatory conditions warrant. The key elements of ACC's business
strategy are: (1) to broaden ACC's penetration of the U.S., Canadian, U.K. and
German telecommunications markets by expanding its long distance, local and
other service offerings and geographic reach; (2) to utilize ACC's operating
experience as an early entrant in deregulating markets in the U.S., Canada and
the U.K. to penetrate other deregulating telecommunications markets that have
high density telecommunications traffic; (3) to achieve economies of scale and
scope in the utilization of ACC's network; and (4) to seek acquisitions,
investments or strategic alliances involving assets or businesses that are
complementary to ACC's current operations.

     ACC's principal competitive strengths are: (1) ACC's sales and marketing
organization and the customized service ACC offers to its customers; (2) ACC's
offering of competitive prices, which ACC believes generally are lower than
prices charged by the major carriers in each of its markets; (3) ACC's position
as an early entrant in the U.S., Canadian and U.K. markets as an alternative
carrier; (4) ACC's focus on more profitable international telecommunications
traffic between the U.S., Canada and the U.K.; and (5) ACC's switched-based
networking capabilities. ACC believes that its ownership of switches reduces its
reliance on other carriers and enables ACC to efficiently route
telecommunications traffic over multiple leased transmission lines and IRUs and
to control costs, call record data and customer information. The availability of
existing transmission capacity in its markets makes leasing of transmission
lines attractive to ACC and enables it to grow network usage without having to
incur the significant capital and operating costs associated with the
development and operation of a transmission line infrastructure.

     ACC primarily targets business customers with approximately $500 to $15,000
of monthly usage, selected residential customers and colleges and universities.
ACC believes that, in addition to being price-driven, these customers tend to be
focused on customer service, more likely to rely on a single carrier for their
telecommunications needs and less likely to change carriers than larger
commercial customers. The diversity of ACC's targeted customer base enhances
network utilization by combining business-driven workday traffic with night and
weekend off-peak traffic from student and residential customers. ACC strives to
be more cost effective, flexible, innovative and responsive to the needs of its
customers than the major carriers, which principally focus their direct sales
efforts on large commercial accounts and residential customers.

 
                                      -2-



RECENT DEVELOPMENTS

     ACC Management Changes.  On December 5, 1997, ACC announced that its
Chairman and Chief Executive Officer, David K. Laniak, 62, had died unexpectedly
due to health-related complications. As a result, ACC's Board of Directors named
Robert M. Van Degna, Chairman of the Board of Directors. Mr. Van Degna has
served as an outside director of ACC since 1995. ACC's Board of Directors also
established an office of the Chief Executive to jointly perform the functions of
Chief Executive Officer, consisting of Christopher Bantoft, Executive Vice
President, Michael R. Daley, Executive Vice President and Chief Financial
Officer, and Steve M. Dubnik, Executive Vice President.

     TCG Merger Agreement.  On November 26, 1997, ACC entered into an Agreement
and Plan of Merger (the "TCG Merger Agreement"), pursuant to which a wholly-
owned subsidiary of Teleport Communications Group, Inc., a Delaware corporation
("TCG"), would be merged with and into ACC and ACC would survive the merger as a
wholly-owned subsidiary of TCG (the "TCG Merger").  If the TCG Merger is
consummated, following the TCG Merger, all of the capital stock of the surviving
corporation will be owned by TCG.  Shares of ACC Common Stock will be exchanged
for merger consideration and then cancelled, with the result that ACC Common
Stock will no longer be listed on The Nasdaq National Market.  Under the TCG
Merger Agreement, ACC shareholders will receive $50 in value of TCG Class A
Common Stock for each share of ACC stock, based upon the average closing price
of TCG stock for a ten trading day period preceding the date of merger.  The
total value of the transaction would be approximately $1 billion.  However, if
TCG's average closing price during the ten day trading period prior to closing
is below $45 or above $55, the exchange ratios will be fixed at 1.11111 shares
of TCG stock or 0.90909 shares of TCG stock, respectively, and ACC shareholders 
will receive cash in lieu of any fractional shares.  It is anticipated
that the merger will be treated as a tax-free exchange. Consummation of the TCG
Merger is subject to closing conditions and shareholder approval. No assurance
can be given that the TCG Merger will be consummated.

     The Proposed Merger of TCG and AT&T.  On January 8, 1998, AT&T Corp.
("AT&T") and TCG announced that they had entered into a definitive merger
agreement (the "AT&T Merger Agreement"),  under which each share of TCG common
stock would be converted into the right to receive 0.943 of a share of common
stock, par value $1.00 per share, of AT&T.  Under the AT&T Merger Agreement, a
wholly-owned subsidiary of AT&T would be merged with and into TCG and TCG would
survive the merger as a wholly-owned subsidiary of AT&T (the "TCG/AT&T Merger").
If the TCG/AT&T Merger is consummated, following the TCG/AT&T Merger, all of the
capital stock of the surviving corporation will be owned by AT&T.  Shares of TCG
common stock will be exchanged for merger consideration in the form of AT&T
common stock, and cash in lieu of any fractional shares, and then cancelled.  As
a result, shares of TCG common stock will no longer be listed on The Nasdaq
National Market.  Consummation of the TCG/AT&T Merger is subject to closing
conditions and shareholder and regulatory approvals.  It is unlikely that the
proposed TCG/AT&T Merger will close before the consummation of the TCG Merger,
due to the anticipated timing of receipt of regulatory approvals and other
closing conditions.  No assurance can be given that the TCG/AT&T Merger will be
consummated.

     Termination of U.S. WATS Merger.  On October 28, 1997, ACC entered into an 
Agreement and Plan of Merger (the "USW Merger Agreement") by and among ACC, ACC
Acquistion - Blue Corp., a Delaware corporation ("Acquisition Sub"), and US
WATS, Inc., a New York corporation ("USW"), pursuant to which Acquisition Sub
would have merged with and into USW (the "USW Merger"). On March 11, 1998, for
reasons beyond the control of both parties which made it impossible to conclude
the USW Merger prior to the March 31, 1998 termination date, ACC and USW agreed 
to a mutual termination of the USW Merger Agreement.

INDUSTRY OVERVIEW

     The global telecommunications industry has dramatically changed during the
past several years, beginning in the U.S. with AT&T's divestiture of its RBOCs
in 1984 and culminating with the 1996 amendments to the U.S. Communications Act
of 1934 (the "U.S. Communications Act"), and continuing in Canada, the U.K.
and other countries with various regulatory changes. Previously, the long
distance telecommunications industry in the U.S., Canada and the U.K. consisted
of one or a few large facilities-based carriers, such as AT&T, Bell Canada and
British Telecom. As a result of the AT&T divestiture and the recent legislative
changes in the U.S. and fundamental regulatory changes in Canada and the U.K.,
coupled with technological and network infrastructure developments which
increased significantly the voice and data telecommunications transmission
capacity of dominant carriers, the long distance industry has developed into a
highly competitive one consisting of numerous alternative long distance carriers
in each of these 

 
                                      -3-

countries. In addition, since the AT&T divestiture in 1984, competition has
heightened in the local exchange market in the U.S. and Canada. ACC anticipates
that deregulatory and economic influences will promote the development of
competitive telecommunications markets in other countries.

     Long Distance Market.  The U.S. long distance market has grown to over $93
billion in annual revenues during 1996, according to FCC estimates. AT&T has
remained the largest long distance carrier in the U.S. market, retaining
approximately 48% of the market, with MCI and Sprint with respective market
shares of approximately 20% and 10% of the market during 1996. AT&T, MCI and
Sprint constitute what generally is regarded as the first tier in the U.S. long
distance market. Large regional long distance companies, some with national
capabilities, such as WorldCom, Inc. (which in 1996 merged with MFS
Communications, Inc.), CWI, Frontier Corp., Excel Telecommunications and LCI
International, constitute the second tier of the industry, although WorldCom
would become a first tier company upon consummation of its pending merger with
MCI. The remainder of the U.S. long distance market share is comprised of
several hundred smaller companies, including ACC U.S., known as third-tier
carriers. In addition, recent U.S. legislation, which removes certain long-
standing restrictions on the ability of the RBOCs to provide long distance
services, and the World Trade Organization ("WTO") accord on basic services,
will have a substantial impact on the long distance market.

     Commencing in 1990, competition was introduced in the Canadian long
distance market. The Canadian long distance market is dominated by a consortium
of facilities-based local and long distance telephone companies (e.g., Bell
Canada, BC Tel, Maritime Tel) operating as the "Stentor" group of companies. A
second group of long distance providers, consisting principally of AT&T Canada
Long Distance Services Company ("AT&T Canada"), Sprint Canada (a subsidiary of
Call-Net Telecommunications Inc.) and fONOROLA Inc., own and operate
transmission lines through which they provide long distance voice and data
services in the Canadian markets. Other long distance providers, including ACC
Canada, generally lease transmission lines through which they resell long
distance services in the Canadian market.

     The international, national and local markets for voice telephone services
in the U.K. and Northern Ireland accounted for approximately (Pounds) l.5
billion, (Pounds) 2.0 billion and (Pounds) 2.2 billion, respectively, in
revenues during the 12 months ended March 31, 1997, according to estimates from
The Office of Telecommunications ("Oftel"), the U.K. telecommunications
regulatory authority. In the U.K., British Telecom historically has dominated
the telecommunications market. British Telecom was the largest carrier during
such 12 month period, with approximately 58.2%, 78.4% and 88.7% of the revenues
from international, national and local voice telephone services, respectively.
Cable & Wireless ("CWC") which owns and operates interexchange and local loop
transmission facilities, is the second largest carrier of voice
telecommunications in the U.K. The remainder of the U.K. long distance market is
comprised of an emerging market of licensed public telephone operators, such as
Energis Communications Ltd. ("Energis"), WorldCom, ACC U.K. and various cable
companies, and switched-based resellers such as First Telecom and Esprit Telecom
of the U.K. Ltd. ("Esprit") and Sprint.

     Long distance carriers in the U.S., Canada and the U.K. can be categorized
by several distinctions. One distinction is between transmission facilities-
based companies and non-transmission facilities-based companies, or resellers.
Transmission facilities-based carriers, such as AT&T, Bell Canada and British
Telecom, own their own long distance interexchange or transmission facilities
and originate and terminate calls through local exchange systems. Profitability
for transmission facilities-based carriers is dependent not only upon their
ability to generate revenues but also upon their ability to manage complex
networking and transmission costs. All of the first- and most of the second-tier
long distance companies in the U.S. markets are transmission facilities-based
carriers and generally offer service nationwide. Most transmission facilities-
based carriers in the third tier of the market offer their service only in a
limited geographic area. Some transmission facilities-based carriers contract
with other transmission facilities-based carriers to provide transmission where
they have geographic gaps in their facilities. Carriers that operate primarily
as switched-based resellers, such as ACC, carry their long distance traffic over
transmission lines leased from transmission facilities-based carriers, originate
and terminate calls through incumbent local exchange carriers or CLECs such as
TCG and contract with transmission facilities-based carriers to provide
transmission of long distance traffic either on a fixed rate lease basis or a
call volume basis. Profitability for non-transmission facilities-based carriers
is dependent largely on their 

 
                                      -4-

ability to generate and retain sufficient revenue volume to negotiate attractive
pricing with one or more transmission facilities-based carriers.

     A second distinction among long distance companies is that of switch-based
versus switchless resellers. Switch-based resellers, such as ACC, have one or
more switches, which are sophisticated computers that direct telecommunications
traffic to form a transmission path between a caller and the recipient of a
call. All transmission facilities-based carriers are switch-based carriers, as
are many non-transmission facilities-based carriers, including ACC. Switchless
resellers, in contrast, depend on one or more transmission facilities-based
carriers or switch-based resellers for transmission and switching facilities.
ACC believes that its ownership of switches reduces its reliance on other
carriers and enables ACC to efficiently route telecommunications traffic over
multiple leased transmission lines and to control costs, call record data and
customer information. The availability of existing transmission capacity in its
markets makes leasing of transmission lines attractive to ACC and enables it to
grow network usage without having to incur the significant capital and operating
costs associated with the development and operation of a transmission line
infrastructure.

     Local Exchange Market.  In the U.S., the existing structure of the
telecommunications industry principally resulted from the AT&T divestiture. As
part of the divestiture, seven RBOCs were created to offer services in specified
geographic areas called Local Access and Transport Areas ("LATAs"). The RBOCs
were separated from the long distance provider, AT&T, resulting in the creation
of distinct local exchange and long distance markets. Since the AT&T
divestiture, several factors have served to promote competition in the local
exchange market, including (i) the local exchange carriers' monopoly position,
which provided little incentive for the local exchange companies to reduce
prices, improve service or upgrade their networks, and related regulations which
required the local exchange carriers to, among other things, lease transmission
facilities to alternative carriers, such as ACC, (ii) customer desire for an
alternative to the local exchange carriers, which developed in part as a result
of competitive activities in the long distance market and increasing demand for
lower cost, high quality, reliable services, and (iii) the advancement of fiber
optic and digital electronic technology, which combined the ability to transmit
voice, data and video at high speeds with increased capacity and reliability.

     In Canada, similar factors promoting competition in the local exchange
market developed in response to regulatory developments in the Canadian long
distance telecommunications market and to technological advances in the
telecommunications industry. The Canadian Radio-television and
Telecommunications Commission ("CRTC") has approved the introduction of
competition in local exchange services in Canada.

BUSINESS STRATEGY

     ACC was an early entrant as an alternative carrier in the U.S., Canada and
the U.K. ACC's objective is to grow its telecommunications customer base in its
existing markets and to establish itself in other deregulating Western European
markets with high density telecommunications traffic. The key elements of ACC's
business strategy are to increase penetration of existing markets, enter new
markets, improve operating efficiency, and pursue acquisitions, investments and
strategic alliances.

     Increase Penetration of Existing Markets.  ACC's consolidated revenue has
grown from $126.4 million to $372.6 million over the three fiscal years ended
December 31, 1997, although ACC expects its growth to decrease over time.  ACC
plans to further increase its revenue and customer base in the U.S., Canadian
and U.K. markets by expanding its service offerings and geographic reach.  The
expansion of ACC's service offerings is designed to reduce the effects of price
per minute decreases for long distance service and to decrease the likelihood
that customers will change telecommunication carriers.  Through this strategy,
ACC will seek to build a broad base of recurring revenues in the U.S., Canada
and the U.K.  ACC also offers local telephone services in selected additional
U.S. and Canadian markets, including New York, Massachusetts, Quebec and
Ontario, as well as additional data communications services in the U.S. and
Canada. ACC believes that offering local services will enhance its ability to
attract and retain long distance customers and reduce ACC's access charges as a
percentage of revenues.

 
                                      -5-

     Enter New Markets.  ACC believes that its operating experience in
deregulating markets in the U.S., Canada and the U.K. and its experience as an
early entrant as an alternative carrier in those markets will assist ACC in
identifying opportunities in other deregulating countries with high density
telecommunications traffic. In particular, ACC believes that its position in the
U.S., Canadian and U.K. telecommunications markets and its experience in
providing international telecommunications service will assist it in
establishing a presence in Western European markets when ACC believes that
business and regulatory conditions warrant.

     Improve Operating Efficiency.  ACC strives to achieve economies of scale
and scope in the use of its network, which consists of leased transmission
facilities, ten international and domestic switches, six local exchange switches
and information systems. In order to enhance the efficiency of the fixed cost
elements of its network, ACC seeks to increase its traffic volume and balance
business-driven workday traffic with night and weekend off-peak traffic from
student and residential customers. ACC anticipates that competition among
transmission facilities-based providers of telecommunications services in the
U.S. and Canadian markets will afford ACC opportunities for reductions in the
cost of leased line facilities. ACC seeks to reduce its network cost per
billable minute by more than any reduction in revenue per billable minute. ACC
also intends to acquire additional switches and upgrade its existing switches to
enhance its network in anticipation of growth in ACC's customer base and provide
additional telecommunications services. ACC believes that its network switches
enable ACC to efficiently route telecommunications traffic over multiple
transmission facilities to reduce costs, control access to customer information
and grow network usage without a corresponding increase in support costs.

     Pursue Acquisitions, Investments and Strategic Alliances.   As ACC expands
its service offerings and its network, ACC anticipates that it will seek to
develop strategic alliances both domestically and internationally and to acquire
assets and businesses or make investments in companies that are complementary to
ACC's current operations. ACC believes that the pursuit of an active acquisition
strategy is an important means toward achieving growth and economies of scale
and scope in its targeted markets. Through acquisitions, ACC believes that it
can further increase its traffic volume to further improve the usage of the
fixed cost elements of its network.

SERVICES

     Commercial Long Distance Services.  ACC offers its commercial customers in
the U.S. and Canada an array of customized services and has developed a similar
range of service offerings for commercial customers in the U.K.

     In the U.S., although ACC historically has originated long distance voice
services principally in New York and Massachusetts, ACC is currently authorized
to originate intrastate long distance voice and data services in 48 states and
international voice and data services in all states. ACC's U.S. services include
"1+" inter-LATA long distance service, and private line service for which a
customer is charged a fixed monthly rate for transmission capacity that is
reserved for that customer's traffic. ACC's U.S. business services also include
toll-free "800" or "888" services. In addition, ACC currently provides
intra-LATA service in certain areas for customers who make a large number of
intra-LATA calls. ACC installs automatic dialing equipment to enable customers
to place such calls over ACC's network without having to dial an access code.
However, various states, including New York, are moving to implement "equal
access" for intra-LATA toll calls such that ACC's customers in such
jurisdictions will be able to use ACC's network on a "1+" basis to complete
intra-LATA toll calls. ACC's ability to compete in the intra-LATA toll market
depends upon the margin which exists between the access charges it must pay to
the local exchange company for originating and terminating intra-LATA calls, and
the retail toll rates established by the local exchange carriers for the local
exchange carriers' own intra-LATA toll service. ACC's commercial services
generally are priced below the rates charged by the major carriers for similar
services and are competitive with those of other carriers.

     In Canada, ACC currently originates long distance voice and data services
in the Montreal, Toronto and Vancouver metropolitan areas as well as throughout
Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario and
Quebec. ACC offers its Canadian commercial customers both voice and data
telecommunications services. ACC's long distance voice services are offered to
its business customers in a nine-level discount structure marketed under the
name "Edge." Discounts are based on calling volume and call destination and
typically result in savings 

 
                                      -6-

ranging from 10% to 20% when compared to Stentor member rates. Calls to the U.S.
are priced at a flat rate regardless of the destination, and international calls
are priced at a percentage discount to the rates charged by the Stentor group.
ACC also offers toll-free "800" services within Canada, as well as to and from
the U.S., and offers an ACC Travel Card providing substantial savings off
Stentor member "Calling Card" rates. ACC Canada has introduced a frame relay
network, Internet access services (including Web design/hosting) and paging
services, and now provides these services in all provinces except Saskatchewan,
Manitoba, New Brunswick and Newfoundland.

     ACC originates long distance voice services throughout the U.K. ACC
presently offers its U.K. customers voice telecommunications services. These
services include indirect access (known as "ACCess 1601") through the public
switched telephone network ("PSTN") and the use of direct access lines to
ACC's network (known as "ACCess Direct") for higher-volume business users.
Because ACCess 1601 is a mass market service, the prices offered are built
around a standard price list with volume discounts for high-volume users. ACCess
Direct is generally cost effective only for customers making at least (Pounds)
5,000 per month in calls.

     ACC's U.S. and Canadian commercial customers are offered customized
services, such as comprehensive billing packages and its "Travel Service
Elite" domestic calling cards, which allow the customer to place long distance
calls at competitive rates from anywhere in the U.S. and Canada. ACC's standard
monthly statement includes a management summary report, a call detail report
recording every long distance call and facsimile call, and a pricing breakdown
by call destination. Optional calling pattern reports, which are available at no
extra cost, include call summaries by account code, area or city code, LATA (for
U.S. bound calls), international destination and time-of-day. This information
is available to customers in the form of hard copy, magnetic tape or disk.

     University Program.  ACC's university program offers a variety of
telecommunications services to educational institutions ranging from long
distance service for administration and faculty, to integrated on-campus
services, including local and long distance service, voice mail, intercom
calling and operator services for students, administrators and faculty. ACC's
sales, marketing and engineering professionals work directly with college and
university administrators to design and implement integrated solutions for
providing and managing telecommunications equipment and services to meet the
current and prospective communications needs of their institutions. As part of
its program, ACC often installs telecommunications equipment which, depending
upon the circumstances, may include a switch or private branch exchange, voice
mail, cabling and, in the U.K., pay telephones. Pay phone usage in the U.K.,
particularly at universities, is more prevalent than in the U.S. and Canada. To
access this market directly, ACC has established a pay phone division in the
U.K., which supplies pay phones that will automatically route calls from
universities and other institutions over ACC U.K.'s network.

     ACC's long distance rates in the U.S. for students generally are priced at
a 10% discount from those charged by the largest long distance carriers. ACC's
university contracts in Canada generally provide it with the exclusive right,
and in the U.K. the opportunity, to market to the school's students, faculty and
administration. Most of ACC's contracts in Canada also provide for exclusive
university support for marketing to alumni. These arrangements allow ACC to
market its services to these groups through its affinity programs.

     ACC offers university customers in the U.S., Canada and the U.K. certain
customized services. ACC offers academic institutions a comprehensive billing
package to assist them in reviewing and controlling their telecommunications
costs. For its university student customers in the U.S. and Canada, ACC provides
a billing format that indicates during each statement period the savings per
call (in terms of the discount from the largest long distance carrier's rates)
realized during the billing period, and for all university customers ACC
provides a call detail report recording every long distance call. In addition,
for university student customers, ACC provides individual bills for each user of
the same telephone in a dormitory room or suite so that each student in the
dormitory room or suite can be billed for the calls he or she made.

     Many of ACC's university customers in the U.S. are offered operator
services, which are available 24 hours per day, seven days per week. ACC also
offers its U.S. university customers its "'Travel Service Elite"' domestic
calling card. In addition, ACC sells a prepaid calling card in the U.S., which
allows customers to prepay for a predetermined 

 
                                      -7-

number of "units" representing long distance minutes. The rate at which the
units are used is determined by the destination of the calls made by the
customer.

     ACC's sales group targets university customers in the U.S., Canada and in
the U.K. In the U.S. university market, ACC generally targets small to medium
size universities and colleges with full time enrollments in the range of 1,000
to 5,000 students. In Canada, ACC has been able to establish relationships with
several large universities. ACC believes that, while its marketing approach in
Canada is similar to that in the U.S., its nationwide presence in Canada assists
it in marketing to larger academic institutions. In the U.K., ACC has been able
to establish long-term relationships with several large universities. ACC
believes that, while its marketing approach in the U.K. is similar to that in
the U.S., it is able to access larger educational institutions because of its
nationwide presence and because transmission facilities-based carriers have not
focused on this market. ACC believes that competition in the university market
is based on price, as well as the marketing of unique programs and customizing
of telecommunications services to the needs of the particular institution and
that its ability to adapt to customer needs has enhanced its development of
relationships with universities.

     Residential Long Distance Services.  ACC offers its residential customers
in the U.S. and Canada a variety of long distance service plans and is currently
offering and developing similar plans for its residential customers in the U.K.
In the U.S., ACC's "Save Plus" program provides customers with competitively
priced long distance service. In addition, U.S. customers are provided with a
"Phone Home" long distance service through which, by dialing an 800 number
plus an access code, callers can call home at competitive rates. In general,
ACC's residential services are priced below AT&T's premium rates for similar
services. In Canada, ACC offers three different residential service programs.
The basic offering is a discount plan, with call pricing discounted from the
Stentor companies' tariffed rates for similar services depending on the time of
day and day of the week. ACC also offers its "Sunset Savings Plan," which
allows calling across Canada and to the continental U.S. at a flat rate per
minute. In the Toronto metropolitan area, ACC offers "Extended Metro Toronto"
calling, which provides flat rate calling within areas adjacent to Toronto that
are long distance from each other. Customized billing services are also offered
to ACC's U.S. and Canadian residential customers. In the U.K., all residential
customers use ACC's ACCess 1601 service, which provides savings off the standard
rates charged for residential service by British Telecom or CWC, but requires
the customer to dial a four digit access code before dialing the area code and
number.

     International Long Distance Services.  ACC offers international products
and services to both its existing customer base and to potential customers in
the U.S., Canada and the U.K. ACC's international authorizations
("International Licenses") allow ACC to resell international long distance
service on leased international circuits connected to the PSTN at both ends
between the U.S. and Canada, the U.S. and the U.K., Canada and the U.K., and,
subject to certain safeguards on non-competitive routes and destination country
regulations, the U.K. and all other countries and territories, and to own
interests in international submarine cable facilities for service between the
U.S. and the U.K. and other international points. ACC believes it can compete
effectively for international traffic because these international authorizations
allow it to offer end-to-end services on certain routes and route traffic
efficiently so as to price its services at cost-based rates that are lower than
the international settlement-based rates that would otherwise apply to such
traffic. However, numerous other carriers also have similar resale licenses.
Implementation of the WTO agreement is expected to increase opportunities for
alternative call routings but will also increase competition in the industry.
Moreover, a recent FCC decision, currently on appeal and subject to petitions
for reconsideration, is intended to accelerate reductions in international
calling rates and may reduce ACC's margin on international services.

     Local Exchange Services.  Building on its experience in providing local
telephone service to various university customers, ACC took advantage of
regulatory developments in New York State and in 1994 began offering local
telephone service to commercial customers in upstate New York. As a result of
its August 1995 acquisition of Metrowide Communications, ACC provides local
telephone service as a reseller in Ontario, Canada, and began providing such
service in Quebec in 1996. ACC believes that it can strengthen its relationships
with existing commercial, university and college and residential customers in
New York State and Canada and can attract new customers by offering them local
and long distance services, thereby providing a single source for comprehensive
telecommunications services. Providing local telephone service may enable ACC to
serve new local exchange customers 

 
                                      -8-

even if they are already under contract with a different interexchange carrier
for long distance service. During 1997, ACC expanded its local telephone
operations by installing switches in New York City, Albany and Buffalo, New
York, and Boston and Springfield, Massachusetts.

     ACC has limited experience in providing local telephone services, having
commenced providing such services in 1994. In order to attract local customers,
ACC must offer substantial discounts from the prices charged by local exchange
carriers and must compete with other alternative local companies that offer such
discounts. Larger, better capitalized alternative local providers, including
AT&T, among others, will be better able to sustain losses associated with
discount pricing and initial investments and expenses. The local telephone
service business requires significant initial investments and expenses in
capital equipment, as well as significant initial promotional and selling
expenses. There can be no assurance that ACC will be able to lease transmission
facilities from local exchange carriers at wholesale rates that will allow ACC
to compete effectively with the local exchange carriers or other alternative
providers or that ACC will generate positive operating margins or attain
profitability in its local telephone service business.

SALES AND MARKETING

     ACC markets its services in the U.S., Canada, the U.K. and Germany through
a variety of channels, including ACC's internal sales forces, independent sales
agents, co-marketing arrangements and affinity programs, as described below. As
of December 31, 1997, ACC had a total of approximately 380 internal sales
personnel and approximately 580 independent sales agents serving its U.S.,
Canadian, U.K. and German markets. Although it has not experienced significant
turnover in recent periods, a loss of a significant number of independent sales
agents could have a material adverse effect on ACC's ability to generate
additional revenue. ACC maintains a number of sales offices in the Northeastern
U.S., Canada, and the U.K. In addition, with respect to its university and
student customers in each country, ACC has designated representatives to assist
in customer enrollment, dissemination of marketing information, complaint
resolution and, in some cases, collection of customer payments, with
representatives located on some campuses. ACC actively seeks new opportunities
for business alliances in the form of affinity programs and co-marketing
arrangements to provide access to alternative distribution channels.

     During each of the last three years, no customer accounted for 10% or more
of ACC's total revenue.

     United States.  ACC markets its services in the U.S. through ACC's internal
sales personnel and independent sales agents as well as through attendance and
representation at significant trade association meetings and industry
conferences of target customer groups. ACC's sales and marketing efforts in the
U.S. are targeted primarily at business customers with $500 to $15,000 of
monthly usage, selected residential customers and universities and colleges. ACC
also markets its services to other resellers and rebillers. ACC plans to
leverage its market base in New York and Massachusetts into other New England
states and Pennsylvania and to eventually extend its marketing focus to other
states. ACC has obtained authorization to originate intrastate long distance
voice services in 48 states.

     Canada.  ACC markets its long distance services in Canada through internal
sales personnel and independent sales agents, co-marketing arrangements and
affinity programs. ACC focuses its direct selling efforts on medium-sized and
large business customers. ACC also markets its services to other resellers and
rebillers. ACC uses independent sales agents to target small to medium-sized
business and residential customers throughout Canada. These independent sales
agents market ACC's services under contracts that generally provide for the
payment of commissions based on the revenue generated from new customers
obtained by the representative. The use of an independent agent network allows
ACC to expand into additional markets without incurring the significant initial
costs associated with a direct sales force.

     In addition to marketing its residential services in Canada through
independent sales agents, ACC has developed several affinity programs designed
to attract residential customers within specific target groups, such as clubs,
alumni groups and buying groups. The use of affinity programs allows ACC to
target groups with a nationwide presence without engaging in costly nationwide
advertising campaigns. For example, ACC Canada has established affinity programs
with such groups as the Home Service Club of Canada, the University of Toronto
and McGill and Western Universities. In addition, ACC has developed a co-
marketing arrangement with Hudson's Bay Company (a large 

 
                                      -9-

Canadian retailer) through which ACC's telecommunications services are marketed
under the name "The Bay Long Distance Program" and "Zellers Long Distance."

     United Kingdom.  In the U.K., ACC markets its services to business and
residential customers, as well as other telecommunications resellers, through a
multichannel distribution plan including its internal sales force, independent
sales agents, co-marketing arrangements and affinity programs.

     ACC generally utilizes its internal sales force in the U.K. to target
medium and large business customers, a number of which have enough volume to
warrant a direct access line to ACC's switch, thereby bypassing the PSTN. ACC
markets its services to small and medium-sized businesses through independent
sales agents. Telemarketers also are used to market services to small business
customers and residential customers and to generate leads for the other members
of ACC's internal sales force and independent sales agents. ACC U.K. has
established an internal marketing group that is focused on selling its service
to other telecommunications resellers in the U.K. and certain European countries
on a wholesale basis. ACC U.K. has entered into co-marketing arrangements with
utilities, university alumni groups and other organizations.

NETWORK

     In the U.S., Canada and the U.K., ACC utilizes a network of lines leased
under volume discount contracts with transmission facilities-based carriers,
much of which is fiber optic cable. The selection of any particular circuit for
the transmission of a call is controlled by routing software, located in the
switches, that is designed to cause the most efficient use of ACC's network. ACC
evaluates opportunities to install switches in selected markets where the volume
of its customer traffic makes such an investment economically viable.
Utilization of ACC's switches allows ACC to route customer calls over multiple
networks to reduce costs.

     Some of ACC's contracts with transmission facilities-based carriers contain
underutilization provisions. These provisions require ACC to pay fees to the
transmission facilities-based carriers if ACC does not meet minimum periodic
usage requirements. ACC has not been assessed any underutilization charges in
the past. However, there can be no assurance that such charges would not be
assessed in the future. Other resellers generally contract with ACC on a month-
to-month basis, select ACC almost exclusively on the basis of price and are
likely to terminate their arrangements with ACC if they can obtain better
pricing terms elsewhere. ACC uses projected sales to other resellers in
evaluating the trade-offs between volume discounts and the minimum utilization
rates it negotiates with transmission facilities-based carriers. If sales to
other resellers do not meet ACC's projected levels, ACC could incur
underutilization charges and be placed at a disadvantage in negotiating future
volume discounts.

     ACC generally utilizes redundant, highly automated advanced
telecommunications equipment in its network and has diverse alternate routes
available in cases of component or facility failure. Automatic traffic re-
routing enables ACC to provide a high level of reliability for its customers.
Computerized automatic network monitoring equipment facilitates fast and
accurate analysis and resolution of network problems. ACC provides customer
service and support, 24-hour network monitoring, trouble reporting and response,
service implementation coordination, billing assistance and problem resolution.

     In the U.S., ACC maintains three long distance switches and six local
exchange switches. These switches and additional points of presence ("POPs")
provide an interface with the PSTN to service ACC's customers. Lines leased from
transmission facilities-based carriers link ACC's U.S. points of presence to its
switches. ACC U.S. maintains a leased, direct trans-Atlantic link with ACC U.K.
that it established in 1994 following ACC's receipt of its U.K. International
Simple Resale License for U.K.-U.S. calls and international private line resale
authority in the U.S. ACC has purchased an IRU to supplement such trans-Atlantic
leased-lines to the U.K. and to enable ACC to reduce network costs.

     In Canada, ACC maintains long distance switches in Toronto, Montreal and
Vancouver. ACC also maintains frame relay nodes for switched data in Toronto,
Montreal, Vancouver and Calgary. ACC uses transmission lines leased 

 
                                      -10-

from transmission facilities-based carriers to link its Canadian POPs to its
switches. This network is also linked with ACC's switches in the U.S. and the
U.K. ACC Canada also maintains a leased, direct trans-Atlantic link with ACC
U.K. that it established following the grant to ACC U.K. of its ISR License.
This transmission line enables ACC Canada to send traffic to the U.K. at rates
below those charged by Teleglobe Canada, the exclusive Canadian transmission
facilities-based carrier for international calls, other than those to and from
the U.S. and Mexico.

     In the U.K., ACC maintains long distance switches in London, Manchester and
Bristol, England. This network is also linked with ACC's switches in the U.S.
and Canada. Customers can access ACC's U.K. network through direct access lines
or by dial-up access using auto dialing equipment, indirect access code dialing
or least cost routing software integrated in the customer's telephone equipment.
In December 1996, ACC U.K. was awarded an International Facilities License, and
received a Public Telecommunications Operator license in April 1997, which
licenses have enabled ACC to build a microwave network in the U.K. and to begin
to use the U.K. as a regional hub for international telecommunications traffic.

     In February 1998 ACC installed a long distance switch in Dusseldorf,
Germany and commenced offering switch-based long distance service to its
customers.  In 1997, the Company received a Class 4 full voice telephony license
from the German Ministry of Post and Telecommunications, which became effective
January 1, 1998, and which is a requirement in order to provide switch-based
telecommunication services in Germany.

     Network costs are the single largest expense incurred by ACC. ACC strives
to control its network costs and its dependence on other carriers by leasing
transmission lines on an economical basis. ACC is also considering ownership of
certain transmission facilities as a means of reducing its network costs. ACC
has purchased IRUs and negotiated leases of private line circuits with carriers
that operate fiber optic transmission systems at rates independent of usage,
particularly on routes over which ACC carries high volumes of calls such as
between the U.S. and Canada and the U.S. and the U.K. ACC attempts to maximize
the efficient utilization of its network in the U.S., Canada and the U.K. by
marketing to commercial and academic institution customers, who tend to use its
services most frequently on weekdays during normal business hours, and
residential and student customers, who use these services most often during
night and weekend off-peak hours.

INFORMATION SYSTEMS

     ACC believes that maintaining sophisticated and reliable billing and
customer services information systems that integrate billing, accounts
receivable and customer support is a core capability necessary to record and
process the data generated by a telecommunications service provider. While ACC
believes its management information system is currently adequate, it has not
grown as quickly as ACC's business and substantial investments are needed. ACC
is developing and implementing new systems designed to (i) enhance ACC's ability
to monitor and respond to the evolving needs of its customers by developing new
and customized services, (ii) improve least-cost routing of traffic on ACC's
international network, (iii) provide sophisticated billing information that can
be tailored to meet the requirements of its customer base, (iv) provide high
quality customer service, (v) detect and minimize fraud, (vi) verify payables to
suppliers of telecommunications transmission facilities and (vii) integrate
additions to its customer base. A variety of problems are often encountered in
connection with the implementation of new information systems. There can be no
assurance that ACC will not suffer adverse consequences or cost overruns in the
implementation of the new information systems or that the new systems will be
appropriate for ACC.

COMPETITION

     The telecommunications industry is highly competitive and is significantly
influenced by the marketing and pricing decisions of the larger industry
participants. In each of its markets, ACC competes primarily on the basis of
price and also on the basis of customer service and its ability to provide a
broad array of telecommunications services. The industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. Although many of ACC's customers are under multi-year
contracts, several of ACC's largest customers (primarily other long distance
carriers) are on month-to-month contracts and are particularly 

 
                                      -11-

price sensitive. Revenues from other resellers accounted for approximately 32%,
4% and 28% of the revenues of ACC U.S., ACC Canada and ACC U.K., respectively,
in 1997. With respect to these customers, ACC competes almost exclusively on
price and does not have long term contracts. The industry has experienced and
will continue to experience rapid regulatory and technological change. Many
competitors in each of ACC's markets are significantly larger than ACC, have
substantially greater resources than ACC, control transmission lines and larger
networks than ACC and have longstanding relationships with ACC's target
customers. There can be no assurance that ACC will remain competitive in this
environment. Regulatory trends have had, and may have in the future, significant
effects on competition in the industry. As ACC expands its geographic coverage,
it will encounter increased competition. Moreover, ACC believes that competition
in non-U.S. markets is likely to increase and become more like competition in
the U.S. markets over time as such non-U.S. markets continue to experience
deregulatory influences.

     Competition in the long distance industry is based upon pricing, customer
service, network quality, value-added services and customer relationships. The
success of a non-transmission facilities-based carrier such as ACC depends
largely upon the amount of traffic that it can commit to the transmission
facilities-based carriers and the resulting volume discounts it can obtain.
Subject to contract restrictions and customer brand loyalty, resellers like ACC
may competitively bid their traffic among other national long distance carriers
to gain improvement in the cost of service. The relationship between resellers
and the larger transmission facilities-based carriers is twofold. First, a
reseller is a customer of the services provided by the transmission facilities-
based carriers, and that customer relationship is predicated primarily upon the
pricing strategies of the first tier companies. The reseller and the
transmission facilities-based carriers are also competitors. The reseller will
attract customers to the extent that its pricing for customers is generally more
favorable than the pricing offered the same size customers by larger
transmission facilities-based carriers. However, transmission facilities-based
carriers have been aggressive in developing discount plans which have had the
effect of reducing the rates they charge to customers whose business is sought
by the reseller. Thus, the business success of a reseller is significantly tied
to the pricing policies established by the larger transmission facilities-based
carriers. There can be no assurance that favorable pricing policies will be
continued by those larger transmission facilities-based carriers.

     United States.  In the U.S., ACC is authorized to originate interstate and
international long distance services nationwide and to originate intrastate long
distance service in 48 states (although it currently derives most of its U.S.
revenues principally from calls originated in New York and Massachusetts). ACC
competes for customers, transmission facilities and capital resources with
numerous long distance telecommunications carriers and/or resellers, some of
which are substantially larger, have substantially greater financial, technical
and marketing resources, and own or lease larger transmission systems than ACC.
AT&T is the largest supplier of long distance services in the U.S. inter-LATA
market. ACC also competes within its U.S. call origination areas with other
national long distance telephone carriers, such as MCI, Sprint and regional
companies which resell transmission services. RBOCs from outside the NYNEX/Bell
Atlantic region, including SBC Communications, have, under the authority
contained in the 1996 Act, begun to offer long distance services in the
NYNEX/Bell Atlantic region. In the intra-LATA market, ACC also competes with the
local exchange carriers servicing those areas. In its local service areas in New
York State and Massachusetts, ACC presently competes or in the future will
compete with NYNEX/Bell Atlantic, Frontier Corp., AT&T, Citizens Telephone Co.
and WorldCom and with cellular and other wireless carriers. These local exchange
carriers all have long-standing relationships with their customers and have
financial, personnel and technical resources substantially greater than those of
ACC. Furthermore, joint ventures such as those between MCI and Microsoft
Corporation ("Microsoft"), under which Microsoft will promote MCI's services,
the joint venture among Sprint, Deutsche Telekom AG and France Telecom, called
Global One, the recently announced merger of WorldCom and MCI, and other
strategic alliances could increase competitive pressures upon ACC. The recent
merger between Nynex Corp. and Bell Atlantic is likely to strengthen the
financial resources of the new, combined company, and its integrated networks
may enhance its ability to offer long distance services in the combined
NYNEX/Bell Atlantic region.

     In addition to these competitive factors, recent and pending deregulation
in each of ACC's markets may encourage new entrants. For example, as a result of
the 1996 Act, RBOCs are allowed to enter the long distance market immediately in
"out of region" states, and in the states where the RBOC is an incumbent LEC
upon a showing that certain conditions related to competition have been met.
AT&T, MCI and other long distance carriers, utilities and cable 

 
                                      -12-

television companies are allowed to enter the local telecommunications market.
In addition, the FCC has, on several occasions since 1984, approved or required
price reductions by AT&T and, in 1995 and 1996, the FCC reclassified AT&T as a
"non-dominant" carrier for domestic and international long distance services,
which substantially reduces the regulatory constraints on AT&T. In the recently-
completed World Trade Organization talks, the U.S. committed to allowing foreign
carriers heretofore prohibited from competing in U.S. markets, to enter the U.S.
local, long distance, and international markets, and the FCC has amended its
rules, effective February 1998, to implement these commitments, allowing
virtually open entry to the U.S. market by all entities from WTO member
countries. The WTO accord will likely increase the level of competition in the
U.S. local, long distance, and international markets. ACC believes that the
principal competitive factors affecting its market share in the U.S. are
pricing, customer service and variety of services. By offering high quality
telecommunications services at competitive prices and by offering a portfolio of
value-added services including customized billing packages, call management and
call reporting services, together with personalized customer service and
support, ACC believes that it competes effectively with other local and long
distance telephone carriers and resellers in its service areas. ACC's ability to
continue to compete effectively will depend on its continued ability to maintain
high quality, market-driven services at prices generally below those charged by
its competitors.

     Canada.  In Canada, ACC competes with facilities-based carriers, other
resellers and rebillers. ACC's principal transmission facilities-based
competitors are the Stentor group of companies, in particular, Bell Canada, the
dominant suppliers of long distance services in Canada, AT&T Canada, which
provides certain facilities-based and long distance services to business and
residential customers, and Sprint Canada and fONOROLA Inc., which provide
certain transmission facilities-based services and also act as reseller of
telecommunications services. ACC also competes against London Telecom, a
reseller of telecommunications services. ACC believes that, for some of its
customers and potential customers, it has a competitive advantage over other
Canadian resellers as a result of its operations in the U.S. and the U.K. In
particular, the trans-Atlantic link that it established in June 1993 between the
U.K. and Canada allows ACC Canada to sell traffic to the U.K. with a
significantly lower cost structure than many other resellers.

     United Kingdom.  ACC U.K. currently holds a National PTO License and an
International Facilities License and competes with facilities-based carriers and
other resellers. ACC's principal competitors in the U.K. are British Telecom,
the dominant supplier of telecommunications services in the U.K., and CWC. ACC
also faces competition from other operators such as Energis and WorldCom, and
from resellers including Esprit and Sprint. ACC believes the services of ACC
U.K. are competitive, in terms of price and quality, with the service offerings
of its U.K. competitors primarily because of its advanced network-related
hardware and software systems and the network configuration and traffic
management expertise employed by it in the U.K.

REGULATION

     United States

     The services which the Company's U.S. operating subsidiaries provide are
subject to varying degrees of federal, state and local regulation.  The FCC
exercises jurisdiction over all facilities of, and services offered by,
telecommunications common carriers to the extent that they involve the
provision, origination or termination of jurisdictionally interstate or
international communications.  The state regulatory commissions retain
jurisdiction over the same facilities and services to the extent they involve
origination or termination of jurisdictionally intrastate communications.  In
addition, many regulations may be subject to judicial review, the result of
which the Company is unable to predict.

     Telecommunications Act of 1996 and the FCC's Interconnection Orders.  The
1996 Act is intended to introduce increased competition in U.S.
telecommunications markets.  It opens the local services market by requiring
incumbent LECs to permit interconnection to their networks and by establishing
incumbent LEC obligations with respect to unbundled access, resale, number
portability, dialing parity, access to rights-of-way, mutual compensation and
other matters.  In addition, the 1996 Act codifies the local exchange carriers'
equal access and nondiscrimination obligations and preempts state regulation
that prohibits or may have the effect of prohibiting the ability of any entity
to provide any 

 
                                      -13-

intra- or interstate telecommunications service. The legislation also contains
special provisions that eliminate the AT&T Divestiture Decree (the "AT&T
Divestiture Decree") (and similar antitrust restrictions on the GTE Operating
Companies) which restricts the RBOCs from providing long distances services.
These new provisions permit an RBOC to enter the "out-of-region" long distance
market immediately and the "in-region" long distance market if it satisfies
several procedural and substantive requirements, including showing that
facilities-based competition is present in its market and that it has entered
into interconnection agreements which satisfy a 14-point "checklist" of
competitive requirements. The Company is likely to face significant additional
competition from several companies, including from NYNEX/Bell Atlantic, the RBOC
in the Company's Northeastern U.S. service area, which may be among the first
RBOCs permitted to offer in-region long distance services. The NYSPSC is
currently reviewing an application by NYNEX/Bell Atlantic for such in-region
service. The 1996 Act provides for certain safeguards to protect against
anticompetitive abuse by the RBOCS, but whether these safeguards will provide
adequate protection to alternative carriers, such as the Company, and the impact
of anticompetitive conduct if such conduct occurs, is unknown.

     As required by the 1996 Act, in August 1996 the FCC adopted new rules
implementing certain provisions of the 1996 Act (the "Interconnection Orders").
These rules are designed to implement the pro-competitive , deregulatory
national policy framework of the new statute by removing or minimizing the
regulatory, economic and operational impediments to competition for facilities-
based and resold local services, including switched local exchange service.
Although setting minimum, uniform, national rules, the Interconnection Orders
also rely heavily on states to apply these rules and to exercise their own
discretion in implementing a pro-competitive regime in their local telephone
markets.

     Among other things, the Interconnection Orders establish rules requiring
incumbent LECs to interconnect with new entrants such as the Company at
specified network points; require incumbent LECs to provide carriers
nondiscriminatory access to network elements on an unbundled basis at any
technically feasible point at rates that are just, reasonable and
nondiscriminatory; establish rules requiring incumbent LECs to allow
interconnection via physical virtual collocation; require the states to set
prices for interconnection, unbundled elements, and termination of local calls
that are nondiscriminatory and cost-based; require incumbent LECs to offer for
resale any telecommunication service that the carrier provides at retail to end
users at prices to be established by the states but which generally are at
retail prices minus reasonably avoided costs; and require LECs and utilities to
provide new entrants with nondiscriminatory access to poles, ducts, conduit and
rights of way owned or controlled by LECs or utilities.  Exemptions from some of
these rules are available to LECs which qualify as rural LECs under the 1996
Act.  The Interconnection Orders also require that intra-LATA presubscription
(pursuant to which LEC's must allow customers to choose different carriers from
intra-LATA toll service without having to dial extra digits) be implemented no
later than February 1999; that incumbent LECs provide new entrants with
nondiscriminatory access to directory assistance services, directory listings,
telephone numbers, and operator services; and that incumbent LECs comply with
certain network disclosure rules designed to ensure interoperability of multiple
local switched networks.

     Petitions seeking reconsideration of one or more aspects of the
Interconnection Orders have been filed with the FCC and are pending.  Also, the
Interconnection Orders have been appealed to various circuits of the U.S. Court
of Appeals which appeals were consolidated into proceedings before the U.S.
Eighth Circuit Court of Appeals.  Certain of the rules adopted in the
Interconnection Orders, including rules that concern the pricing of
interconnection, have been vacated by the Court.  Both the FCC and various
competitive carriers have petitioned the U.S. Supreme Court to review the Eighth
Circuit's rulings on the Interconnection Orders.

     The 1996 Act both provided the FCC with deregulatory authority and required
the FCC to adopt rules to implement specific provisions of the 1996 Act.
Specifically, the FCC was provided authority to forebear from regulating, in
whole or in part, carriers where the FCC determines to that such forbearance is
consistent with the public interest.  The FCC has engaged in a number of
additional rulemakings designed to transition to the increasingly deregulated
local and long distance markets.  Two of the most prominent proceedings involved
universal service and access charge reform.  Others are anticipated.  There can
be no assurance as to how the 1996 Act, the Interconnection Orders or other FCC
and PSC rulemakings will be implemented or enforced or as to what effect they
will have on competition within the telecommunications industry generally or on
the competitive position of the Company.

 
                                      -14-

     Federal.  The FCC has classified ACC U.S. as a non-dominant interexchange
carrier.  Generally, the FCC has chosen not to exercise its statutory power to
closely regulate the charges or practices of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies.  The FCC also has the power to impose more stringent regulatory
requirements on the Company and to change its regulatory classification.  The
Company believes that, in the current regulatory environment, the FCC is
unlikely to do so.

     Until October 1995, AT&T was classified as a dominant carrier but AT&T
successfully petitioned the FCC for non-dominant status in the domestic
interstate and interexchange market.  Therefore, certain pricing restrictions
that once applied to AT&T have been eliminated, which could result in increased
prices for services the Company purchases from AT&T and more competitive retail
prices offered by AT&T to customers.  However, to date, the Company has not
found rate changes attributable to the price cap regulation of AT&T and the
local exchange carriers to have substantially adversely affected its business.
In 1996, AT&T was re-classified as a non-dominant carrier to international
services.

     Carriers such as the Company have traditionally been required to file
tariffs with the FCC containing the rates, terms and conditions of interstate
service.  However, the FCC recently ordered that following a transition period,
scheduled to have concluded in November 1997, non-dominant carrier will no
longer be able to file tariffs with the FCC concerning their long distance
services.  Such carriers will, however, be required to maintain at their
offices, and to provide to customers or regulators upon request, information
concerning their long distance services.  The FCC order eliminating tariffs has
been appealed to the U.S. Court of Appeals for the District of Columbia.  That
appeal is pending.  A motion requesting stay of the FCC's detariffing order has
been filed with the Court.  It argued that tariffing establishes a legal binding
relationship between carriers and customers, and that detariffing eliminates
certainty with regard to those legal relationships.  It also argued that
detariffing imposes costs upon carriers because carriers will need to enter into
alternative forms of legally binding relationships with customers.  That motion
was granted in February 1997.  Therefore, carriers such as the Company must
continue to tariff interstate services until the appeal is concluded or the stay
is lifted.  There can be no assurance of whether the appeal will be successful,
or if successful, what effect it may have on the Company.  However if
detariffing ultimately takes effect, the Company, like other long distance
companies, would likely incur some additional costs in establishing legally
binding relationships with customers.

     In contrast to these recent developments affecting domestic long distance
service, the Company's U.S. subsidiaries have long been subject to certification
and tariff filing requirements for all international operations.  The Company's
U.S. subsidiaries' international rates are not subject to either rate-of-return
or price cap regulation.  The Company must seek separate certification authority
from the FCC to provide private line or switched services or to resell private
line services between the U.S. and any foreign country.  The Company's ACC
Global Corp. subsidiary has received authority from the FCC to resell private
lines for switched services between the U.S. and Canada, and was the first
entity to file to obtain such authority between the U.S. and the United Kingdom,
which it received in September 1994.  The Company has sought authority to resell
private lines on a switched service basis between the U.S. and other countries.
Under recently adopted FCC policies and under proposals to implement the WTO
agreement, it is expected to become easier, from a regulatory perspective, to
obtain such authority for additional markets.  The Company is also authorized to
acquire interests in international facilities, enabling its recent acquisition
of IRUs.

     Among domestic local carriers, only the incumbent local exchange carriers
are currently classified as dominant carriers.  Thus, the FCC regulates many of
the local exchange carriers' rates, charges and services to a greater degree
than the Company's, although FCC regulation of the local exchange carriers is
expected to decrease over time, particularly in light of recent U.S.
legislation.

     The 1996 Act mandated several important federal regulatory developments.
The first concerns universal services.  On May 8, 1997, the FCC issued an order
to implement the provisions of the 1996 Act relating to the preservation and
advancement of universal telephone service (the "Universal Service Order").  The
Universal Service Order affirmed the policy principles for universal telephone
services set forth in the Telecommunications Act, including quality service,
affordable rates, access to advanced services, access in rural and high-cost
areas, equitable and non-discriminatory contributions, specific and predictable
support mechanisms, and access to advanced telecommunications 

 
                                      -15-

services for schools, health care providers and libraries. The Universal Service
Order added "competitive neutrality" to the 1996 Act's universal service
principles by provided that universal service support mechanisms and rules
should not unfairly advantage or disadvantage one provider over another, nor
unfairly favor or disfavor one technology over another. The Universal Service
Order also requires all telecommunications carriers providing interstate
telecommunications services, including the Company, to contribute to universal
service support. However, because the contribution factors are likely to vary
quarterly, the annualized impact on ACC cannot be estimated at this time.

     An issue that may affect the Company is access charge reform.  Access
charges are charges imposed by the LECs on long distance providers for access to
the local exchange network, and were designed to compensate the LEC for its
investment in the local network.  In addition to economic considerations, when
adopted in 1984 at the time AT&T was divested from the RBOCs, access charge
rates reflected public policy considerations related to universal service and
the desirability of low local rates.  Interstate access charges are regulated by
the FCC and intrastate access charges are regulated by the state public service
commissions.  Pursuant to the 1996 Act, on May 16, 1997, the FCC issued an order
to implement certain reforms to its access charge rules (the "Access Charge
Reform Order").  The Access Charge Reform Order will require incumbent LECs to
substantially decrease over time the prices they charge for switched access, and
change how access charges are calculated.  These changes are intended to reduce
access charges paid by interexchange carriers to LECs and shift usage-based
charges to flat-rated, monthly per-line charges.  To the extent that these rules
being to reduce charges to reflect the forward-looking cost of providing access,
the Company's competitive advantage in provided customers with access services
might decrease.  In addition, the FCC has determined that it will give incumbent
LECs pricing flexibility with respect to access charges.  To the extent such
pricing flexibility is granted before substantial facilities-based competition
develops, such flexibility could be misused to the detriment of new entrants,
including the Company.  Until the FCC adopts and releases rules detailing the
extent and timing of such pricing flexibility, the impact of these rules on the
company cannot be determined.  In its order, the FCC abolished the unitary rate
structure option for tandem-switched transport.  This may have an adverse effect
on smaller interexchange carriers such as the Company because it may increase
the costs of transport which smaller interexchange carriers must purchase from
LECs to reach end user customers on the local exchange network.

     Both the Universal Service and Access Charge Reform Orders are subject to
petitions seeking reconsideration by the FCC and direct appeals to U.S. Court of
Appeals.  Until the time when any such petitions or appeals are decided, there
can be no assurance as to how the Universal Service and/or Access Charge Reform
Orders will be implemented or enforced, or what effect the orders will have on
competition within the telecommunications industry, generally, or on the
competitive position of the Company, specifically.

     There can be no assurances as to how the 1996 Act will be implemented or
enforced or to what affect it or implementing regulations will have on
competition within the telecommunications industry generally or on the
competitive position of the Company.

     In addition to its status as an access customer, the Company is now an
access provider in connection with its provision of local telephone service in
upstate New York and Massachusetts.  Under the 1996 Act, as a local exchange
carrier, the Company is subject to many of the same obligations to which other
local exchange carriers, including the RBOCs, are subject in their provision of
local exchange services, such as resale, dialing parity and reciprocal
compensation.

     State.  The Company's intrastate long distance operations are subject to
various state laws and regulations including, in most jurisdictions,
certification and tariff filing requirements.  The Company provides long
distance service in all or some portion of 40 states and has received the
necessary certificate and tariff approvals to provide intrastate long distance
service in 48 states.  All states today allow some form of intrastate
telecommunications competition.  However, some states restrict or condition the
offering of intrastate/intra-LATA long distance services by the company and
other interexchange carriers.  In the majority of those states that do permit
interexchange carriers to offer intra-LATA services, customers desiring to
access those services are generally required to dial special access codes, which
puts the company at a disadvantage relative to the local exchange carrier's
intrastate long distance service, which generally requires no such access code
dialing.  Increasingly, states are reexamining this policy and some states, such
as 

 
                                      -16-

New York, have ordered that this disadvantage be removed. The 1996 Act requires
the incumbent local exchange carriers to adopt "intra-LATA equal access" as a
precondition of the local exchange carriers' entering into the inter-LATA long
distance business. The 1996 Act precludes states which have not already ordered
intra-LATA equal access from mandating such equal access until the earlier of
either (i) the date the incumbent local exchange carrier receives in-region
inter-LATA authority in that state, or (ii) February of 1999. Because the timing
of incumbent local exchange carrier entry into the long distance business, or
actions by state authorities which had not already ordered intra-LATA equal
access, cannot be determined with certainty, it is not possible to predict when
intra-LATA equal access will be available in each State.

     With regard to New York, the Company's largest U.S. market, intra-LATA
equal access is currently being implemented for over 90% of its New York State
subscribers.  Implementation in other states may take longer.  Relevant state
public service commissions ("PSCs") also regulate access charges and other
pricing for telecommunications services within each state. The New York State
PSC ("NYPSC") has recently initiated a proceeding, to examine intrastate access
charges.  The RBOCs and other local exchange carriers have been seeking
reduction of state regulatory requirements, including greater pricing
flexibility.  This could adversely affect the Company in several ways.  The
regulated prices for intrastate access charges that the Company must pay could
increase both relative to the charges paid by the largest interexchange
carriers, such as AT&T, and in absolute terms as well.  Additionally, the
Company could face increased price competition from the RBOCs and other local
exchange carriers for intra-LATA long distance services, which may also be
increased by the removal of former restrictions on long distance service
offerings by the RBOCs as a result of recently enacted legislation.

     New York State Regulation of Long Distance Service.  Beginning in 1992, the
NYSPSC commenced several proceedings to investigate the manner in which local
exchange carriers should be regulated.  In July 1995, the NYPSC ordered the
acceptance of a Performance Regulation Plan for New York Telephone.  The terms
of the plan, as ordered, included: (i) a limitation on increases in basic local
rates for the 5-year term of the plan, (ii) implementation of intra-LATA equal
access by no later than March 1996, (iii) reductions in the intrastate inter-
LATA equal access charges which the Company and other interexchange carriers pay
over the next five years totaling 33%, (iv) reductions in the intra-LATA toll
rates charged to the end user customer over the next five years totaling 21%,
and (v) an intercarrier compensation plan that reduced the rates paid by the
competitive local exchange carriers (including the Company's subsidiaries) by
one-half.  New York Telephone does have some increased ability to restructure
rates and to request rate reductions, but all rate changes are still subject to
NYPSC approval.  New York Telephone is also required to meet various service
quality measurements, and will be subject to financial penalties for failure to
meet these objectives.

     On March 17, 1998, staff of the NYPSC released a draft pre-filing agreement
it was considering entering into with New York Telephone.  That agreement would
set forth certain commitments by New York Telephone relating to opening its
local market to competition and complying with the FCC's competitive checklist,
in return for which the NYPSC would endorse New York Telephone's FCC petition to
enter the inter-LATA toll market.  If the agreement is finalized, it would
likely expedite New York Telephone's long distance entry, and could
significantly impact the Company's competitive standing in the long distance
market.

     In a manner similar to the FCC, the NYPSC has adopted revised rules
governing the manner in which intrastate local transport elements of access
charges are to be priced.  These revisions accompanied its decision ordering,
local exchange carriers to permit "collocation" for intrastate special access
and switched access transport services.  In general, where CAPs have established
interconnections at the switches of individual local exchange carriers, the
local exchange carriers will be given expanded authority to enter into
individually negotiated contracts with interexchange carriers for transport
service.  At the same time, the access charges to other interexchange carriers
located at the same switching facilities generally will be lowered.  If
insufficient competition is present at that switching facility, the preexisting
intrastate "equal price per unit of traffic" rule will remain in effect.  While
the presence of switch interconnections may actually lower the price the Company
may pay for local transport services, the ability of carriers that handle large
traffic volumes, such as AT&T, to negotiate flat rate direct transport charges
may result in the Company's paying more per unit of traffic than its competitors
for local transport service.

 
                                      -17-

     The NYPSC is currently reviewing the further restructuring of intra-State
access charges, and is considering whether to restructure State access charges
so that they mirror all of the rate elements set forth in recently revised
federal access charge structures.  This includes possible removal of any
remaining "equal price per unit of traffic" applications, and the establishment
of an intrastate Primary Interexchange Carrier Charge ("PICC"), which would
shift certain usage sensitive access charges to a flat rate fee applicable to
carriers based upon their numbers of presubscribed intra-LATA and inter-LATA
customers.  Establishment of such an intrastate PICC could have adverse effects
on carriers which serve low volume customers and customers located in rural or
remote areas.  The NYPSC is also reviewing proposals to modify the mileage
formula utilized to calculate transport charges for carriers, such as the
Company, which use common transport rather than direct trucking transport.  It
is not possible to determine the impact, if any, which such changes would have
on the Company's intra-state access costs.

     New York State Regulation of Local Telephone Service.  The NYPSC has
determined that it will allow competition in the provision of local telephone
service in New York State, including "alternate access," private line services
and local switched services.  The Company applied to the NYPSC for authority to
provide such services, and received certifications in early 1994 to offer these
services.  The NYPSC has also authorized resale of local exchange services,
which may allow significant market entry by large toll carriers such as AT&T and
MCI.

     The Company's ability to offer competing local services profitably will
depend on a number of factors.  For the Company to compete effectively against
New York Telephone, Frontier Corp. and other local exchange carriers in the
Company's upstate New York service areas, it must be able to interconnect with
the network of local exchange carriers in the markets in which it plans to offer
local services, obtain direct telephone number assignments and, in most cases,
negotiate with those local exchange carriers for certain services such as leased
lines, directory assistance and operator services on commercially acceptable
terms.  The order issued in the New York Telephone Performance Regulation Plan
(described above) established prices for interconnection and required New York
Telephone to tariff this service, making it generally available to all
competitors, including the Company.  The actual monies paid by the Company to
New York Telephone for terminating the Company's traffic, and the monies
received by the Company from New York Telephone for terminating New York
Telephone traffic, are subject to NYPSC regulation and will depend upon the
Company's compliance with certain service obligations imposed by the NYPSC,
including the obligation to serve residential customers.  The rates will also
affect the Company's competitive position in the intra-LATA toll market relative
to the local exchange carrier and major interexchange carriers such as AT&T and
MCI, which may offer intra-LATA toll services.  The NYPSC has also issued orders
assuring local telephone service competitors access to number resources, listing
in the local exchange carrier's directory and the right to reciprocal
intercarrier compensation arrangements with the local exchange carriers, and
also establishing interim rules under which competitive providers of local
telephone service are entitled to comparable access to and inclusion in local
telephone routing guides and access to the customer information of other
carriers necessary for billing or other services.  The Company has obtained
number assignments in several New York markets.

     Many competitive local exchange companies, including the Company, receive
significant revenues from incumbent local exchange carriers (such as New York
Telephone) through the reciprocal compensation mechanism for terminating traffic
which the Company delivers to Internet providers.  In early 1997, New York
Telephone announced it would refuse to pay such terminating compensation for
Internet traffic, and the Company, as well as other competing local exchange
carriers, have filed complaints with the NYPSC.  The NYPSC is now reviewing
whether Internet traffic should be treated as "local" traffic for purposes of
reciprocal compensation.  A petition has also been filed at the FCC for a
declaration that Internet traffic is to be considered "local" traffic for
reciprocal compensation purposes.  If either the FCC or the NYPSC issues an
adverse ruling, and determines that Internet traffic delivered to the Company
for termination will not be eligible for reciprocal compensation, there could be
a significant impact upon the Company's local service revenues.

     The NYPSC has also adopted interim rules that would subject competitive
providers of local telephone service to a number of rules, service standards and
requirements not previously applicable to "nondominant" competitors such as the
Company.  These rules include requirements involving "open network
architecture," provision of reasonable interconnection to competitors, and
compliance with the NYPSC's service quality standards and consumer protection

 
                                      -18-

requirements.  As part of its "open network architecture" obligations, the
Company could be required to allow collocation with its local toll switch upon
receipt of a bona fide request by an interexchange carrier or other carrier.
Compliance with these rules in connection with the Company's provision of local
telephone service may impose new and significant operating and administrative
burdens on the Company.  This proceeding will also determine the
responsibilities of new local service providers with respect to subsidies
inherent in existing local exchange carrier rates.

     Under the 1996 Act, incumbent local exchange companies such as New York
Telephone and Frontier must allow the resale of both bundled local exchange
services (known as "loops") as well as unbundled local exchange "elements"
(known as "links" and "ports").  The Company generally intends to provide local
service through the resale of unbundled links rather than through the sale of
bundled loops.

     On April 1, 1997, the NYPSC adopted permanent rates for unbundled links and
certain other unbundled network elements for New York Telephone.  The monthly
rate for unbundled links in designated areas of dense traffic (accounting for
approximately 70% of all loops in the state) is $12.49, plus a recurring $1.90
connection charge.  The monthly rate in other areas of the state is $19.24, plus
a $1.90 recurring connection charge.  Permanent unbundled link and unbundled
network element rates have not yet been established for Frontier Corp.  The
permanent New York Telephone link rate is lower than the temporary rates for New
York Telephone's unbundled links; it is greater than the $10.10 rate for the
comparable service New York Telephone offers to its own residential customers,
but below the rate of approximately $22 for the comparable service New York
Telephone offers to its business customers.  However, in order to utilize
unbundled links, the Company must arrange for collocation in New York
Telephone's central offices, which adds significant costs.  As a result, the
Company's marketing efforts are primarily directed toward business customers
(and certain concentrated residential customers) which can be served through the
Company's own facilities, rather than through use of unbundled links obtained
from New York Telephone or Frontier Corp.

     One of the unbundled elements required to be provided by incumbent local
exchange carriers under the 1996 Act is access to the carrier's Operational
Support systems ("OSS"), which are electronic systems used by competing
carriers, such as the Company, to order services, including unbundled network
elements and resold services, from the incumbent local exchange company.  Rates
for use of such OSS are established by the PSCs.  The NYPSC has been reviewing
charges proposed by New York Telephone of approximately $2,500 per month for the
right to order resold services, and approximately $5,000 per month for the right
to order unbundled network elements, including unbundled links.  A carrier which
orders both unbundled network elements and resold services would pay
approximately $7,500 per month.  In addition to those monthly service charges,
an ordering carrier would pay approximately $1 for each preordering, ordering
and maintenance transaction.  The NYPSC has issued an interim decision denying
New York Telephone the ability to apply the monthly recurring charges, subject
to New York Telephone's ability to further substantiate its entitlement to such
charges.  The final outcome of that proceeding, and the level of OSS charges
which the Company will have to pay to order resold services and unbundled
network elements from New York Telephone, is not known.  The establishment of
excessive OSS charges could have a significant effect on the Company's ability
to order services and compete in the local exchange market.

     Local Telephone Service in Massachusetts.  The Massachusetts Department of
Public Utilities ("DPU") requires LECs to file a Statement of Business
Operations and a tariff before providing intrastate telecommunications service,
including local exchange service in Massachusetts.  The Company has filed its
Statement and tariff and has received DPU approval of its interconnection
agreement with NYNEX/Bell Atlantic.

     The Company's ability to construct and operate competitive local service
networks for both local private line and switched services will depend upon,
among other things, implementation of the structural market reforms discussed
above, favorable determinations with respect to obligations by the state and
federal regulators, and the satisfactory implementation of interconnection with
the local exchange carriers.

 
                                      -19-

     Canada

     Long Distance Telephone Services.  Long distance telecommunications
services in Canada generally are subject to regulation by the CRTC.  As a result
of significant regulatory changes during the past several years, the historical
monopolies for long distance service granted to regional telephone companies in
Canada have been terminated.  This has resulted in a significant increase in
competition in the Canadian long distance telecommunications industry.
Competition is also emerging in many other segments of the market.  However,
despite the very impressive competitive in-roads that have been made in the long
distance market, the Stentor companies continue to have the vast share of the
local and calling card markets.  In addition to the proceedings referred to
below, the CRTC continues to take steps toward increased competition, including
proceedings relating to the convergence between telecommunications and
broadcasting.

     CRTC Decisions.  In March 1990, the CRTC for the first time permitted non-
facilities-based carriers, such as ACC Canada, to aggregate the traffic of
customers on the same leased interexchange circuits in order to provide
discounted long distance voice services in the provinces of Ontario, Quebec and
British Columbia.  In September 1990, the CRTC also authorized carriers in
addition to members of the Stentor consortium to interconnect their transmission
facilities with the Message Toll Service ("MTS") facilities of Teleglobe Canada,
for the purpose of allowing resellers, such as ACC Canada, to resell
international long distance MTS service.  Prior to this decision, Bell Canada
and other members of Stentor were the exclusive long distance carriers
interconnected to Teleglobe Canada's MTS facilities.

     In December 1991, the CRTC permitted the resale on a joint-use basis of the
international private line services of Teleglobe Canada to provide
interconnected voice services.  Resellers are subject to charges levied by
Teleglobe Canada for the use of its facilities and contribution charges payable
to Teleglobe Canada and remitted to the telephone companies.  In September 1993,
the CRTC allowed Teleglobe Canada to restructure its overseas MTS to allow
domestic service providers (including resellers) who commit to a minimum level
of usage to interconnect with Teleglobe Canada's international network at its
gateways for the purpose of providing outbound direct-dial telephone service.
Overseas inbound traffic would be allocated to Stentor and other domestic
service providers (including resellers) in proportion to their outbound market
shares.

     In a decision released in May 1997, the CRTC removed restrictions on
international simple resale by Canadian domestic transmission facilities-based
carriers.  Prior to this decision, only non-facilities based carriers such as
ACC Canada were permitted to engage in international simple resale.  The
decision also re-emphasized the restriction on "switched hubbing" (i.e. routing
Canada overseas traffic to or from a destination country over resold
international private lines supplied by Teleglobe between Canada and an
intermediary country), unless agreed to by all countries or operating
authorities involved, including Teleglobe.  After subsequent proceedings in the
courts and the CRTC to vary or reverse these rulings, the CRTC determined in
December 1997 to permit switched hubbing.

     In February 1996, the CRTC introduced a regime of price regulation for
Teleglobe Canada's services to be in effect from April 1996 to December 1999,
barring any exceptional changes to Teleglobe Canada's operating environment.
Under this regime, Teleglobe Canada must reduce prices on an annual basis for
its telephone and Globeaccess VPN Services, and must adhere to a price ceiling
for most of its regulated non-telephone services.  These rate reductions will
have the effect of reducing the price the Company can charge its customers.  In
February 1997, the Canadian government committed under the WTO negotiations to
terminate Teleglobe Canada's status as the monopoly transmission facilities-
based provider of Canada-overseas telecommunications services by October 1,
1998.  The Canadian House of Commons has passed legislation to implement this
change in Teleglobe's status, to put in place a licensing regime for
telecommunications service providers providing international telecommunications
services within a class or classes specified by the CRTC, and to administer
numbering resources in Canada.  In October 1997 the CRTC issued a public notice
asking for comments on, among other things, the licensing and regulatory regime
which should be used for Teleglobe and other international telecommunications
services providers after October 1, 1998.  The CRTC suggested that international
services provided by resellers might be within such a regime.

 
                                      -20-

     In June 1992, the CRTC effectively removed the monopoly rights of certain
Stentor member companies with respect to the provision of transmission
facilities-based long distance voice services in the territories in which they
operate and opened the provision of these services to substantial competition in
all provinces of Canada other than Alberta, Saskatchewan and Manitoba.
Competition has subsequently been introduced in Alberta and Manitoba, which are
subject to CRTC regulation, and Saskatchewan, which has not yet become subject
to CRTC regulation.  Among other things, the CRTC also directed the telephone
companies that were subject to this decision to provide AT&T Canada (then named
Unitel Communications Inc.) with "equal ease of access," i.e., to allow it to
directly connect its network to the telephone companies' toll and end office
switches to allow its customers to make long distance calls without dialing
extra digits.  In July 1993, the CRTC ordered the same telephone companies to
provide resellers with equal ease of access upon payment of contribution,
network modification and ongoing access charges on the same general basis as for
transmission facilities-based carriers.

     The CRTC required telephone company competitors to assume certain financial
obligations, including the payment of "contribution charges" designed to ensure
that each long distance carrier bears a fair proportion of the subsidy that long
distance services have traditionally contributed to the provision of local
telephone service.  These charges are levied on resellers based on leased access
lines.  The charges vary for each telephone company based on that company's
estimated loss on local services.  Contribution charges were subject to a
discount which was initially 25%, and which declines over time to zero in 1998.
Resellers whose access lines were connected only to end offices on a non-equal
access basis initially paid contribution charges of 65% of the equal access
contribution rates, rising over a five-year period to an 85% rate thereafter.
The CRTC also established a mechanism under which contribution rates will be re-
examined on a yearly basis.

     Transmission facilities-based competitors and resellers that obtained equal
ease of access also assumed approximately 30% of the estimated Cdn. $240 million
cost required to modify the telephone companies' networks to accommodate
interconnection with competitors as well as a portion of the ongoing costs of
the telephone companies to provide such interconnection.  Initial modification
charges are spread over a period of 10 years.  These charges and costs are
payable on the basis of a specified charge per minute.  In April 1997 the CRTC
issued a decision unbundling these charges and costs.  Previously, long distance
carriers paid the telephone companies a flat rate of $0.011 per minute.
Effective July 1, 1997, a separate rate of $0.007 per minute is payable for
local end office connections, and between $0.004 and  $0.007 per minute for toll
or access tandem connections.  In June 1997 AT&T Canada asked the CRTC to
reconsider and vary the flat $0.007 per minute rate for local end office
connections.

     As contemplated in the CRTC's June 1992 decision, initial implementation of
single carrier 800 number portability occurred in Canada in January 1994 and 800
number multi-carrier selection capability was subsequently approved on an
interim basis.

     In September 1994, the CRTC established substantial changes to Canadian
telecommunications regulation, including:  (i) initiation of a program of rate
rebalancing, which would entail three annual increases of Cdn. $2 per month in
rates for local service, with corresponding decreases in rates for basic toll
service, and an indication from the CRTC that there would be no price changes
which would result in an overall pace increase for North American basic toll
schedules combined; (ii) the telephone companies' monopoly local and access
services, including charges for bottleneck services (i.e., essential services
which competitors are required to obtain from Stentor members) provided to
competitors (the Utility segment), would remain in the regulated rate base, and
the CRTC would replace earnings regulation for the Utility segment with price
caps effective January 1, 1998; (iii) other services (the Competitive segment)
would not be subject to earnings regulation after January 1, 1995, after which a
Carrier Access Tariff would become effective, which would include charges for
contribution, start-up cost recovery and bottleneck services and would be
applicable to the telephone companies' and competitors' traffic based on a per
minute calculation, rather than the per trunk basis previously used to calculate
contribution charges; (iv) while the CRTC considered it premature to forbear
from regulating interexchange services, it considered that the framework set
forth in the decision may allow forbearance in the future (such forbearance has
subsequently occurred in the case of certain non-dominant transmission
facilities-based carriers and certain telephone company services); (v) the CRTC
concluded that barriers to entry should be reduced for the local service market,
including basic local telephone service and switched network alternatives, and
subsequently 

 
                                      -21-

conducted proceedings to implement unbundled tariffs, co-location of facilities
and local number portability; and (vi) the intention to consider applying
contribution charges to other services using switched access, not only to long
distance voice services.

     Changes to these matters that were announced in October 1995 were the
following:  (i) rate rebalancing, with Cdn. $2 per month local rate increases
commencing in each of January 1996 and January 1997 and another unspecified
increase in 1998 (the contribution component of the Carrier Access Tariff was
reduced correspondingly, but a corresponding reduction of basic North American
long distance rates ordered by the CRTC was reversed by the Federal Cabinet in
December 1995); (ii) reductions in contribution charges effective January 1,
1995; (iii) changes to the costing methodology of the telephone companies
including (a) the establishment of strict rules governing telephone company
investments in competitive services involving broadband technology, (b) the
requirement that the Competitive segment pay its fair share of joint costs
incurred by both the Utility and Competitive segments, and (c) a directive
specifying that revenues for many unbundled items must be allocated to the
Utility segment thereby reducing the local shortfall and therefore contribution
charges; (iv) directory operations of the telephone companies will continue to
remain integral to the Utility segment, meaning that revenues from directory
operations will continue to be assigned to the Utility segment to help reduce
the local shortfall and therefore contribution payments; and (v) Stentor's
request to increase the allowed rate of return of the Utility segment was denied
and the CRTC restated its intention to retain the fifty basis point downward
adjustment to the total company rate of return used to derive the Utility
segment rates of return for the telephone companies.

     In December 1995, the CRTC announced that the per trunk basis for
calculating contribution charges would be replaced by a per minute basis for
calculating contribution charges starting June 1, 1996.  The off-peak
contribution rate is one-half the peak rate, with the peak rate applicable
between 8 a.m. and 5 p.m., Monday through Friday.

     In October 1996 the CRTC ended the Stentor monopoly over access to swipe
readers found on the latest generation of pay telephones and ordered the
telephone companies to file a tariff that would provide competitors with swipe
access.  The CRTC agreed that lack of swipe access for their calling cards is a
major disadvantage for the Company and other competitors.  The new swipe access
tariff was approved on an interim basis in May, 1997.

     In December 1996, in Telecom Decision CRTC 96-11, the CRTC established 1996
contribution rates retroactive to January 1, 1996.  The contribution rates were
reduced by up to 42% from 1995 levels, depending on the province.  The CRTC also
ruled in Telecom Decision CRTC 96-12, that effective July 1, 1997, contribution
on line-side connections would be changed from a per circuit to a per minute
basis.  This is consistent with the ruling in 1995 which implemented per minute
contribution for trunk-side connections.

     The CRTC began a public proceeding in 1996 to examine and establish the
preconditions for deregulation of the Stentor companies' long distance services.
The Company and the other members of the Competitive Telecommunications Alliance
have proposed a timetable for deregulating the long distance market.  In
December 1997, the CRTC released a decision under which it will forbear from
regulation of Stentor toll and toll-free services.  Among other things, the
Stentor companies will no longer be required to file tariffs for these services
or demonstrate that the rates for them are just and reasonable, and these
services will no longer be required to meet an imputation test (which prevented
pricing below cost).  However, the CRTC will continue to apply a cap on overall
North American basic toll rates charged by the Stentor companies, and will
continue to exercise a number of its powers with respect to the prohibitions on
unjust discrimination and undue preference in respect of these services.  The
CRTC also released a decision under which it will forbear from regulation of
certain Stentor high capacity interexchange private line services on specified
high traffic routes.  Among other things, the Stentor companies will no longer
be required to file tariffs for these services or demonstrate that the rates for
them are just and reasonable, there will no longer be a prohibition on unjust
discrimination and undue preference in respect of these services, and these
services will no longer be required to meet an imputation test.

     In June 1997 Stentor applied to the CRTC for:  (i) the elimination of
contribution on international circuits, with offsetting adjustments to domestic
contribution rates; or (ii) the implementation of a per-minute contribution
mechanism 

 
                                      -22-

applicable to international long distance minutes, rather than the per-circuit
mechanism still used for international circuits.

     The Company cannot predict the timing or the outcome of any of the pending
and ongoing proceedings described above, or the impact they may have on the
competitive position of ACC Canada.

     Local Telephone Services.  On May 1, 1997 the CRTC released a number of
decisions which opened the Canadian local telecommunications market to
competition.  The decisions apply in the territories of the Stentor telephone
companies, except SaskTel in Saskatchewan (which has subsequently announced
plans to open local telephone service in the province to competition).  The
decision enables the systems operated by competitive local exchange carriers
("CLECs") to be interconnected with the systems operated by incumbent local
exchange carriers ("ILECs").  CLECs will not merely be customers of ILECs, but
will be carriers equal in status to ILECs in the local exchange market.

     CLECs are not required to provide universal service in their serving areas,
or to file tariffs for services provided to their customers.  However, the CRTC
imposed certain consumer protection and regulatory obligations on CLECs.  Also,
CLECs must file tariffs to provide equal access to all inter-exchange ("IX")
service providers and wireless service providers.  Such access must be on terms
and conditions equivalent to those contained in ILECs' tariffs, unless the CLEC
can justify any departure.  ILECs cannot refuse to connect their IX networks
with a CLEC's network.

     CLECs will have access to the following services of the ILECs found to be
essential by the CRTC:  central office codes; subscriber listings; and local
loops situated in small urban and rural areas.  These facilities are subject to
mandatory unbundling and mandated pricing.  A number of other items, while not
found to be essential, were directed by the CRTC to be unbundled for a period of
five years, during which period those items are also to be provided to
competitors at mandated prices.

     The May 1 decisions replaced the historical rate base rate of return
regulation of ILECs with price cap regulation for an initial period of four
years.  In order to prevent ILECs from engaging in anti-competitive pricing,
ILECs will be required to demonstrate that services provided to their customers
are not priced below cost.

     Contribution currently paid by IX carriers to ILECs will continue to be
collected, but will be treated as a "portable contribution", i.e. such amounts
will be pooled and distributed to ILECs and CLECs based on the number of
residential lines served by the respective local exchange carriers in each rate
band and the subsidy requirement associated with the rate band.  Contrary to the
submissions of some parties, no explicit contribution will be payable from local
business exchange services or directory revenues.

     Prior to these decisions, competitors could resell Centrex and other bulk
services, as well as individual business lines.  Resale of residential lines was
not allowed.  The decisions now allow competitors to resell all bundled local
services (including residential lines), and those services which are unbundled
pursuant to the decisions.  However, contrary to the submissions of some
resellers, the CRTC did not order the ILECs to provide their services to
resellers at wholesale prices.  Therefore, the scope for non-facilities-based
local competition is significantly restricted.

     The ILECs will be permitted to raise basic residential local monthly rates
effective January 1, 1998.  Toll contribution will be frozen for the price cap
period at the January 1, 1998 levels.  These contribution levels will be reduced
to levels which take into account the effect of the basic residential local rate
increase.  The CRTC also expanded somewhat the scope of contribution paying
services.  While reduced interim contribution rates have been approved for 1997
and the price cap period, final contribution rates for 1997 and for the price
cap period have not yet been determined.  On September 8, 1997, AT&T Canada
asked the CRTC to allow for the adjustment of the contribution charge payable by
IX carriers on a quarterly basis during the initial price cap term to account
for the growth in toll minutes.

 
                                      -23-

     A subsequent decision of the CRTC in June 1997 allowed transmission
facilities-based local and long distance carriers (but not resellers such as ACC
Canada) to "co-locate" their equipment in the central offices of ILECs on terms
and conditions contained in tariffs or intercarrier agreements.

     A number of issues relating to local competition remain to be resolved,
including the determination of final rates, finalization of arrangements
regarding local number portability, and certain other interconnection
arrangements.

     Under the local competition decisions, only transmission facilities-based
carriers (which are required, among other things, to meet Canadian ownership
requirements) may become CLECs.  In September 1997 ACC Canada asked the CRTC to
remove this requirement and to establish entry procedures and regulatory
obligations for telecommunications service providers that are not facilities-
based carriers but that wish to become CLECs.

     Telecommunications Act.  In October 1993, the Telecommunications Act
replaced the Railway Act (Canada) as the principal telecommunications regulatory
statute in Canada.  This Act provides that all federally-regulated
telecommunications common carriers as defined therein (essentially all
transmission facilities-based carriers) are under the regulatory jurisdiction of
the CRTC.  It also gives the federal government the power to issue directions to
the CRTC on broad policy matters.  The Act does not subject non-facilities-based
carriers, such as ACC Canada, to foreign ownership restrictions, tariff filing
requirements or other regulatory provisions applicable to facilities-based
carriers.  However, to the extent that resellers acquire their own facilities in
order to better control the carriage and routing of their traffic, certain
provisions of this Act may be applicable to them.

     United Kingdom

     Until 1981, British Telecom was the sole provider of public
telecommunications services throughout the U.K.  This monopoly ended when, in
1981, the British government granted Mercury Communications Ltd. (now known as
"CWC") a license to run its own telecommunications system under the British
Telecommunications Act 1981.  Both British Telecom and CWC are licensed under
the subsequent Telecommunications Act 1984 to run transmission facilities-based
telecommunications systems and provide telecommunications services.

     In 1991, the British government established a "multi-operator" policy to
replace the duopoly that had existed between British Telecom and CWC.  Under the
multi-operator policy, the U.K Department of Trade and Industry (the "DTI") will
recommend the grant of a license to operate a telecommunications network to any
applicant that the DTI believes has a reasonable business plan and where there
are no other overriding considerations not to grant such license.  All public
telecommunications operators and international simple resellers operate under
individual licenses granted by the Secretary of State for Trade and Industry
pursuant to the Telecommunications Act 1984.  Any telecommunications system with
compatible equipment that is authorized to be run under an individual license
granted under this Act is permitted to interconnect to British Telecom's
network.  Under the terms of British Telecom's license, it is required to allow
any such licensed operator to interconnect its system to British Telecom's
system, unless it is not reasonably practicable to do so (e.g., due to
incompatible equipment).

     Oftel has imposed further mandatory price reductions on British Telecom
from August 1997 which, although more limited in scope than those previously
set, may have, the effect of reducing the prices the Company can charge its
customers in order to remain competitive.  Oftel is introducing a new access
charge control regime, which is expected to become effective in August 1997.
Under the new regime, British Telecom will have flexibility in setting access
charges, subject to certain safeguards.  Oftel will set the starting charges
(which will be based on historical incremental costs) and the rates charged by
British Telecom to other carriers will be subject to certain price ceilings
established by Oftel for competitive and non-competitive services.

Germany
 
  The German telecommunications market began deregulating in January 1998, as
a result of the European Union ("EU") mandate to open telecommunications markets
to competition. Most significantly, the German market opened for interconnection
in January 1998. ACC has established a subsidiary in Germany and signed a resale
agreement with Deutsche Telekom ("DT") on May 20, 1997. Further, ACC received a
Class 4 full voice telephony license from the German Ministry of Post and
Telecommunications which was effective January 1, 1998. This license is a
requirement for ACC to become a switch-based provider of telecommunications
services in Germany. In October 1997, ACC signed a network interconnect
agreement with DT, which permits utilization of DT's network to link ACC with
its customers. With this agreement in place, ACC has installed a switch which it
plans to have in service during the first quarter of 1998. ACC achieved a small
amount of revenue in the fourth quarter of 1997 as a switchless reseller, and
anticipates potentially more substantial revenue growth as a switch-based
reseller when the market is fully deregulated. Through December 31, 1997, the
German Ministry of Post and Telecommunications was responsible for acting as the
regulatory authority for telecommunications in Germany. After January 1, 1998, a
new body called the Regulatory Authority for Telecommunications and Post (the
"Reg TP") assumed responsibility for telecommunications-related regulatory
activities. Among other powers, the Reg TP will grant licenses, decide disputes
over special network access and interconnection, approve telecommunication
rates, discharge numbering functions, promote and safeguard competition, oversee
compliance with the German Telecommunications Act, oversee compliance with the
conditions imposed on licensees and prohibit providers of telecommunications
services without valid licenses from performing such activities.
 

ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES

     As ACC expands its service offerings, geographic focus and its network, ACC
anticipates that it will seek to acquire assets and businesses of, make
investments in or enter into strategic alliances with, companies providing
services 

 
                                      -24-

complementary to ACC's existing business. ACC believes that, as the global
telecommunications marketplace becomes increasingly competitive, expands and
matures, such transactions will be important in maintaining a competitive
position in the industry.

     ACC's ability to effect acquisitions and strategic alliances and make
investments may be dependent upon its ability to obtain additional financing
and, to the extent applicable, consents from the holders of debt and preferred
stock of ACC. If ACC were to proceed with one or more significant strategic
alliances, acquisitions or investments in which the consideration consists of
cash, a substantial portion of ACC's available cash could be used to consummate
the acquisitions or investments. If ACC were to consummate one or more
significant strategic alliances, acquisitions or investments in which the
consideration consists of stock, shareholders of ACC could suffer a significant
dilution of their interests in ACC.

     Many business acquisitions must be accounted for as purchases. Most of the
businesses that might become attractive acquisition candidates for ACC are
likely to have significant goodwill and intangible assets, and the acquisitions
of these businesses, if accounted for as a purchase, would typically result in
substantial amortization charges to ACC. In the event ACC consummates additional
acquisitions in the future that must be accounted for as purchases, such
acquisitions would likely increase ACC's amortization expenses. In connection
with acquisitions, investments or strategic alliances, ACC could incur
substantial expenses, including the fees of financial advisors, attorneys and
accountants, the expenses of integrating the business of the acquired company or
the strategic alliance with ACC's business and any expenses associated with
registering shares of ACC's capital stock, if such shares are issued. The
financial impact of such acquisitions, investments or strategic alliances could
have a material adverse effect on ACC's business, financial condition and
results of operations and could cause substantial fluctuations in ACC's
quarterly and yearly operating results.

     The Merger Agreement contains restrictions on the conduct of ACC's business
prior to the consummation of the Merger which are likely to affect ACC's pursuit
of its strategies.

EMPLOYEES

     As of December 31, 1997, ACC had 1,268 full-time employees worldwide. Of
this total, 384 employees were in the U.S., 482 were in Canada, 369 were in the
U.K. and 33 were in Germany. ACC has never experienced a work stoppage and its
employees are not represented by a labor union or covered by a collective
bargaining agreement. ACC considers its employee relations to be good.

RISK FACTORS

CONSUMMATION OF TCG MERGER AND TCG/AT&T MERGER

     Consummation of the proposed TCG Merger and TCG/AT&T Merger are subject to 
certain closing conditions, including obtaining approval of stockholders, 
certain required regulatory approvals and other related consents. Accordingly, 
there can be no assurance that the TCG Merger or TCG/AT&T Merger will be 
successfully consummated or, if successfully completed, when the mergers might 
be completed. Substantial delay in consummating, or failure to consummate, the 
TCG Merger or TCG/AT&T Merger could materially adversely affect the market price
of ACC's Class A Common Stock.

Recent Losses; Potential Fluctuations in Operating Results

     Although the Company has experienced revenue growth on an annual basis
since 1990 and net income in fiscal 1996 and 1997, it has incurred net losses
and losses from continuing operations during 1994 and 1995. There can be no
assurance that revenue growth will continue or that the Company will be able to
maintain its profitability and positive cash flow from operations.  If the
Company cannot continue its revenue growth and maintain profitability and
positive cash flow from operations, it may not be able to meet its debt service
or working capital requirements.  The Company intends to focus in the near term
on the expansion of its service offerings, including its local telephone
business and Internet services, and expanding its geographic markets, including
deregulating Western European markets.  Such expansion, particularly the
establishment of new operations or acquisition of existing operations in
deregulating Western European markets, may adversely affect cash flow and
operating performance and these effects may be material, as was the case with
the Company's U.K. operations in 1994 and 1995.  As each of the
telecommunications markets in which the Company operates continues to mature,
growth in the Company's revenues and customer base is likely to decrease over
time.

 
                                      -25-

     The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors, some
of which are outside of the Company's control, including general economic
conditions, specific economic conditions in the telecommunications industry, the
effects of governmental regulation and regulatory changes, user demand, capital
expenditures and other costs relating to the expansion of operations, the
introduction of new services by the Company or its competitors, the mix of
services sold and the mix of channels through which those services are sold,
pricing changes and new service introductions by the Company and its competitors
and prices charged by suppliers.  As a strategic response to a changing
competitive environment, the Company may elect from time to time to make certain
pricing, service or marketing decisions or enter into strategic alliances,
acquisitions or investments that could have a material adverse effect on the
Company's business, results of operations and cash flow.  Revenues from other
resellers accounted for approximately 12.7% of ACC's consolidated revenues in
1995, 25.2% of consolidated revenues in 1996 and 21.2% of consolidated revenues
in 1997.  Because sales to other carriers are at margins that are lower than
those derived from most of the Company's other revenues, increases in carrier
revenue as a percentage of revenues have in the past, and may in the future,
reduce the Company's gross margins as a percentage of revenue.  In addition,
certain of its long distance carrier customers may pose credit or collection
risks.  See the Risk Factor discussion below of "Risks Associated With
Acquisitions, Investments and Strategic Alliances" in this Item 1 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 of this Report.

SUBSTANTIAL INDEBTEDNESS; NEED FOR ADDITIONAL CAPITAL

     The Company will need to continue to enhance and expand its operations in
order to maintain its competitive position, expand its service offerings and
geographic markets and continue to meet the increasing demands for service
quality, availability and competitive pricing.  As of the end of the previous
four fiscal years, the Company had experienced a working capital deficit.  The
Company believes that, under its present business plan, cash from operations and
borrowings under its credit facility will be sufficient to meet its anticipated
capital and capital expenditure requirements for the foreseeable future.  The
Company may need to raise additional capital from public or private equity or
debt sources in order to finance its anticipated growth, including local service
expansion and expansion into international markets, (both of which will be
capital intensive), working capital needs, debt service obligations, and,
contemplated capital expenditures. In addition, the Company may need to raise
additional funds in order to take advantage of unanticipated opportunities,
including more rapid international expansion or acquisitions of, investments in
or strategic alliances with companies that are complementary to the Company's
current operations, or to develop new products or otherwise respond to
unanticipated competitive pressures.  If additional funds are raised through the
issuance of equity securities, the percentage ownership of the Company's then
current shareholders would be reduced and, if such equity securities take the
form of Preferred Stock or Class B Common Stock, the holders of such Preferred
Stock or Class B Common Stock may have rights, preferences or privileges senior
to those of holders of Class A Common Stock.  There can be no assurance that the
Company will be able to raise such capital on satisfactory terms or at all.  If
the Company decides to raise additional funds through the incurrence of debt,
the Company would need to obtain the consent of its lenders under the Company's
credit facility and would likely become subject to additional or more
restrictive financial covenants.  In the event that the Company is unable to
obtain such additional capital or is unable to obtain such additional capital on
acceptable terms, the Company may be required to reduce the scope of its
presently anticipated expansion, which could materially adversely affect the
Company's business, results of operations and financial condition and its
ability to compete.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" under
Item 7 of this Report.

DEPENDENCE ON TRANSMISSION FACILITIES-BASED CARRIERS

     The Company does not own telecommunications transmission lines other than
indefeasible rights of use.  Telephone calls made by the Company's customers are
connected through transmission lines that the Company leases under a variety of
arrangements with transmission facilities-based long distance carriers, some of
which are or may become competitors of the Company, including AT&T, Bell Canada
and British Telecom.  Most inter-city transmission lines used by the Company are
leased on a monthly or longer-term basis at rates that currently are less than
the rates the Company charges its customers for connecting calls through these
lines.  Accordingly, to the extent that the Company 

 
                                      -26-

continues to lease transmission lines, it will remain vulnerable to changes in
its lease arrangements, such as price increases and service cancellations. ACC's
ability to maintain and expand its business is dependent upon whether the
Company continues to maintain favorable relationships with the transmission
facilities-based carriers from which the Company leases transmission lines,
particularly in the U.K., where British Telecom and Cable and Wireless
Communications Ltd. ("CWC") are the two principal, dominant carriers. The
Company's U.K. operations are highly dependent upon the transmission lines
leased from British Telecom. Although the Company believes that its
relationships with carriers generally are satisfactory, the deterioration or
termination of the Company's relationships with one or more of those carriers
could have a material adverse effect upon the Company's business, results of
operations and financial condition. Certain of the vendors from whom the Company
leases transmission lines, including the RBOCs and other local exchange
carriers, currently are subject to tariff controls and other price constraints
which in the future may be changed. Under the 1996 Act, constraints on the
operations of the RBOCs have been dramatically reduced, which will bring into
the long distance market additional competitors from whom the Company leases
transmission lines. In addition, regulatory proposals are pending that may
affect the prices charged by the RBOCs and other incumbent local exchange
carriers to the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See the Risk
Factor discussion of "Potential Adverse Effects of Regulation" below and the
discussion of "Regulation" above in this Item 1.

POTENTIAL ADVERSE EFFECTS OF REGULATION

     The 1996 Act provides specific guidelines under which the RBOCs can provide
long distance services, which will permit the RBOCs to compete with the Company
in the provision of domestic and international long distance services.  The
legislation also opens all local service markets, subject to limited exemptions
for rural telephone companies, to competition from any entity (including, for
example, long distance carriers, such as AT&T, cable television companies and
utilities).  Because the legislation opens the Company's markets to additional
competition, particularly from the RBOCs, the Company may be subject to
additional competition.  Moreover, as a result of and to implement the
legislation, certain federal and other governmental regulations will be adopted,
amended or modified, and any such adoption, amendment or modification could have
a material adverse effect on the Company's business, results of operations and
financial condition.

     In the U.S., the FCC and relevant PSCs have the authority to regulate
interstate and intrastate rates, respectively, ownership of transmission
facilities, and the terms and conditions under which the Company's services are
provided.  Federal and state regulations and regulatory trends have had, and in
the future are likely to have, both positive and negative effects on the Company
and its ability to compete.  The recent trend in both Federal and state
regulation of telecommunications service providers has been in the direction of
lessened regulation.  Incumbent LECs have been subjected to new regulations
designed to encourage competition in the provision of local exchange services,
but incumbent LECs are also being allowed increased freedom to enter new markets
and increased pricing flexibility.  As a consequence, both AT&T and RBOCs will
have more freedom to maneuver when competing with smaller interexchange
carriers.  In general, neither the FCC nor the relevant state PSCs currently
regulate the Company's long distance rates or profit levels, but either or both
may do so in the future.  In addition, the commitments made by the U.S.
government in the WTO negotiations will allow foreign-affiliated carriers
theretofore prohibited from providing service in the U.S. market to compete with
the Company in the U.S. market.  There can be no assurance that changes in
current or future Federal or state regulations or future judicial changes would
not have a material adverse effect on the Company's business, results of
operations and financial condition.

     In order to provide their services, interexchange carriers, including the
Company, must generally purchase "access" from local exchange carriers to
originate calls from and terminate calls in the local exchange telephone
networks.  Access charges presently represent a significant portion of the
Company's network costs in all areas in which it operates.  In the U.S., the FCC
regulates interstate access and the states regulate intrastate access.  Pursuant
to the 1996 Act, on May 16, 1997, the FCC issued an order to implement certain
reforms to its access charge rules (the "Access Charge Reform Order").  The
Access Charge Reform Order will require incumbent LECs to substantially decrease
over time the prices they charge for switched access, and change how access
charges are calculated.  These changes are intended to reduce access charges
paid by interexchange carriers to LECs and shift certain usage-based charges to

 
                                      -27-

flat-rated, monthly per-line charges.  To the extent that these rules begin to
reduce charges to reflect the forward-looking cost of providing access, the
Company's competitive advantage in providing customers with access services
might decrease.  In addition, the FCC has determined that it will give incumbent
LECs pricing flexibility with respect to access charges.  To the extent such
pricing flexibility is granted before substantial facilities-based competition
develops, such flexibility could be misused to the detriment of new entrants,
including the Company.  Until the FCC adopts and releases rules detailing the
extent and timing of such pricing flexibility, the impact of these rules on the
Company cannot be determined.  In its order, the FCC abolished the unitary rate
structure option for tandem-switched transport.  This may have an adverse effect
on smaller interexchange carriers such as the Company because it may increase
the costs of transport which smaller interexchange carriers must purchase from
LECs to reach end user customers on the local exchange market.

     On May 8, 1997, the FCC issued an order to implement the provisions of the
1996 Act relating to the preservation and advancement of universal telephone
service (the "Universal Service Order").  The Universal Service Order affirmed
the policy principles for universal telephone services set forth in the
Telecommunications Act, including quality service, affordable rates, access to
advanced services, access in rural and high-cost areas, equitable and non-
discriminatory contributions, specific and predictable support mechanisms, and
access to advanced telecommunications services for schools, health care
providers and libraries.  The Universal Service Order added "competitive
neutrality" to the 1996 Act's universal service principles by providing that
universal service support mechanisms and rules should not unfairly advantage or
disadvantage one provider over another, nor unfairly favor or disfavor one
technology over another.  The Universal Service Order also requires all
telecommunications carriers providing interstate telecommunications services,
including the Company, to contribute to universal service support.  Such
contributions will be assessed based on intrastate, interstate and international
end-user telecommunications revenues.  However, because the contribution factors
are likely to vary quarterly, the annualized impact on ACC cannot be estimated
at this time.

     Both the Universal Service and Access Charge Reform Orders are subject to
petitions seeking reconsideration by the FCC and direct appeals to U.S. Courts
of Appeals.  Until the time when any such petitions or appeals are decided,
there can be no assurance of how the Universal Service and/or Access Charge
Reform Orders will be implemented or enforced, or what effect the Orders will
have on competition within the telecommunications industry, generally, or on the
competitive position of the Company, specifically.

     The Company currently competes with the RBOCs and other local exchange
carriers such as the GTE Operating Companies ("GTOCs") in the provision of
"short haul" toll calls completed within a Local Access and Transport Area
("LATA").  Subject to a number of conditions, the 1996 Act established
conditions that would allow for the eventual elimination of many of the
restrictions which prohibited the RBOCs from providing long-haul or inter-LATA,
toll service, and thus the Company will face additional competition in this
market.  To complete long-haul and short-haul toll calls, the Company must
purchase "access" from the local exchange carriers.  The Company must generally
price its toll services at levels equal to or below the retail rates established
by the local exchange carriers for their own short-haul or long-haul toll rates.
To the extent that the local exchange carriers are able to reduce the margin
between the access costs to the Company and the retail toll prices charged by
local exchange carriers, either by increasing access costs or lowering retail
toll rates, or both, the Company will encounter adverse pricing and cost
pressures in competing against local exchange carriers in both the short-haul
and long-haul toll markets.

     Under the 1996 Act, local exchange carriers must permit resale of their
bundled local services and all incumbent LECs must permit resale of their
bundled local services and unbundled network elements.  Pricing principles for
those services were set forth in the 1996 Act, with states directed to approve
specific cost-based rates based on these principles.  At the end of 1996, the
New York State PSC ("NYSPSC") replaced temporary wholesale discounts with
permanent wholesale discounts of 19.1% for New York Telephone (business and
residential) and 17% for Frontier Corp. (business and residential).  Discounts
were made applicable to virtually all services provided to the public.

     On April 1, 1997, the NYPSC adopted permanent rates for unbundled links and
certain other unbundled network elements for New York Telephone.  The monthly
rate for unbundled links in designated areas of dense traffic 

 
                                      -28-

(accounting for approximately 70% of all loops in the state) is $12.49, plus a
recurring $1.90 connection charge. The monthly rate in other areas of the state
is $19.24, plus a $1.90 recurring connection charge. Permanent unbundled link
and unbundled network element rates have not yet been established for Frontier
Corp. The permanent New York Telephone link rate is lower than the temporary
rates for New York Telephone's unbundled links; it is greater than the $10.10
rate for the comparable service New York Telephone offers to its own residential
customers, but below the rate of approximately $22 for the comparable service
New York Telephone offers to its business customers. However, in order to
utilize unbundled links, the Company must arrange for physical or virtual
collocation in New York Telephone's central offices, which adds significant
costs. As a result, the Company's marketing efforts are primarily directed
toward business customers (and certain concentrated residential customers) which
can be served through the Company's own facilities, rather than through use of
unbundled links obtained from New York Telephone or Frontier Corp.

     In Canada, the Canadian Radio-television and Telecommunications Commission
("CRTC") annually reviews the "contribution charges" (the equivalent of access
charges in the U.S.) assessed by the dominant carriers for the access lines
leased by Canadian long distance resellers, including the Company, from the
local telephone companies in Canada.  Changes in these contribution charges
could have a material adverse effect on the Company's business, results of
operations and financial condition.  On May 1, 1997, the CRTC issued several
rules intended to encourage increased competition in the telecommunications and
broadcast distribution (cable) industries.  Generally, the rules describe how
new service providers can enter the local exchange market, how and when
telephone companies can apply for broadcasting licenses, and the details of a
new methodology that will be used to regulate local telephone rates.  The rules
governing entry in the local exchange market cover issues of inter-connection,
resale, subscriber listings, number portability, rate rebalancing, local service
subsidies, rate regulation, service obligations and cable competition.  While
certain of the rules appear favorable to the Company, the rules will likely
increase competition in Canadian local exchange service through new entrants.
The Company is unable to predict the extent to which the full implementation of
the rules will have a material adverse effect on the Company's business, results
of operations or financial condition.  The Canadian long distance
telecommunications industry is the subject of ongoing regulatory change.  These
regulations and regulatory decisions have a direct and material effect on the
ability of the Company to conduct its business.  The recent trend of such
regulatory changes has been to open the market to commercial competition.  There
can be no assurance, however, that any future changes in or additions to laws,
regulations, government policy or administrative rulings will not have a
material adverse effect on the Company's business, results of operations and
financial condition.

     The telecommunications services provided by ACC U.K. are subject to and
affected by regulations introduced by the U.K. telecommunications regulatory
authority, The Office of Telecommunications ("Oftel").  Since the break up of
the U.K. telecommunications duopoly consisting of British Telecom and Mercury
Communications Ltd. (now known as "CWC") in 1991, it has been the stated goal of
Oftel to create a competitive marketplace from which detailed regulation could
eventually be withdrawn.  The regulatory regime currently presided over by Oftel
has a direct and material effect on the ability of the Company to conduct its
business.  From the middle of 1997, Oftel has imposed a new price cap on British
Telecom's retail charges which, while only applying to four out of five
residential customers and to small (but not large) business customers, may have
the effect of reducing the prices the Company can charge its customers.  In
addition, the new network charge control regime implemented in October 1997
gives British Telecom much more freedom to set its own prices (although subject
to certain charge caps and other safeguards), and as such increases the
uncertainty with regard to the Company's network costs in the U.K. market.
Although the Company is optimistic about its ability to continue to compete
effectively in the U.K. market, there can be no assurance that future changes in
regulation and government will not have a material adverse effect on the
Company's business, results of operations and financial condition.

EXPANSION OF LOCAL EXCHANGE BUSINESS

     The Company anticipates that a significant portion of its growth in its
U.S. operations in the future will come from local exchange operations and
incurred approximately $21.6 million in capital expenditures during 1997 related
to the installation of additional local exchange switches in the northeastern
United States.  The Company has only limited experience in providing local
telephone services, having commenced providing such services in 1994.  The
Company's revenues from local telephone services in the United States in 1995,
1996 and 1997 were $.6 million, $5.8 million and 

 
                                      -29-

$20.4 million respectively. In order to attract local customers, the Company
must offer substantial discounts from the prices charged by local exchange
carriers and must compete with other alternative local service companies that
offer such discounts. The local service business requires significant initial
investments in capital equipment as well as significant initial promotional and
selling expenses. Larger, better capitalized local service providers, including
AT&T, among others, will be better able to sustain losses associated with
discount pricing and initial investments and expenses. Although the Company's
local service business generated operating profits in 1996 and 1997, it incurred
operating losses in 1994 and 1995 and many companies that compete with the
Company's local service business are not profitable. There can be no assurance
that the Company will continue to achieve positive cash flow or profitability in
its local telephone service business. In addition, the FCC and PSCs are
considering regulatory changes in rate structures and access charges which would
materially adversely affect the ability of small interexchange carriers, such as
the Company, to compete in the provision of local service. The Company's success
in the local exchange market also requires the negotiation and implementation of
interconnection agreements with incumbent local exchange carriers in the areas
that the Company seeks to serve, and there can be no assurance that these
agreements will be concluded in a timely manner.

INCREASING DOMESTIC AND INTERNATIONAL COMPETITION

     The long distance telecommunications industry is highly competitive and is
significantly influenced by the marketing and pricing decisions of the larger
industry participants.  The industry has relatively insignificant barriers to
entry, numerous entities competing for the same customers and high churn rates
(customer turnover), as customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors.  In each of its markets, the Company competes primarily on the
basis of price and also on the basis of customer service and its ability to
provide a variety of telecommunications services, including the ability to
provide both intra- and inter-LATA toll service.  The Company expects
competition on the basis of price and service offerings to increase.  Although
many of the Company's university customers are under multi-year contracts,
several of the Company's largest customers (primarily other long distance
carriers) are on month-to-month contracts and are particularly price sensitive.
With respect to these customers, the Company competes almost exclusively on
price.

     Many of the Company's competitors are significantly larger, have
substantially greater financial, technical and marketing resources and larger
networks than the Company, control transmission lines and have long-standing
relationships with the Company's target customers.  These competitors include,
among others, AT&T, MCI and Sprint in the U.S.; Bell Canada, BC Telecom, Inc.,
AT&T Canada and Sprint Canada (a subsidiary of Call-Net Telecommunications Inc.)
in Canada; and British Telecom, CWC, AT&T and WorldCom in the U.K. Other U.S.
carriers also have entered and/or are also expected to enter the U.K. market.
The Company also competes with numerous other long distance providers, some of
which focus their efforts on the same business customers targeted by the Company
and selected residential customers and colleges and universities, the Company's
other target customers.  In addition, through its local telephone service
business in upstate New York and Massachusetts, the Company competes with New
York Telephone, Frontier Corp., Citizens Telephone Co., WorldCom and Time Warner
and others, including cellular and other wireless providers.  Furthermore,
corporate transactions such as the merger of Bell Atlantic Corp. and Nynex
Corp., the proposed merger of MCI and WorldCom, the joint venture between MCI
and Microsoft under which Microsoft will promote MCI's services, the joint
venture among Sprint, Deutsche Telekom AG and France Telecom called Global One,
and additional mergers, acquisitions and strategic alliances which are likely to
occur, could also increase competitive pressures upon the Company and have a
material adverse effect on the Company's business, results of operations and
financial condition.

     In addition to these competitive factors, recent and pending deregulation
in each of the Company's markets may encourage new entrants.  For example, as a
result of the 1996 Act, an RBOC is allowed to originate long distance calls
outside of its region immediately and may enter the long distance markets in
states in which it is an incumbent LEC once it has received FCC approval to do
so.  AT&T, MCI and other long distance carriers are allowed to enter the local
telephone services market, and any other entity (including cable television
companies and utilities) is allowed to enter both the local service and long
distance telecommunications markets.  In addition, the FCC has, on several
occasions since 1984, approved or required price reductions by AT&T and, in 1995
and 1996, the FCC reclassified AT&T as a "non-dominant" carrier, which
substantially reduces the regulatory constraints on AT&T.  As the Company
expands its 

 
                                      -30-

geographic coverage, it will encounter increased competition. Moreover, the
Company believes that competition in non-U.S. markets is likely to increase and
become more similar to competition in the U.S. markets over time as such non-
U.S. markets continue to experience deregulatory influences. Implementation of
the WTO accord reached in February 1997 is likely to accelerate this trend in
some markets. Prices in the long distance industry have declined from time to
time in recent years and, as competition increases in Canada and the U.K.,
prices are likely to continue to decrease. For example, Bell Canada
substantially reduced its rates during the first quarter of 1994 and British
Telecom substantially reduced its rates in 1996. The Company's competitors may
reduce rates or offer incentives to existing and potential customers of the
Company. To maintain its competitive position, the Company believes that it must
be able to reduce its prices in order to meet reductions in rates, if any, by
others. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under Item 7 of this Report and the discussion "Business 
- --Competition" above in this Item 1.

RISKS OF GROWTH AND EXPANSION

     The Company plans to expand its service offerings and principal geographic
markets in the United States, Canada and the United Kingdom.  In addition, the
Company may establish a presence in deregulating Western European markets that
have high density telecommunications traffic, when the Company believes that
business and regulatory conditions warrant.  The Company has entered the German
market as a switchless reseller in anticipation of deregulation in 1998, and has
established a German subsidiary, ACC Telekommunikation GmbH.  The German
subsidiary signed an interconnect agreement with Deutsche Telekom ("DT") in
October 1997 with a view to establishing a German switch in 1998, although the
interconnect rates set by the German Regulatory Authority are subject to
retrospective change following a challenge by DT in the national courts.

     There can be no assurance that the Company will be able to add service or
expand its markets at the rate presently planned by the Company or that the
existing regulatory barriers will be reduced or eliminated.  The Company's rapid
growth has placed, and in the future may continue to place, a significant strain
on the Company's administrative, operational and financial resources and
increased demands on its systems and controls.  As the Company increases its
service offerings and expands its targeted markets, there will be additional
demands on the Company's customer support, sales and marketing and
administrative resources and network infrastructure.  There can be no assurance
that the Company's operating and financial control systems and infrastructure
will be adequate to maintain and effectively monitor future growth. The failure
to continue to upgrade the administrative, operating and financial control
systems or the emergence of unexpected expansion difficulties could materially
adversely affect the Company's business, results of operations and financial
condition.


RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

     A key component of the Company's strategy is its planned expansion in
international markets.  In the WTO accord reached in February 1997, a number of
countries agreed to accelerate or initiate liberalization of their
telecommunications markets by allowing increased competition and foreign
ownership of telecommunications providers and by adopting measures to ensure
reasonable nondiscriminatory interconnection, effective competitive safeguards,
and an effective independent regulation.  This agreement may, therefore, expand
the international opportunity available to the Company.  To date, the Company
has no significant experience in providing telecommunications service outside
the United States, Canada and the U.K.  There can be no assurance that the
Company will be able to obtain the capital it requires to finance its expansion
in international markets on satisfactory terms or at all.  In many international
markets, protective regulations and long-standing relationships between
potential customers of the Company and their local providers create barriers to
entry.  Where protective regulations are being eliminated, the pro-competitive
effect of this action could substantially increase the number of entities
competing with the Company.  Pursuit of international growth opportunities may
require significant investments for an extended period before returns, if any,
on such investments are realized.  The Company intends to focus in the near term
on the expansion of its service offerings, including its local telephone
business and Internet services, and expanding its geographic markets to more
locations in its existing markets, 

 
                                      -31-

and when conditions warrant, to deregulating Western European markets. Such
expansion, particularly the establishment of new operations or acquisition of
existing operations in deregulating international markets, may adversely affect
cash flow and operating performance and these effects may be material, as was
the case with the Company's U.K. operations in 1994 and 1995. In addition, there
can be no assurance that the Company will be able to obtain the permits and
operating licenses required for it to operate, to hire and train employees or to
market, sell and deliver high quality services in these international markets.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent to doing business on an
international level, such as unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political risks, fluctuations in currency exchange rates,
foreign exchange controls which restrict or prohibit repatriation of funds,
technology export and import restrictions or prohibitions, delays from customs
brokers or government agencies, seasonal reductions in business activity during
the summer months in Europe and certain other parts of the world and potentially
adverse tax consequences resulting from operating in multiple jurisdictions with
different tax laws, which could materially adversely impact the success of the
Company's international operations. In many countries, the Company may need to
enter into a joint venture or other strategic relationship with one or more
third parties in order to successfully conduct its operations. As its revenues
from its Canadian and U.K. operations increase, an increasing portion of the
Company's revenues and expenses will be denominated in currencies other than
U.S. dollars, and changes in exchange rates may have a greater effect on the
Company's results of operations. There can be no assurance that such factors
will not have a material adverse effect on the Company's future operations and,
consequently, on the Company's business, results of operations and financial
condition. In addition, there can be no assurance that laws or administrative
practices relating to taxation, foreign exchange or other matters of countries
within which the Company operates will not change. Any such change could have a
material adverse effect on the Company's business, financial condition and
results of operations.

RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES

     As part of its business strategy, the Company expects to seek to develop
strategic alliances both domestically and internationally and to acquire assets
and businesses or make investments in companies that are complementary to its
current operations.  The Company has no present commitments or agreements with
respect to any such strategic alliance, investment or acquisition.  Any such
future strategic alliances, investments or acquisitions would be accompanied by
the risks commonly encountered in strategic alliances with or acquisitions of or
investments in companies.  Such risks include, among other things, the
difficulty of assimilating the operations and personnel of the companies, the
potential disruption of the Company's ongoing business, the inability of
management to maximize the financial and strategic position of the Company by
the successful incorporation of licensed or acquired technology and rights into
the Company's service offerings, the maintenance of uniform standards, controls,
procedures and policies and the impairment of relationships with employees and
customers as a result of changes in management.  In addition, the Company has
experienced higher attrition rates with respect to customers obtained through
acquisitions, and may continue to experience higher attrition rates with respect
to any customers resulting from future acquisitions.  Moreover, to the extent
that any such acquisition, investment or alliance involved a business located
outside the United States, the transaction would involve the risks associated
with international expansion discussed above under "Risks Associated with
International Expansion."  There can be no assurance that the Company would be
successful in overcoming these risks or any other problems encountered with such
strategic alliances, investments or acquisitions.

     In addition, if the Company were to proceed with one or more significant
strategic alliances, acquisitions or investments in which the consideration
consists of cash, a substantial portion of the Company's available cash could be
used to consummate the strategic alliances, acquisitions or investments.  If the
Company were to consummate one or more significant strategic alliances,
acquisitions or investments in which the consideration consists of stock,
shareholders of the Company could suffer a significant dilution of their
interests in the Company.  Many of the businesses that might become attractive
acquisition candidates for the Company may have significant goodwill and
intangible assets, and acquisitions of these businesses, if accounted for as a
purchase, would typically result in substantial amortization charges to the
Company.  The financial impact of acquisitions, investments and strategic
alliances could have a material adverse effect on the Company's business,
financial condition and results of operations 

 
                                      -32-

and could cause substantial fluctuations in the Company's quarterly and yearly
operating results. See the discussion "Business --Acquisitions, Investments and
Strategic Alliances" above in this Item 1.

TECHNOLOGICAL CHANGES MAY ADVERSELY AFFECT COMPETITIVENESS AND FINANCIAL RESULTS

     The telecommunications industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies.  There can be no assurance that the Company will
maintain competitive services or that the Company will obtain appropriate new
technologies on a timely basis or on satisfactory terms.

RISKS ASSOCIATED WITH RAPIDLY CHANGING INDUSTRY

     The international telecommunications industry is changing rapidly due to,
among other things, deregulation, privatization of dominant telecommunications
providers, technological improvements, expansion of telecommunications
infrastructure and the globalization of the world's  economies and free trade.
There can be no assurance that one or more of these factors will not vary
unpredictably, which could have a material adverse effect on the Company.  There
can also be no assurance, even if these factors turn out as anticipated, that
the Company will be able to implement its strategy or that its strategy will be
successful in this rapidly evolving market.  There can be no assurance that the
Company will be able to compete effectively or adjust its contemplated plan of
development to meet changing market conditions.

     Much of the Company's planned growth is predicated upon the deregulation of
telecommunications markets.  There can be no assurance that such deregulation
will occur when or as anticipated, if at all, or that the Company will be able
to grow in the manner or at the rates currently contemplated.

     As a result of existing excess international transmission capacity, the
marginal cost of carrying an additional international call is often very low for
carriers that own transmission lines.  Industry observers have predicated that
these low marginal costs may result in significant pricing pressures and that,
within a few years after the end of this century, there may be little difference
in charges based on the distance a call is carried.  A number of the Company's
competitors have introduced calling plans that provide for flat rates on calls
within the U.S. and Canada, regardless of time of day or distance of the call.
If this type of pricing were to become prevalent, it could have a material
adverse effect on the Company's business, financial condition and results of
operations.

DEPENDENCE ON KEY PERSONNEL

     The Company's success depends to a significant degree upon the continued
contributions of its management team and technical, marketing and sales
personnel.  The Company's employees may voluntarily terminate their employment
with the Company at any time.  Competition for qualified employees and personnel
in the telecommunications industry is intense and, from time to time, there are
a limited number of persons with knowledge of and experience in particular
sectors of the telecommunications industry.  The Company's success also will
depend on its ability to attract and retain qualified management, marketing,
technical and sales executives and personnel.  The process of locating such
personnel with the combination of skills and attributes required to carry out
the Company's strategies is often lengthy.  The loss of the services of key
personnel, or the inability to attract additional qualified personnel, could
have a material adverse effect on the Company's results of operations,
development efforts and ability to expand.  There can be no assurance that the
Company will be successful in attracting and retaining such executives and
personnel.  Any such event could have a material adverse effect on the Company's
business, financial condition and results of operations.

RISK ASSOCIATED WITH FINANCING ARRANGEMENTS; DIVIDEND RESTRICTIONS

     The Company's financing arrangements are secured by substantially all of
the Company's assets and require the Company to maintain certain financial
ratios and restrict the payment of dividends, and the Company anticipates that
it will not pay any dividends on Class A Common Stock in the foreseeable future.
The Company's secured lenders 

 
                                      -33-

would be entitled to foreclose upon those assets in the event of a default under
the financing arrangements and to be repaid from the proceeds of the liquidation
of those assets before the assets would be available for distribution to the
Company's other creditors and shareholders in the event that the Company is
liquidated. In addition, the collateral security arrangements under the
Company's existing financing arrangements may adversely affect the Company's
ability to obtain additional borrowings or other capital. The Company may need
to raise additional capital from equity or debt sources to finance its projected
growth and capital expenditures contemplated for periods after 1997. See the
Risk Factor discussion above under "Substantial Indebtedness; Need for
Additional Capital" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" under
Item 7 of this Report.

HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DIVIDENDS

     ACC Corp. is a holding company, the principal assets of which are its
operating subsidiaries in the U.S., Canada and the U.K.  ACC U.S., ACC Canada,
ACC U.K., ACC Germany, and other operating subsidiaries of the Company are
subject to corporate law restrictions on their ability to pay dividends to ACC
Corp. There can be no assurance that ACC Corp. will be able to cause its
operating subsidiaries to declare and pay dividends or make other payments to
ACC Corp. when requested by ACC Corp. The failure to pay any such dividends or
make any such other payments could have a material adverse effect upon the
Company's business, financial condition and results of operations.

POTENTIAL VOLATILITY OF STOCK PRICE

     The market price of the Class A Common Stock has been, and may continue to
be, highly volatile.  Factors such as variations in the Company's revenue,
earnings and cash flow, the difference between the Company's actual results and
the results expected by investors and analysts, "buy," "hold" and "sell" ratings
by securities analysts and announcements of new service offerings, marketing
plans or price reductions by the Company or its competitors could cause the
market price of the Class A Common Stock to fluctuate substantially.  In
addition, in view of the proposed TCG Merger and TCG/AT&T Merger, the market
price of ACC Common Stock may be affected by changes in the stock prices of TCG
and AT&T.  In addition, the stock markets have also recently experienced
significant price and volume fluctuations that particularly have affected
telecommunications companies and resulted in changes in the market prices of the
stocks of many companies that have not been directly related to the operating
performance of those companies.  Such market fluctuations may materially
adversely affect the market price of the Class A Common Stock.

RISKS ASSOCIATED WITH DERIVATIVE FINANCIAL INSTRUMENTS

     In the normal course of business, the Company uses various financial
instruments, including derivative financial instruments, to hedge its foreign
exchange and interest rate risks.  The Company does not use derivative financial
instruments for speculative purposes.  By their nature, all such instruments
involve risk, including the risk of nonperformance by counterparties, and the
Company's maximum potential loss may exceed the amount recognized on the
Company's balance sheet.  Accordingly, losses relating to derivative financial
instruments could  have a material adverse effect upon the Company's business,
financial condition and results of operations.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" under Item 7 of this Report.

ANTI-TAKEOVER PROVISIONS

     ACC's Board of Directors has the authority to issue up to 1,990,000 shares
of Preferred Stock and 25,000,000 shares of Class B Common Stock, and to
determine the price, rights, preferences and privileges of those shares without
any further vote or action by the shareholders.  The rights of the holders of
any ACC Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock or Class B Common Stock that may be
issued in the future.  While the Company has no present intention to issue any
additional shares of Preferred Stock or Class B Common Stock, any such issuance
or the perception that such issuances may occur could 

 
                                      -34-

have the effect of making it more difficult for a third party to acquire control
of the Company. The issuance of Preferred Stock or Class B Common Stock could
also decrease the amount of earnings and assets available for distribution to
holders of ACC Common Stock or could adversely affect the rights and powers,
including voting rights, of holders of ACC Common Stock. In addition, the
Company is and, subject to certain conditions, will continue to be, subject to
the anti-takeover provisions of the DGCL, which could have the effect of
delaying or preventing a change of control of the Company. Furthermore, upon a
change of control, the Company's indebtedness under its credit facility is
required to be repaid and the salary continuation and employment agreements with
executive officers and directors of the Company require certain payments to be
made by the Company and provide for vesting of stock options and stock incentive
rights. In addition, ACC has adopted a rights plan ("ACC Shareholder Rights
Plan"), which will cause substantial dilution to a person or group that attempts
to acquire ACC on terms not approved by the ACC Board of Directors. All of these
provisions and the ACC Shareholder Rights Plan could have the effect of delaying
or preventing changes in control or management of the Company. The TCG Merger
Agreement also contains provisions which restrict the ability of ACC to solicit
or participate in discussions concerning acquisition proposals with respect to
ACC and require ACC to pay to TCG a termination fee and expense reimbursements
under certain circumstances. These provisions could discourage or increase the
cost of an acquisition proposal with respect to ACC from a person other than
TCG.

THE YEAR 2000

     The Year 2000 problem arises from the fact that due to early limitations on
memory and disk storage many computer programs indicate the year by only two
digits, rather than four.  This limitation can cause programs (both system and
application) that perform arithmetic operations, comparisons, or sorting of data
fields to yield incorrect results when working outside the year range of 1990 -
1999.  The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 compliance.  The Company does not
expect that the cost to modify its information technology infrastructure to be
Year 2000 compliant will be material to its financial condition or results of
operations.  ACC is working closely with its vendors to effectuate their Year
2000 correction plans on a timely basis.  There can be no assurance that such
procedures will be successfully implemented within the required time frames or
that additional procedures will not be necessary.  A failure of ACC's or of its
significant vendors' computer systems could have a material adverse effect on
ACC's business and financial position and results of operation.

ITEM 2.        PROPERTIES.

     ACC's principal executive offices are located at 400 West Avenue,
Rochester, New York in corporate office space leased through June 2004. It also
leases office space for its Canadian headquarters in Toronto, Canada, as well as
office space at various other locations. For additional information regarding
these leases, see Notes 7 and 9 to ACC's Consolidated Financial Statements
included herein.

     ACC U.K.'s headquarters are located at Adelaide House in Chiswick, London.
ACC U.K. entered into an Agreement for Lease for such location in October 1997.
The term is for approximately six years through March 2004. The lease for the
current headquarters will also continue until September 1998.

     ACC has sixteen switching centers worldwide. ACC's switching equipment for
the Rochester call origination area is located at its headquarters at 400 West
Avenue, Rochester, New York with additional switching equipment located in the
U.S. in Albany, Buffalo, New York City and Syracuse, New York and in Boston and
Springfield, Massachusetts; in Canada in Toronto, Ontario, Montreal, Quebec, and
Vancouver, British Columbia; and in London, Bristol and Manchester, England, and
in Dusseldorf, Germany all of which sites are leased. Branch sales offices are
leased by ACC at various locations in the northeastern U.S., Canada and the U.K.
ACC also leases equipment and space located at various sites in its service
areas.

     ACC's financing arrangements are secured by substantially all of ACC's
assets. ACC's secured lenders would be entitled to foreclose upon those assets
and to be repaid from the proceeds of the liquidation of those assets in the
event of a default under ACC's financing arrangements.

 
                                      -35-

ITEM 3.        LEGAL PROCEEDINGS.

     There were no material legal proceedings pending at December 31, 1997
involving the Company.

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not  applicable.

ITEM 4-A. EXECUTIVE OFFICERS OF THE REGISTRANT.

     The following sets forth information concerning the executive officers of
the Company and its principal operating subsidiaries as of March 1, 1998:



        Name           Age                             Position(s)
        ----           ---                             -----------         
                      
Christopher Bantoft     50  President of European Operations
Michael R. Daley        36  Executive Vice President and Chief Financial Officer
Steve M. Dubnik         35  President and Chief Operating Officer of North American Operations
Arunas A. Chesonis      35  President and Director
Mae H. Squier-Dow       36  President of ACC TeleCom
Kevin S. Dickens        34  President and Chief Executive Officer of ACC TelEnterprises Ltd.
Frank C. Szabo          45  Vice President and Controller
John J. Zimmer          39  Vice President and Treasurer


     Christopher Bantoft was elected President of European Operations of the
Company in November 1996, and has served as Managing Director of ACC Long
Distance UK Ltd. since February 1994.  From 1986 through 1993, he served as
Sales and Marketing Director, Deputy Managing Director, and most recently as
Managing Director of Alcatel Business Systems Ltd., the U.K. affiliate of
Alcatel, N.V.  Since December 1997, following the death of David K. Laniak, he
has also jointly performed the functions of Chief Executive Officer of the
Company.

     Michael R. Daley was elected the Company's Executive Vice President and
Chief Financial Officer in February 1994.  He previously served as the Company's
Treasurer from March 1991 through February 1997, Vice President-Finance from
August 1990 through February 1994, as Treasurer and Controller from August 1990
through March 1991, as Controller from January 1989 through August 1990, and
various other positions with the Company from July 1985 through January 1989.
Mr. Daley has served as a Director of ACC TelEnterprises Ltd. from October 1994
through January 1997.  Since December 1997, following the death of David K.
Laniak, he has also jointly performed the functions of Chief Executive Officer
of the Company.

     Steve M. Dubnik was elected President and Chief Operating Officer of North
American Operations of the Company in November 1996, and has served as the
Chairman of the Board of Directors of ACC TelEnterprises Ltd. since July 1994.
Previously, he served from 1992 through June 1994 as President, Mid-Atlantic
Region, of RCI Long Distance.  For more than five years prior thereto, he served
in progressively senior positions with Rochester Telephone Corporation (now
Frontier Corp.) including assignments in engineering, operations, information
technology and sales.  Since December 1997, following the death of David K.
Laniak, he has also jointly performed the functions of Chief Executive Officer
of the Company.

     Arunas A. Chesonis was elected President of the Company in April 1994.  He
previously served as President of ACC Long Distance Corp. from January 1989
through April 1994.  From August 1990 through March 1991, he also served as
President of ACC TelEnterprises Ltd., and from May 1987 through January 1989,
Mr. Chesonis served as Senior Vice President of Operations for ACC Long Distance
Corp.  Mr. Chesonis was elected a Director of the Company in October 1994.

 
                                      -36-

     Mae H. Squier-Dow was elected President of ACC Telecom in June 1996, and
served as Commercial Director of ACC Long Distance U.K. Ltd. from April 1995 to
June 1996.  She previously held a number of positions at ACC Long Distance U.K.
Ltd. from October 1993 to April 1995, including Director of Customer Relations
and Marketing, Vice President of International Planning and Operations Director.
She previously served as Vice President of Customer Relations at ACC Long
Distance Corp. from March 1992 to October 1993 and as its Director of Customer
Relations from January 1991 to March 1992.

     Kevin S. Dickens was elected President and Chief Executive Officer of ACC
TelEnterprises Ltd. in April 1997.  Prior to joining the Company, Mr. Dickens
spent eight years with Frontier Corp., where he most recently served as Vice
President, Network Planning and Optimization.

     Frank C. Szabo, a certified public accountant, was elected the Company's
Vice President and Controller in February 1997.  Prior to joining the Company,
Mr. Szabo was the Vice President and Controller of First Federal Savings and
Loan, Rochester, New York, for more than 10 years.

     John J. Zimmer, a certified public accountant, was elected the Company's
Treasurer in February 1997 and has served as a Vice President since September
1994.  He previously served as the Company's Controller from March 1991 through
September 1994.  Prior to March 1991, he served as a staff accountant and then
as a manager of accounting with Arthur Andersen LLP.


                                    PART II

Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

     The Company's Class A Common Stock is quoted on The Nasdaq Stock Market's
National Market System under the symbol "ACCC."  The following table sets forth,
for the periods indicated, the high and low sale prices of the Class A Common
Stock, as reported by The Nasdaq Stock Market, and the cash dividends declared
per share of Class A Common Stock.  The prices do not include retail mark ups,
mark downs or commissions.  Information presented below has been adjusted to
reflect a three-for-two stock split that was distributed on August 8, 1996.

                                               
                                                 Cash    
                          Common Stock Price   Dividends 
                         --------------------  Declared   
                           High        Low     Per Share
                         ---------  ---------  ---------

1996:    First Quarter   $20 11/64  $14 53/64     ---   
         Second Quarter   32 27/64   18 37/64     ---   
         Third Quarter      54 3/4     29 1/2     ---   
         Fourth Quarter     47 3/4     24 3/4     ---   
                                                        
1997:    First Quarter     36  1/4    20  1/2     ---   
         Second Quarter     31 5/8    14  1/4     ---   
         Third Quarter          37    28  1/2     ---   
         Fourth Quarter     52 7/8         25     ---    


     On March 18, 1998, the closing price for the Company's Class A Common Stock
in trading on The Nasdaq Stock Market was $52 7/16 per share, as published in
The Wall Street Journal.  As of March 18, 1998, the Company had approximately
3,800 holders of record of its Class A Common Stock.

 
                                      -37-

     The Company ceased paying quarterly cash dividends on its Class A Common
Stock in 1995 to use its cash to invest in the growth of its business.  The
Company anticipates that future earnings, if any, generated from operations will
be retained by the Company to develop and expand its business.  Any future
determination with respect to the payment of dividends on the Class A Common
Stock will be at the discretion of the Board of Directors and will depend upon,
among other things, the Company's operating results, financial condition and
capital requirements, the terms of then-existing indebtedness and Preferred
Stock, general business conditions, Delaware corporate law limitations and such
other factors as the Board of Directors deems relevant.  The terms of the
Company's Credit Facility prohibit the payment of dividends without the lender's
consent. The Company's holding company structure may adversely affect the
Company's ability to obtain payments when needed from ACC Corp.'s operating
subsidiaries.  See the Risk Factor discussion of "Holding Company Structure;
Reliance on Subsidiaries for Dividends" in Item 1 of this Report and Note 3 of
the Notes to the Company's Consolidated Financial Statements included elsewhere
in this Report.

ITEM 6.        SELECTED FINANCIAL DATA.

     The following selected historical consolidated financial data for each of
the years presented have been derived from ACC's audited consolidated financial
statements. The consolidated financial statements of ACC as of December 31, 1996
and 1997, and for each of the three years in the period ended December 31, 1997,
together with the notes thereto and related report of Arthur Andersen LLP,
independent public accountants, are included elsewhere herein. The following
data should be read in conjunction with, and is qualified by, the consolidated
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of ACC," which are
included elsewhere herein.

 
                                     -38-





                                                        Years Ended December 31,
                                                        ------------------------
                                                        1993         1994        1995            1996          1997(4)
                                                    ------------   ----------  -----------    -----------   ----------- 
 
Consolidated Statement of Operations Data:
                                                                                             
Revenue:
 Toll revenue.....................................  $   100,646   $   118,331     $ 175,269   $   282,497   $   327,490
 Local exchange and other.........................        5,300         8,113        13,597        26,270        45,123
                                                    -----------   -----------     ---------   -----------   -----------
    Total revenue.................................      105,946       126,444       188,866       308,767       372,613
Network costs.....................................       70,286        79,438       114,841       193,599       218,361
                                                    -----------   -----------     ---------   -----------   -----------
Gross Profit......................................       35,660        47,006        74,025       115,168       154,252
Other operating expenses:
 Depreciation and amortization....................        5,832         8,932        11,614        16,433        23,712
 Selling, general and administrative..............       28,807        44,228        60,865        84,511       111,027
 Management restructuring.........................            -             _         1,328             _             -
 Equal access charges.............................            _         2,160             _             _             -
 Assets write-down................................       12,807             _             _             _             -
                                                    -----------   -----------     ---------   -----------   -----------
    Total other operating expenses................       47,446        55,320        73,807       100,944       134,739
                                                    -----------   -----------     ---------   -----------   -----------
Income (loss) from operations(1)..................      (11,786)       (8,314)          218        14,224        19,513
Other income (expense):
 Interest income..................................          205           124           198         1,151           215
 Interest expense.................................         (420)       (2,023)       (5,131)       (5,025)       (3,729)
 Merger costs.....................................            _          (200)            _             _        (4,970)
 Gain on sale of subsidiary stock.................        9,344             _             _             _             - 
 Foreign exchange gain (loss).....................       (1,094)          169          (110)          509          (162)
                                                    -----------   -----------     ---------   -----------   -----------
    Total other income (expense)..................        8,035        (1,930)       (5,043)       (3,365)       (8,646)
                                                    -----------   -----------     ---------   -----------   -----------
Income (loss) from continuing operations
 before provision for (benefit from)
 income taxes and minority interest...............       (3,751)      (10,244)       (4,825)       10,859        10,867
Provision for (benefit from) income taxes.........       (3,743)        3,456           396         2,185           476
Minority interest in loss (earnings) of
 consolidated subsidiary..........................        1,661         2,371          (133)         (909)            -
                                                    -----------   -----------     ---------   -----------   -----------
Income (loss) from continuing operations..........        1,653       (11,329)       (5,354)        7,765        10,391

Loss from discontinued operations (net
 of income tax benefit of $667 in 1993)
                                                         (1,309)            _            _            _               -
Gain on disposal of discontinued operations
 (net of income tax provision of $8,350 in 1993)..       11,531             _            _            _               - 
                                                    -----------   -----------     ---------   -----------   -----------
Net income (loss).................................  $    11,875       (11,329)       (5,354)  $     7,765   $    10,391
Less Series A Preferred Stock dividend............            _             _          (401)         (972)            -  
Less Series A Preferred Stock accretion...........            _             _          (139)       (1,509)            -
                                                    -----------   -----------     ---------   -----------   -----------
Income (loss) applicable to Common Stock..........  $    11,875   $   (11,329)  $    (5,894)  $     5,284   $    10,391
                                                    ===========   ===========     =========   ===========   ===========
Net income (loss) per share - basic: (2)
  continuing operations...........................  $      0.16        $(1.09)       $(0.52)        $0.37   $      0.62
  discontinued operations.........................        (0.13)           _            _            _                -
  Gain on disposal of discontinued operations.....         1.13            _            _            _                -
                                                    -----------   -----------     ---------   -----------   -----------
  Net income (loss) per share - basic.............  $      1.16        $(1.09)       $(0.52)        $0.37   $      0.62
                                                    ===========   ===========     =========   ===========   ===========
Net income (loss) per share - diluted: (2)
  continuing operations...........................  $      0.16        $(1.09)       $(0.52)        $0.34   $      0.59
  discontinued operations.........................        (0.12)           _            _            _                -
  Gain on disposal of discontinued operations.....         1.09            _            _            _                -
                                                    -----------   -----------     ---------   -----------   -----------
  Net income (loss) per share - diluted...........  $      1.13        $(1.09)       $(0.52)        $0.34   $      0.59
                                                    ===========   ===========     =========   ===========   ===========

Weighted average number of shares outstanding:(2)
   Basic..........................................   10,206,833    10,366,778    11,358,693    14,463,728    16,839,039
                                                    ===========   ===========     =========   ===========   ===========
  Diluted.........................................   10,537,388    10,366,778    11,358,693    15,540,115    17,690,223
                                                    ===========   ===========     =========   ===========   ===========
 


 
                                      -39-



                                                                                  Year Ended December 31
                                                                                  ----------------------
                                                                1993       1994      1995(6)        1996         1997 (4)
                                                             ----------  --------  -----------   ----------    ----------
                                                                        
                                                                       (Dollars in thousands, except per share data)

                                                                                                
Consolidated Balance Sheet Data(5):                
Cash and cash equivalents..................................   $  1,467   $ 1,021   $    518        $  2,035         $  3,988
Current assets.............................................     22,476    28,045     45,726          61,933           92,347
Current liabilities........................................     23,191    32,016     56,074          77,394           89,793
Net working capital (deficit)..............................       (715)   (3,971)   (10,348)        (15,461)           2,554
Property, plant and equipment, net.........................     27,077    44,081     56,691          80,452          135,726
Total assets...............................................     61,718    84,448    123,984         204,031          319,618
Short-term debt, including current maturities of   
 long- term debt...........................................      2,424     1,613      4,885           4,251            3,853
Long-term debt, excluding current maturities...............      1,795    29,914     28,050           6,007           90,221
Redeemable preferred stock.................................         --        --      9,448              --
                                                                                                                          --
Shareholders' equity.......................................     31,506    19,086     26,407         117,863          137,716
Other Financial and Operations Data:               
Net cash provided by (used in) operating           
 Activities................................................   $(11,828)  $ 1,093   $  3,967        $ 24,248         $  3,691
Class A Common Stock cash dividends                
 Declared(3)...............................................   $  4,233   $   831   $    243        $     --
                                                                                                                          --
Cash dividends declared per share of Class A       
 Common Stock(2) (3).......................................      $0.40     $0.08      $0.02        $     --
                                                                                                                          --
Book Value per common share (2)............................      $3.03     $1.84      $2.23           $7.10            $8.00

                                                                                
(1) Includes impact of $2,160 of charges incurred in 1994 in connection with
    enhancement of the ACC network to prepare for equal access for its Canadian
    customers. Also includes an asset write-down of $12,807 in 1993.
(2) On June 14, 1996, the ACC Board of Directors authorized a three-for-two
    stock split in the form of a stock dividend issued on August 8, 1996 of the
    ACC Class A Common Stock to shareholders of record as of July 3, 1996. Share
    and per share amounts for all prior periods have been adjusted for the stock
    split.
(3) The ACC financing arrangements restrict the payment of dividends on the ACC
    Common Stock. ACC anticipates that it will not pay dividends in the
    forseeable future.
(4) Includes the results of operations of companies acquired by ACC during 1997:
    Transphone International Ltd. from June 1, 1997, United Telecom Ltd. from
    July 1, 1997, VISTA International Communications Inc. from August 1, 1997,
    and Telenational Communications Deutschland Limited Partnership from July 1,
    1997.
(5) Balance sheet data from discontinued operations is excluded.
(6) Includes the results of operations of Metrowide Communications from August
    1, 1995, the date of acquisition.

 
                                      -40-

ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS.

General

     The Company's revenue is comprised of toll revenue (per minute charges for
long distance services) and local service and other revenue.  Toll revenue
consists of revenue derived from ACC's long distance and operator-assisted
services.  Local service and other revenue consists of revenue derived from the
provision of local exchange services, including local dial tone, direct access
lines, Internet fees and monthly subscription fees, and data services.  Network
costs consist of expenses associated with the leasing of transmission lines,
access charges, and certain variable costs associated with the Company's
network.  The following table shows the total revenue (net of intercompany
revenue) and billable minutes of use attributable to the Company's North
American and European operations during each of 1997, 1996, and 1995:


 
                                                              Year Ended December 31,
                                          ----------------------------------------------------------------
                                                  1997                  1996                  1995
                                          --------------------  --------------------  --------------------
                                            Amount    Percent     Amount    Percent     Amount    Percent
                                          ----------  --------  ----------  --------  ----------  --------
                                                                 (Amounts in 000s)
                                                                                
TOTAL REVENUE:
North America:
   United States........................  $  120,627     32.4%  $   99,461     32.2%  $   65,975     34.9%
   Canada...............................     116,638     31.3      117,168     38.0       84,421     44.7
                                          ----------    -----   ----------    -----   ----------    -----
Total North America.....................     237,265     63.7      216,629     70.2      150,396     79.6
                                          ----------    -----   ----------    -----   ----------    -----
 
Europe:
   United Kingdom.......................     132,151     35.4       92,138     29.8       38,470     20.4
   Germany..............................       3,197       .9            -        -            -        -
                                          ----------    -----   ----------    -----   ----------    ----
Total Europe............................     135,348     36.3       92,138     29.8       38,470     20.4
                                          ----------    -----   ----------    -----   ----------    -----
     Total..............................  $  372,613    100.0%  $  308,767    100.0%  $  188,866    100.0%
                                          ==========    =====   ==========    =====   ==========    =====
 
BILLABLE LONG DISTANCE MINUTES OF USE:
North America:
   United States........................     780,232     33.2%     590,341     32.8%     486,618     41.2%
   Canada...............................     798,458     33.9      681,200     37.9      522,764     44.2
                                          ----------    -----   ----------    -----   ----------    -----
Total North America.....................   1,578,690     67.1    1,271,541     70.7    1,009,382     85.4
                                          ----------    -----   ----------    -----   ----------    -----
Europe:
   United Kingdom.......................     770,151     32.7      527,905     29.3      172,281     14.6
   Germany..............................       4,343       .2            -        -            -        -
                                          ----------    -----   ----------    -----   ----------    -----
Total Europe............................     774,494     32.9      527,905     29.3      172,281     14.6
                                          ----------    -----   ----------    -----   ----------    -----
Total...................................   2,353,184    100.0%   1,799,446    100.0%   1,181,663    100.0%
                                          ==========    =====   ==========    =====   ==========    =====


The following table presents certain information concerning long distance toll
revenue (net of intercompany revenue) per billable minute and network cost per
billable minute attributable to the Company's North American and European
operations during each of 1997, 1996, and 1995:
 
                                                   1997   1996   1995
                                                   -----  -----  -----
TOLL REVENUE PER BILLABLE LONG DISTANCE MINUTE:
North America:
   United States.................................  $.122  $.150  $.126
   Canada........................................   .122   .150   .146
Total North America..............................   .122   .150   .137
Europe:

 
                                      -41-

   United Kingdom................................   .171   .174   .220
   Germany.......................................   .736      -      -
Total Europe.....................................   .174   .174   .220
 
NETWORK COST PER BILLABLE MINUTE:
Total North America..............................  $.084  $.105  $.089
Total Europe.....................................   .110   .114   .149

     The Company believes that its historic revenue growth as well as its
historic network costs and results of operations for its Canadian and UK
operations generally reflect the state of development of the Company's
operations, the Company's customer mix, and the competitive and regulatory
environment in those markets. The Company entered the US, Canadian, and UK
telecommunications markets in 1982, 1985, and 1993, respectively. In 1997, the
Company established a subsidiary in Germany, and commenced offering long
distance service as a switchless reseller during the third quarter of 1997.  For
US operations, 1996 revenue and network cost per minute include the effect of
$9.0 million of non-recurring, higher rate per minute and lower margin
international carrier sales in the second quarter.  The Company believes that
toll revenue per billable minute and network cost per billable minute may be
lower in future periods, and heavily influenced by competitive pressures and
regulatory actions.

     Deregulatory influences have affected the telecommunications industry in
the US since 1984, and the US market has experienced considerable competition
for a number of years. The competitive influences on the pricing of ACC US's
services and network costs have been stabilizing during the past few years.
This may change in the future as a result of the 1996 Amendment to the US
Communications Act (the "Act") that further opened the market to competition,
particularly from the regional operating companies ("BOCs").  The Company has
actively pursued growth opportunities in the US market.  During the third
quarter of 1997, the Company acquired VISTA International Communications Inc.,
("VISTA").  VISTA, headquartered in Mount Arlington, New Jersey, provides long
distance and other services to small and medium-sized commercial customers in
the Northeastern US with concentrations primarily in New Jersey and
Pennsylvania.  The VISTA acquisition represents expansion into a contiguous
geographic area, with a similar targeted customer segment which is viewed as
consistent with the Company's expansion strategy.

     The deregulatory trend in Canada, which commenced in 1989, has increased
competition.  ACC Canada experienced significant downward pressure on the
pricing of its services during 1994 and 1995.  Although revenue per minute
increased from 1995 to 1996 due to changes in customer and product mix, revenue
per minute fell during 1997, and the Company expects downward pressure to
continue.  The impact of this pricing pressure on revenues of ACC Canada is
being offset by an increase in the Canadian commercial and student billable
minutes of usage as a percentage of total Canadian billable minutes of usage,
and introduction of new products and services including 800 service, local
exchange resale, Internet services, and, since February 1997, paging services.

     The Company believes that, because deregulatory influences have only fairly
recently begun to impact the UK telecommunications industry, the Company will
continue to experience a significant increase in revenue from that market, but
the rate of growth is expected to decline.  The foregoing belief is based upon
expectations of actions that may be taken by UK regulatory authorities and the
Company's competitors; if such third parties do not act as expected, the
Company's opportunities for revenue growth experience increased revenues, the
Company believes it should be able to enhance its economies of scale and scope
in the use of the fixed cost elements of its network. Nevertheless, the
deregulatory trend in that market is expected to result in competitive pricing
pressure on the Company's UK operations, which could adversely affect revenues
and margins. Since the UK market for transmission facilities is dominated by
British Telecom and Cable & Wireless, the downward pressure on prices for
services offered by ACC UK may not be accompanied by a corresponding reduction
in ACC UK's network costs in the short term and, consequently, could adversely
affect the Company's business, results of operations and financial condition,
particularly in the event revenue derived from the Company's UK operations
accounts for an increasing percentage of the Company's total revenue. Moreover,
the Company's UK operations are highly dependent upon the transmission lines
leased from British Telecom. As each of the telecommunications markets in which
it operates continues to mature, the rate of growth in its revenue and customer
base in each such market is likely to decrease over

 
                                      -42-

time. The Company has actively pursued growth opportunities and alternate
network solutions in the UK market. During the second quarter of 1997, the
Company acquired Transphone International Ltd. ("Transphone"). Transphone
provides domestic and international long distance service as a reseller, and is
based in London, UK In acquiring Transphone, the Company obtained what it
believes is a strong base of commercial customers in a desirable geographic
area. During the third quarter of 1997, the Company also acquired United Telecom
Ltd. ("UT"). UT provides domestic and international long distance services
through a pre-paid calling card platform in retail telephone shops. UT is based
in London, UK In acquiring UT, the Company obtained what it believes is a new
delivery channel in a growing niche market. The acquisition is also expected to
create network cost efficiencies, as UT's customers have peak calling activity
at night and on weekends. This calling pattern will enable the Company to
facilitate routing of off-peak traffic over the Company's switch based network,
thereby adding to economies of scale. The Transphone and UT acquisitions are
expected to be accretive to earnings commencing in 1998. During the first
quarter of 1998, the Company anticipates putting into operations its own
microwave facility, linking its three UK switching centers. This microwave
facility will provide the Company with its own domestic redundant network
alternative access to the Company's network for its customers and a lower cost
network platform. The foregoing forward looking statements are based upon
expectations with respect to customer behavior, market trends and the Company's
ability to successfully integrate and develop the businesses acquired. If such
expectations are not realized, actual results may differ materially from the
foregoing discussion.

     The German telecommunications market substantially deregulated in January
1998, as a result of the European Union ("EU") mandate to open
telecommunications markets to competition.  Most significantly, the German
market opened for interconnection in January 1998.  The Company has established
a subsidiary in Germany, and signed a resale agreement with Deutsche Telekom
("DT") on May 20, 1997.  Further, the Company received a Class 4 full voice
telephony license from the Germany Ministry of Post and Telecommunications which
became effective January 1, 1998.  This license is a requirement for the Company
to become a switch-based provider of telecommunications services in Germany.  In
October 1997, the Company signed a network interconnect agreement with DT, which
permits utilization of DT's network to link the Company with its customers.
With this agreement in place, the Company has installed a switch which it placed
in service in February 1998.  The Company achieved a small amount of revenue in
the fourth quarter of 1997 as a switchless reseller and anticipates potentially
more substantial revenue growth in 1998 as a switch-based reseller.  The
foregoing forward looking statement is based upon expectations with respect to
regulatory actions and cooperation from DT which the Company is unable to
control. If such expectations are not realized, the expected revenue growth from
the German market may not materialize. In addition to the core growth expected
from switch-based resale, the Company has actively pursued other growth
opportunities in Germany. During the third quarter of 1997, the Company acquired
Telenational Communications Deutschland Limited Partnership ("TNC"), a privately
held telecommunications service provider headquartered in Hamburg, Germany. TNC
provides prepaid calling cards through affinity programs with large commercial
customers including Lufthansa, Citibank and Diners Club. The TNC acquisition
provides the Company an existing customer base, proven management team and
facilitates the start-up efforts in Germany.

     Since the commencement of the Company's operations, the Company has
undertaken a program of developing and expanding its service offerings,
geographic focus, and network.  In connection with this development and
expansion, the Company has made significant investments in telecommunications
circuits, switches, equipment, and software.  These investments generally are
made significantly in advance of anticipated customer growth and resulting
revenue.  The Company also has increased its sales and marketing, customer
support, network operations, and field services commitments in anticipation of
the expansion of its customer base and targeted geographic markets.  The Company
expects to continue to expand the breadth and scale of its network and related
sales and marketing, customer support, and operating activities.  These
expansion efforts are likely to cause the Company to incur significant increases
in expenses from time to time, in anticipation of potential future growth in the
Company's customer base and targeted geographic markets.

     In 1997, the Company announced the creation of two continental operating
divisions in North America and Europe.  In conjunction with this new structure,
the Company plans to further expand its European operations as business activity
more fully develops in the deregulating German market and by entering other
telecommunications 

 
                                      -43-

marketplaces when regulatory and market conditions warrant. While the Company
has had a successful history of entering into newly deregulated markets, there
can be no assurances that the same successes will be experienced in the future.

     The Company has also expanded operations in the US local exchange business
and anticipates that a significant portion of its future growth will come from
this business.  The local exchange business is highly competitive and includes
several larger, better capitalized local service providers, including AT&T,
among others, who can sustain losses associated with discount pricing, and the
high initial investment and expenses typically incurred to attract local
customers.  The Company's US local service commenced operations in 1994 and
generated an operating profit for 1997 and 1996.  However, there can be no
assurances that the Company will continue to achieve positive operating cash
flow or profitability in this business in the future.

     The Company's operating results have fluctuated in the past and they may
continue to fluctuate significantly in the future as a result of a variety of
factors, some of which are beyond the Company's control.  The Company expects to
focus in the near term on building and increasing its customer base, service
offerings, and targeted geographic markets, which will require it to increase
significantly its expenses for marketing and development of its network and new
services, and may adversely impact operating results from time to time.  The
Company's sales to other long distance carriers have been increasing due to the
Company's marketing efforts to promote its lower international network costs.
Revenue from other resellers accounted for approximately 18% and 27% of the
revenues of ACC North America and ACC Europe, respectively, in 1997.  Included
in 1996 was $9 million of US  non recurring carrier revenue, or 3% of
consolidated revenue.  Additionally, in 1997 the Company realized significantly
reduced revenue from two Canadian carriers of $10.8 million compared to 1996.
With respect to these customers, the Company competes almost exclusively on
price, does not have long term contracts, and generates lower gross margins as a
percentage of revenue. The Company's primary interest in carrier revenue is to
utilize excess capacity on its network.  Carrier revenue in 1997 was 21% of
consolidated total revenue compared to 24% in 1996.  Management believes that
carrier revenue will continue to average 20% to 25% of consolidated total
revenue as the core businesses continue to grow.  The foregoing forward-looking
statement is based upon expectations with respect to growth in the Company's
customer base and total revenues.  If such expectations are not realized, the
Company's actual results may differ materially from the foregoing discussion.

RESULTS OF OPERATIONS

     The following table presents, for the three years ended December 31, 1997,
certain statement of operations data expressed as a percentage of total revenue:
 
                                                 Year Ended December 31,
                                                 -----------------------
 
                                                 1997(1)   1996    1995(2)
                                                 -------   -----   -------
Revenue:
   Toll revenue................................   87.9%     91.5%   92.8%
   Local service and other.....................   12.1       8.5     7.2
                                                 -------   -----   -------
       Total revenue...........................  100.0     100.0   100.0
Network costs..................................   58.6      62.7    60.8
                                                 -------   -----   -------
Gross profit...................................   41.4      37.3    39.2
Other operating expenses:
   Depreciation and amortization...............    6.4       5.3     6.1
   Selling expenses............................   13.7      11.0    11.4
   General and administrative..................   16.1      16.4    20.8
   Management restructuring....................    ---       ---     0.7
                                                 -------   -----   -------
       Total other operating expenses..........   36.2      32.7    39.0
                                                 -------   -----   -------
Income from operations.........................    5.2       4.6     0.2
Total other expense............................   (2.3)     (1.1)   (2.7)
Loss from operations before provision

 
                                      -44-

   for (benefit from) income taxes and
   minority interest...........................    2.9       3.5    (2.5)
Provision for income taxes.....................    0.1       0.7     0.2
Minority interest in earnings of consolidated
   subsidiary..................................    ---      (0.3)   (0.1)
                                                 -----     -----   -----
Income (loss) from operations..................    2.8%      2.5%  (2.8)%
                                                 =====     =====   =====

(1) Includes the results of operations of companies acquired during 1997:
    Transphone International Ltd. from June 1, 1997, United Telecom Ltd. from
    July 1, 1997,  VISTA  International from August 1, 1997 and Telenational
    Communications Deutschland  Limited Partnership from July 1, 1997.

(2) Includes the results of operations of Metrowide Communications from August
    1, 1995, the date of acquisition.

1997 Compared with 1996

   Revenue.  Total revenue for 1997 increased $63.8 million, or 21% to $372.6
million from $308.8 million in 1996.  Long distance toll revenue increased $45.0
million, or 16%, to $327.5 million from $282.5 million in 1996.  The growth in
long distance toll revenue was fueled by a 31% increase in billable minutes.
Revenue from wholesale carriers in 1997 increased to $78.9 million (21% of total
revenue) from $73.4 million (24% of total revenue) in 1996.  Significantly
reduced revenue from two Canadian carriers were realized in 1997, accounting for
a $10.8 million reduction in carrier revenue from the same period in 1996.
Additionally, the 1996 period reflects $9 million of US non-recurring carrier
revenue.  Excluding total wholesale carrier revenue, long distance toll revenue
for 1997 increased 19% from 1996.  Long distance toll revenue per billable
minute for the current period decreased 11%, from $.157 to $.139, largely a
result of competitive pricing pressures and change in customer mix.  The growth
in other revenue is largely attributable to growth in market share in the
competitive local exchange business in the US and a full year of revenues from
Internet Canada compared to seven months in 1996.

   Total revenue (unaffiliated) in North America for 1997 increased 10% from
1996.  Long distance toll revenue (unaffiliated) increased 1% from 1996.
However, 1996 included $9 million of non-recurring carrier revenue, and 1997
reflects reduced revenue from two carriers of $10.8 million.  Excluding total
carrier revenue, long distance toll revenue in 1997 increased 11% from 1996, and
is attributable to core growth in minutes and customer accounts and from
acquisitions.  Long distance toll revenue per minute for 1997 decreased 19% from
$.150 to $.122, largely a result of competitive pricing pressures in both the US
and Canada.  Retail price pressures in each market are expected to continue
which may impact the Company's margin.  Local service and other revenue for 1997
increased $18.9 million or 72% from 1996, a result of growth in US local
exchange revenue and increased Internet related revenue in Canada.  The Company
continues to invest in the local exchange business, having installed switches
during 1997 in Buffalo, Albany, New York City, Boston and Springfield
Massachusetts.  Continued expansion and growth in non-toll revenue, including
local exchange service, Internet and other services is expected to become a
larger component of total revenue in future periods.  As a percent of total
revenue, non-toll revenue for 1997 was 12% compared to 8% for 1996.

   Total revenue (unaffiliated) in Europe (substantially all long distance toll
revenue) for 1997 increased 47% from 1996.  Excluding carrier revenue, long
distance toll revenue for 1997 increased 33% from 1996, and is attributable to
core growth in minutes and commercial and student customer accounts, and from
acquisitions.  Long distance toll revenue per billable minute for 1997 of $.174
remained unchanged from 1996, as the impact of higher revenue from carriers
partially offset retail price reductions implemented during the period for
international and domestic long distance rates.  The German operating unit
contributed a modest amount of revenue from the acquired TNC customer base as
well as from switchless resale activity.  Revenue per minute in Germany of
$.736 in 1997 reflects a high concentration of higher rate international
traffic.

   Network Costs.  Network costs for 1997 increased $24.8 million or 13% to
$218.4 million from $193.6 million in 1996.  As a percent of revenue, network
costs for 1997 was 59% compared to 63%  in 1996.  Network costs per billable
minute for 1997 decreased 14%, from $.108 to $.093.  The reduction in network
costs as a percent of revenue, and per 

 
                                      -45-

billable minute, is largely attributable to reduced contribution charges enacted
during 1997 in Canada, a favorable shift in business/customer mix as higher
margin local exchange revenue constitute a higher percent of revenue in 1997 as
compared to 1996, declining access rates for origination and termination, and
internal network efficiencies.

   Network costs in North America for 1997 as a percent of unaffiliated revenue
decreased to 57% from 62% for 1996, and per billable minute also decreased from
$.105 to $.084.  These improvements resulted from the aforementioned reduction
in Canadian contribution charges, increased amount of higher margin local
exchange revenue in the US, and internal network efficiencies. Network costs in
Europe for 1997 as a percent of unaffiliated revenue decreased to 62% from 65%
in 1996, and per billable minute decreased from $.114 to $.110. Recent
investments in switches, a UK microwave network and IRU are expected to more
significantly lower network costs in the near term, as ownership of these
facilities will enable the Company to reduce reliance on leased lines and
increase network capacity. This forward looking statement is based on
expectations regarding customer demand and the relative cost and availability of
leased lines and alternative transmission facilities in the Company's markets,
and could be adversely impacted by competitive pricing pressures. If such
expectations are not realized, the Company's actual results may differ
materially from the foregoing discussion.

   Other Operating Expenses - Selling, General and Administrative Expenses.
Total Selling, General and Administrative expenses ("SG&A") for 1997 increased
$26.5 million, or 31%, to $111.0 million from $84.5 million in 1996.   As a
percent of revenue, SG&A increased to 30% from 27%.  This increase is largely
attributable to higher selling expenses (i.e., agents, salesperson and customer
commissions) associated with growth in local exchange revenue, added overhead
from acquired entities and infrastructure costs to support expansion in Germany.

   Other Income (Expense).  Net interest expense for 1997 decreased by $.4
million from 1996.  Merger costs in 1997 of $5.0 million were incurred in
connection with the then pending mergers with US WATS Inc., and Teleport
Communications Group Inc., and includes costs for investment advisory, legal,
accounting and other professional services.  Foreign exchange gains/losses
reflect changes in the value of amounts borrowed by the foreign subsidiaries
from ACC Corp., and ACC US, net of gains/losses on associated hedging contracts.
The Company continues to hedge substantially all intercompany loans to foreign
subsidiaries in an attempt to reduce the impact of transaction gains or losses.
The Company does not engage in speculative foreign currency transactions.  In
1997, the Company recognized losses on foreign currency transactions of $.2
million compared to gains of $.5 million in 1996.

   Provision for Income Taxes.  Provision for income taxes for 1997 of $.5
million represented an effective tax rate of 4% compared to $2.2 million or an
effective tax rate of 20% in 1996.  Income taxes are provided on all taxable
income in excess of available net operating loss carryforwards ("NOL's") at the
statutory rate applicable for each country.  The Company continues to utilize
NOL's to offset taxable income generated in Canada and the UK  The increase in
operating earnings in both of these subsidiaries, which is not subject to tax
due to utilization of NOL's, reduces the effective tax rate for the consolidated
company.  The Company anticipates that its effective tax rate will increase
significantly in the future as taxable income in each country increases.

   Minority Interest in Earnings of Consolidated Subsidiary.  Minority interest
for 1996 reflects the portion of the Company's Canadian subsidiary's income
attributable to the approximately 30% of that subsidiary's common stock that was
publicly traded in Canada.  Prior to December 31, 1996, the Company repurchased
approximately 24% of the outstanding shares, and the remaining 6% was
repurchased in January 1997.  As a result, the Canadian subsidiary is currently
100% owned, with no remaining minority interest.

   The Company's income from operations for 1997 was $19.5 million compared to
$14.2 million in 1996, and was comprised of the following:  North American
operations $13.2 million as compared to $12.0 million in 1996, and European
operations $6.3 million as compared to $2.2 million in 1996.

1996 COMPARED WITH 1995

     Revenue.  Total revenue for 1996 increased by 63% to $308.8 million from
$188.9 million in 1995, reflecting growth in both toll revenue and local service
and other revenue.  Toll revenue for 1996 increased by 61% to $282.5 million

 
                                      -46-

from $175.2 million in 1995.  In the United States, toll revenue increased 45%
as a result of a 21% increase in billable minutes of use, primarily due to
increased international sales to carriers.  These international sales have a
higher rate per minute, also contributing to the revenue increase.  The 1996
results include $9.0 million in non-recurring carrier revenue.  Excluding this
non-recurring revenue, US toll revenue increased 30% over 1995. In Canada, toll
revenue increased 34%, as a result of a 30% increase in billable minutes, and an
increase in prices due to additional residential customers which typically have
a higher revenue per minute.  In the United Kingdom, toll revenue increased
142%, due to significant volume increases offset by lower prices that resulted
from entering the commercial and residential markets and from competitive
pricing pressure.  Since the end of 1994, ACC's revenues per minute on a
consolidated basis have been increasing slightly as a result of the increasing
percentage of UK revenues and the Company's successful introduction of higher
price per minute products, including international carrier revenue.  Exchange
rates did not have a material impact on the Company's consolidated revenue.

     For 1996, local service and other revenue increased by 93% to $26.3 million
from $13.6 million in 1995.  This increase was primarily due to the Metrowide
Communications acquisition as of August 1, 1995 (approximately $5.2 million),
local service revenue generated through the university program in the US
(approximately $0.4 million), and the competitive local exchange company
("CLEC") operations in upstate New York (approximately $5.6 million).  The
Company is anticipating that a significant portion of its growth in the US
operations in the future will come from CLEC operations.

     Gross Profit.  Gross profit (defined as revenue less network costs) for
1996 increased to $115.2 million from $74.0 million in 1995, primarily due to
the increases in revenue discussed above.  Expressed as a percentage of revenue,
gross profit decreased to 37% for 1996 from 39% for 1995, due to an increase in
lower margin carrier traffic in the US, offset partially by improved margins in
Canada and the UK due to network efficiencies and reductions in fixed charges
from suppliers.

     Other Operating Expenses.  Depreciation and amortization expense increased
to $16.4 million for 1996 from $11.6 million in 1995.  Expressed as a percentage
of revenue, these costs decreased to 5% in 1996 from 6% in 1995, reflecting the
increases in revenue realized during 1996.  The $4.8 million increase in
depreciation and amortization expense was primarily attributable to assets
placed in service throughout 1996.  Amortization of approximately $1.1 million
associated with the customer base and goodwill recorded in the Metrowide
Communications and Internet Canada asset acquisitions also contributed to the
increase.

     Selling expenses for 1996 increased by 58% to $34.1 million compared with
$21.6 million in 1995.  Expressed as a percentage of revenue, selling expenses
were 11% for 1996 compared to 11% for 1995.  The $12.5 million increase in
selling expenses was primarily attributable to increased marketing costs and
sales commissions associated with supporting the Company's 63% growth in revenue
for 1996, particularly in the UK.  General and administrative expenses for 1996
were $50.4 million compared with $39.2 million in 1995.  Expressed as a
percentage of revenue, general and administrative expenses were 16% for 1996,
compared to 21% in 1995.  The increase in general and administrative expenses
was primarily attributable to the Canadian ($4.3 million increase) and the UK
($4.4 million increase) subsidiaries.  In the UK, costs were incurred to develop
an infrastructure to support the sizable revenue growth experienced in 1996,
with headcount increasing 56% over previous year levels.  In Canada, headcount
increased approximately 52%, partially as a result of the acquisition of
Internet Canada, and partially to develop an infrastructure to support the
increasing product lines and services being offered.   Also included in general
and administrative expenses for 1996 was approximately $4.4 million related to
the Company's local service market sector in New York State, compared to $1.8
million in 1995.

     Other Income (Expense).  Interest expense remained fairly constant at $5.0
million for 1996 compared to $5.1 million in 1995.  The 1996 expense includes
the accrual of a $2.1 million contingent interest payment due to the lenders
under the Company's credit facility.  The 1995 amount includes expense
associated with the subordinated debt which was converted to Series A Preferred
Stock in September 1995, as well as expense associated with line of credit
borrowings to finance working capital and capital expenditure needs.  Interest
income increased to $1.2 million in 1996 from $0.2 million in 1995, due to the
invested proceeds from the ACC Class A Common Stock offering in May 1996.

 
                                      -47-

     Foreign exchange gains and losses reflect changes in the value of the
Canadian dollar and the British pound sterling relative to the US dollar for
amounts lent to foreign subsidiaries.  Foreign exchange rate changes resulted in
a net gain of $0.5 million for 1996,  compared to a $0.1 million loss in 1995,
which was primarily due to a one-time gain related to a transaction which
occurred on October 21, 1996 and was hedged 28 days later.  The Canadian dollar
moved favorably relative to the US dollar during that period.  The Company
continues to hedge all foreign currency transactions in an attempt to minimize
the impact of transaction gains and losses on the income statement.  The
Company's policy is to not engage in speculative foreign currency transactions.

     Provision for Income Taxes.  Provision for income taxes reflects the
anticipated income tax liability of the Company's US operations based on its
pretax income for the year.  The provision for income taxes increased in 1996
due to increased profitability in the US business.  The Company does not provide
for income taxes nor recognize a benefit related to income in foreign
subsidiaries due to net operating loss carryforwards generated by those
subsidiaries in prior years.

     Minority Interest in Earnings of Consolidated Subsidiary.  Minority
interest in earnings of consolidated subsidiary reflects the portion of the
Company's Canadian subsidiary's income or loss attributable to the percentage of
that subsidiary's common stock that was publicly traded in Canada.  Prior to
October 1996, approximately 30% of ACC Canada's stock was publicly traded.
Prior to December 31, 1996,  the Company repurchased approximately 24% of the
outstanding shares, and the remaining 6% was repurchased subsequent to December
31, 1996.  The purchase of the remaining shares was approved prior to December
31, 1996.  For 1996, minority interest in earnings of the consolidated
subsidiary was a loss of $0.9 million compared to a loss of $0.1 million in
1995.

     The Company's net income for 1996 was $7.8 million, compared to a net loss
of $5.4 million in 1995.  The 1996 net income resulted from the Company's
operations in Canada (approximately $2.6 million); in the United Kingdom
(approximately $0.7 million); and in the United States (approximately $4.5
million).  The 1995 net loss resulted primarily from the expansion of operations
in the UK (approximately $6.8 million); increased net interest expense
associated with additional borrowings (approximately $4.9 million); increased
depreciation and amortization from the addition of equipment and costs
associated with the expansion of local service in New York State (approximately
$1.6 million); and management restructuring costs (approximately $1.3 million),
offset by positive operating income from the US and Canadian long distance
subsidiaries of approximately $9.0 million.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash flows provided by operations in 1997 were $3.7 million compared to
$24.2 million for  1996.  The decrease of $20.5 million primarily resulted from
reductions in other accrued expenses of $9.5 million in 1997 versus increases of
$9.0 million in 1996.  The reduction of other accrued expenses in 1997 includes
the impact of payments of approximately $16 million of non-recurring expenses
accrued as of December 31, 1996.  Cash provided from net income before
depreciation and amortization in 1997 increased $10 million over 1996, but this
was offset by increases in accounts receivable (which increased in tandem with
revenue growth) and changes in other working capital accounts.

     Net cash flows used in investing activities in 1997 were $91.3 million
compared to $67.7 million for 1996.  The increase of  $23.6 million primarily
resulted from greater investments in capital expenditures (largely switch
equipment) of $68.5 million in 1997 compared to $33.0 million in 1996, and from
the purchase in 1997 of Transphone, United Telecom, TNC and VISTA with an
aggregate payment (net of cash acquired) of $22.0 million.  In 1996, the Company
repurchased the minority interest of ACC Canada, and that investment totaled
$32.1 million.

     Net cash provided by financing activities for 1997 was $86.1 million
compared to $46.2 million in 1996.  The increase of $39.9 million reflects
greater utilization of the Credit Facility in 1997 to fund expansion (net
increase in 1997 of $89 million versus a net decrease of $22 million in 1996),
partially offset by lower proceeds in 1997 from issuance of common stock ($9.8
million in 1997 versus $72.7 million in 1996).

     The Company's principal need for working capital is to meet its selling,
general, and administrative expenses, network costs and capital expenditures as
its business expands.  In addition, the Company's capital resources have been

 
                                      -48-

used for acquisitions, (i.e., Metrowide Communications, Internet Canada,
Transphone, United Telecom, VISTA and TNC), capital expenditures, and the
repurchase of the minority interest in ACC Canada.  The Company has historically
reflected working capital deficits at the end of the last several years, but at
December 31, 1997, reflected a working capital surplus of approximately $2.6
million, due primarily to utilization of its credit facility to satisfy current
liabilities.

     Approximately $68.5 million in capital expenditures were recorded in 1997.
The Company expects that it will continue to make significant capital
expenditures during future periods, particularly for switching equipment for the
UK and Germany, and for local exchange switches in the US markets and related
costs, and billing systems.  The Company's actual capital expenditures and cash
requirements will depend on numerous factors, including the nature of future
expansion (including the extent of local exchange services, which is
particularly capital intensive), and acquisition opportunities, economic
conditions, competition, regulatory developments, the availability of capital
and the ability to incur debt and make capital expenditures under the terms of
the Company's financing arrangements.

     As of December 31, 1997, the Company had approximately $4.0 million of cash
and cash equivalents and maintained a $150 million credit facility, subject to
availability under a borrowing base formula and certain other conditions
(including borrowing limits based on the Company's operating cash flow), under
which $87.8 million was outstanding.

     As of December 31, 1997, the Company had $5.3 million of capital lease
obligations which mature at various times from 1998 through 2002.  During 1997,
the Company prepaid a $4.0 million capitalized lease obligation using funds from
its credit facility.  The Company's financing arrangements, which are secured by
substantially all of the Company's assets including stock of certain
subsidiaries, require the Company to maintain certain financial ratios.

     In the normal course of business, the Company uses various financial
instruments, including derivative financial instruments, for purposes other than
trading.  These instruments include letters of credit, guarantees of debt,
interest rate swap agreements, and foreign currency exchange contracts relating
to intercompany payables of foreign subsidiaries.  The Company does not use
derivative financial instruments for speculative purposes.  Foreign currency
exchange contracts are used to mitigate foreign currency exposure and are
intended to protect the US dollar value of certain currency positions and future
foreign currency transactions.  The aggregate fair value, based on published
market exchange rates, of the Company's foreign currency forward contracts at
December 31, 1997 was $61.8 million.  When applicable, interest rate swap
agreements are used to reduce the Company's exposure to risks associated with
interest rate fluctuations. As is customary for these types of instruments,
collateral is generally not required to support these financial instruments.

     By their nature, all such instruments involve risk, including the risk of
nonperformance by counterparties, and the Company's maximum potential loss may
exceed the amount recognized on the Company's balance sheet.  However, at
December 31, 1997, in management's opinion there was no significant risk of loss
in the event of nonperformance of the counterparties to these financial
instruments.  The Company controls its exposure to counterparty credit risk
through monitoring procedures and by entering into multiple contracts, and
management believes that no reserves for losses are required.  Based upon the
Company's knowledge of the financial position of the counterparties to its
existing derivative instruments, the Company believes that it does not have any
significant exposure to any individual counterparty or any major concentration
of credit risk related to any such financial instruments.

     On December 19, 1997, the Company amended and restated its credit facility
increasing the amount available to $150 million (the "Amended Credit Facility").
The Amended Credit Facility is syndicated among six financial institutions.
Borrowings can be made in US dollars, Canadian dollars, British pounds sterling
and German Deutsche Marks, and are limited individually to $30.0 million for ACC
Canada, $50.0 million for ACC UK, and $20.0 million for ACC Germany, with any
unused capacity available for ACC Corp. and its US subsidiaries.  The Amended
Credit Facility will be used to finance capital expenditures and provide working
capital.  The Amended Credit Facility limits the amount that may be borrowed
against this facility based on the Company's operating cash flow.  The Amended
Credit Facility also contains certain covenants including restrictions on the
payment of dividends, maintenance of a maximum leverage ratio, minimum debt
service coverage ratio, maximum fixed charge coverage ratio, and minimum net

 
                                      -49-

worth, all as defined under the Amended Credit Facility and subjective
covenants.  At December 31, 1997, the Company had available $59.0 million under
the Amended Credit Facility.  Borrowings under the Amended Credit Facility are
secured by certain of the Company's assets and will bear interest at either the
LIBOR rate or the base rate (representing the greater of the prime interest rate
or the federal funds rate plus 1/2%), with additional percentage points added
based on a ratio of debt to operating cash flow, as defined in the Amended
Credit Facility.  The maximum aggregate commitment and the sublimits of the
Amended Credit Facility are required to be reduced by 8.0% per quarter
commencing on March 31, 2000 until December 31, 2001, and by 9.0% per quarter
commencing on March 31, 2002 until maturity of the loan in December 2002.  All
amounts outstanding under the Amended Credit Facility may become due and
payable, at the discretion of the financial institutions, upon the closing of
the Merger.  The Company is currently negotiating with its lenders to obtain a
waiver of this requirement.  There can be no assurance that such a waiver will
be obtained.

     The Company believes that, under its present business plan, access to cash
through the Amended Credit Facility, and cash from operations, will be
sufficient to meet anticipated working capital needs, capital expenditure
requirements and expansion plans for the forseeable future.  The forward-looking
information contained in the previous sentence may be affected by a number of
factors, including the matters described in this paragraph and "Risk Factors".
The Company may need to raise additional capital from public or private equity
or debt sources in order to finance its operations, capital expenditures, and
growth for future periods.  In addition, the Company may have to refinance a
substantial amount of indebtedness and obtain additional funds prior to 2002,
when the Amended Credit Facility matures.  Moreover, the Company believes that
continued growth and expansion through acquisitions, investments, and strategic
alliances is important to maintain a competitive position in the market and,
consequently, a principal element of the Company's business strategy is to
develop relationships with strategic partners and to acquire assets or make
investments in businesses that are complementary to its current operations.  The
Company may need to raise additional funds in order to take advantage of
opportunities for acquisitions, investments, and strategic alliances or more
rapid international expansion, to develop new products, or to respond to
competitive pressures.  There can be no assurance that the Company will be able
to raise such capital on acceptable terms or at all.  The Company's ability to
obtain additional sources of capital will depend upon, among other things, its
financial condition at the time, the restrictions and the instruments governing
its indebtedness and other factors, including market conditions, beyond the
control of the Company.  Additional sources of capital may include public and
private equity and debt financings, sale of assets, capitalized leases and other
financing arrangements.  In the event that the Company is unable to obtain
additional capital or is unable to obtain additional capital on acceptable
terms, the Company may be required to reduce the scope of its presently
anticipated expansion opportunities and capital expenditures, which could have a
material adverse effect on its business, results of operations and financial
condition and could adversely impact its ability to compete.

     The Company may seek to develop relationships with strategic partners both
domestically and internationally and to acquire assets or make investments in
businesses that are complementary to its current operations.  Such acquisitions,
strategic alliances, or investments may require that the Company obtain
additional financing and, in some cases, the approval of  the Company's
creditors.  The Company's ability to effect acquisitions, strategic alliances,
or investments may depend upon its ability to obtain such financing and, to the
extent applicable, consents from creditors.
 
     The TCG Merger Agreement contains certain restrictions on the conduct of 
ACC's business prior to the consummation of the Merger.

RECENTLY ISSUED ACCOUNTING STANDARDS 

     In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income".  SFAS No. 130 requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.  This statement is effective for
financial statements issued for periods beginning after December 15, 1997.
Management believes that the adoption of this statement will not have a material
effect on the Company's consolidated results of operations or financial
position.

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information".  SFAS No. 131 requires the reporting of
profit and loss, certain specific revenue and expense items, and assets for
reportable segments. It also requires the reconciliation of total segment
revenues, total segment profit or loss, total
         
 
                                      -50-

segment assets, and other amounts disclosed for segments to the corresponding
amounts in the general purpose financial statements. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997. Management believes that the
adoption of this statement will not have a material effect on the Company's
consolidated results of operations or financial position.

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     Financial statements and supplementary data are included under Item 14(a).

ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE.

     None.

                                    PART III

Item 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by Item 10 of Form 10-K relating to directors who
are nominees for election as directors at the Company's Annual Meeting of
Shareholders, if an Annual Meeting is held during 1998, will be set forth under
the heading "Election of Directors" in the Company's Definitive Proxy Statement
for such Annual Meeting, which is incorporated by reference herein.

     The information required by Item 10 of Form 10-K with respect to executive
officers is, pursuant to Instruction 3 of Paragraph (b) of Item 401 of
Regulation S-K, set forth in Part I as Item 4-A of this Form 10-K under the
heading "Executive Officers of the Registrant."

ITEM 11.       EXECUTIVE COMPENSATION.

     The information required by Item 11 of Form 10-K will be set forth under
the heading "Compensation of Executive Officers and Directors" in the Company's
Definitive Proxy Statement for its Annual Meeting of Shareholders, if an Annual
Meeting is held during 1998, which is incorporated by reference herein.

 
                                      -51-


ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth, as of December 31, 1997, the number and
percentage of outstanding shares of ACC Stock beneficially owned by: (i) each
director of ACC; (ii) each of the persons comprising the office of the Chief
Executive Officer of ACC and the other four most highly compensated executive
officers of ACC; (iii) each person or group known to ACC to be the beneficial
owner of more than 5% of the outstanding shares of ACC Stock; and (iv) all
directors and executives officers of ACC as a group. ACC believes that each
individual in this group has sole investment and voting power with respect to
his or her shares subject to community property laws where applicable and except
as otherwise noted:



                              NAME OF BENEFICIAL OWNER                                         Shares Beneficially Owned
                                                                                       ------------------------------------------
                                or Identity of Group                                            NUMBER              PERCENTAGE
                                --------------------                                            ------              ----------
                                                                                                            
Christopher Bantoft..................................................................         46,100(1)                  *  
Michael R. Daley.....................................................................        141,241(2)                  *  
Steve M. Dubnik......................................................................        109,475(3)                  *  
Richard T. Aab.......................................................................      1,085,872(4)                 6.3 
Hugh F. Bennett......................................................................         18,300(5)                  *  
Arunas A. Chesonis...................................................................        238,234(6)                 1.3 
Willard Z. Estey.....................................................................         15,000(7)                  *  
Leslie D. Shroyer....................................................................          2,000(8)                  *  
Daniel D. Tessoni....................................................................         30,000(9)                  *  
Robert M. Van Degna..................................................................         18,000(10)                 *  
Mae H. Squier-Dow....................................................................         79,490(11)                 *  
Kevin S. Dickens.....................................................................              0(12)                 *  
John J. Zimmer.......................................................................         38,130(13)                 *  
All directors and executive officers as a group (14 persons, including those persons                                        
named above other than Richard T. Aab and the Equitable Companies)...................        743,470(1)(2)              4.4  
                                                                                                    (3)(4)  
                                                                                                    (5)(6)  
                                                                                                    (7)(8)  
                                                                                                    (9)(10) 
                                                                                                   (11)(12) 
                                                                                                   (13)(14)  


________________
* Indicates less than 1% of ACC's issued and outstanding shares.
(1) Includes options to purchase 46,100 shares that are or will become
    exercisable by Mr. Bantoft within the next 60 days. Does not include 31,175
    shares issuable upon the exercise of options that are not deemed to be
    presently exercisable, nor stock incentive rights with respect to 15,000
    shares granted pursuant to ACC's Long-Term Incentive Plan.

(2) Includes options to purchase 13,662 shares that are or will become
    exercisable by Mr. Daley within the next 60 days. Does not include 27,238
    shares issuable upon the exercise of options that are not deemed to be
    presently exercisable.

(3) Includes options to purchase 45,897 shares that are or will become
    exercisable by Mr. Dubnik within the next 60 days. Does not include 35,225
    shares issuable upon the exercise of options that are not deemed to be
    presently exercisable, nor stock incentive rights with respect to 15,000
    shares granted pursuant to ACC's Long-Term Incentive Plan.

 
                                      -52-

(4)  Includes 100,000 shares that are owned by Melrich Associates, L.P., a
     family partnership of which Mr. Aab is a general partner and therefore
     shares investment and voting power with respect to such shares. Mr. Aab's
     address is 29 Woodstone Rise, Pittsford, New York 14534. The foregoing
     information was reported in a Schedule 13G (Amendment No. 9) that was filed
     with the Commission in January 1998, a copy of which was received by ACC.

(5)  Mr. Bennett and his spouse share voting and investment power with respect
     to 400 of the shares. Includes options to purchase 15,000 shares under the
     Non-Employee Directors' Stock Option Plan that are presently exercisable.
     Does not include an option to purchase 7,500 shares granted under such Plan
     that is not deemed to be presently exercisable.

(6)  Includes 13,730 shares owned by Mr. Chesonis's spouse and options to
     purchase 129,709 shares that are or will become exercisable by Mr. Chesonis
     or his spouse within the next 60 days. Does not include 32,477 shares
     issuable upon the exercise of options that are not deemed to be presently
     exercisable by Mr. Chesonis or his spouse.

(7)  Includes options to purchase 15,000 shares under the Non-Employee
     Directors' Stock Option Plan that are presently exercisable. Does not
     include an option to purchase 7,500 shares granted under such Plan that is
     not deemed to be presently exercisable.

(8)  Does not include an option to purchase 7,500 shares under the Non-Employee
     Directors' Stock Option Plan that is not deemed to be presently
     exercisable.

(9)  Mr. Tessoni and his spouse share investment and voting power with respect
     to all shares which he beneficially owns. Includes options to purchase
     15,000 shares under the Non-Employee Directors' Stock Option Plan that are
     presently exercisable. Does not include an option to purchase 7,500 shares
     granted under such Plan that is not deemed to be presently exercisable.

(10) Includes options to purchase 15,000 shares under the Non-Employee
     Directors' Stock Option Plan that are presently exercisable. Does not
     include an option to purchase 7,500 shares granted under such Plan that is
     not deemed to be presently exercisable.

(11) Includes options to purchase 61,813 shares that are or will become
     exercisable by Ms. Squier-Dow within the next 60 days. Does not include
     38,225 shares issuable upon the exercise of options that are not deemed to
     be presently exercisable, nor stock incentive rights with respect to 10,000
     shares granted pursuant to ACC's Long-Term Incentive Plan.

(12) Does not include 45,000 shares issuable upon the exercise of options that
     are not deemed to be presently exercisable.

(13) Includes options to purchase 28,199 shares that are or will become
     exercisable by Mr. Zimmer within the next 60 days. Does not include 8,551
     shares issuable upon the exercise of options that are not deemed to be
     presently exercisable.

(14) Includes options to purchase a total of 7,500 shares that are or will
     become exercisable by two executive officers of ACC, in addition to those
     named above, within the next 60 days. Does not include a total of 7,500
     shares issuable upon the exercise of options that are not deemed to be
     presently exercisable by such executive officers.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

 
                                      -53-

     The information required by Item 13 of Form 10-K will be set forth under
the heading "Certain Transactions" in the Company's Definitive Proxy Statement
for its Annual Meeting of Shareholders, if an Annual Meeting is held during
1998, which is incorporated by reference herein.

                                    PART IV

Item 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (a)    FINANCIAL STATEMENTS AND EXHIBITS.
            --------------------------------- 

            (1) FINANCIAL STATEMENTS.  (a) The following Financial Statements of
                --------------------                                            
the Company are included herewith as follows:

     Report of Independent Public Accountants

     Consolidated Balance Sheets, December 31, 1997 and 1996

     Consolidated Statements of Operations for the years ended December 31,
     1997, 1996 and 1995

     Consolidated Statements of Changes in Shareholders' Equity for the years
     ended December 31, 1997, 1996 and 1995

     Consolidated Statements of Cash Flows for the years ended December 31,
     1997, 1996 and 1995

     Notes to Consolidated Financial Statements

 
                                      -54-


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of ACC Corp.:

We have audited the accompanying consolidated balance sheets of ACC Corp. (a
Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ACC Corp. and subsidiaries as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.


                                  Arthur Andersen LLP

Rochester, New York,
 February 3, 1998, except for
the matter described in the second
paragraph of Note 10, as to which
the date is March 11, 1998.

 
                          ACC CORP. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
              (Amounts in 000s, except share and per share data)

 
 
                                                  December 31,       December 31,
                                                      1997               1996    
                                                 ---------------    -------------- 
                                                                                   
                                                               
CURRENT ASSETS:                                                                                    
 Cash and cash equivalents                               $3,988            $2,035                                                
 Accounts receivable, net of allowance                                                             
  for doubtful accounts of $5,291 in                                                                                             
  1997 and $3,795 in 1996                                76,909            51,474                                              
 Other receivables                                        3,732             3,792                                             
 Prepaid expenses and other assets                        7,718             4,632                                             
                                                 ---------------    --------------
                                                                                                                                 
  TOTAL CURRENT ASSETS                                   92,347            61,933                                              
                                                 ---------------    --------------                                               

                                                                                                                                 
                                                                                                                                 
PROPERTY, PLANT, AND EQUIPMENT:
 At cost                                                189,249           119,398
 Less-accumulated depreciation and
  amortization                                          (53,523)          (38,946)
                                                 ---------------    --------------
  TOTAL PROPERTY, PLANT, AND EQUIPMENT                  135,726            80,452
                                                 ---------------    --------------
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
OTHER ASSETS:                                                                                                   
 Goodwill and customer base, net                         73,607            50,629                   
 Deferred installation costs, net                         5,668             4,312                  
                                                                                                                
 Other                                                   12,270             6,705                  
                                                ---------------    --------------
  TOTAL OTHER ASSETS                                     91,545            61,646                   
                                                ---------------    --------------
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                

                                                                                                                
   TOTAL ASSETS                                        $319,618          $204,031                     
                                                ===============    ==============                    

The accompanying notes to consolidated financial statements are an integral part of these balance sheets
 

 
 
                                                  December 31,       December 31,        
                                                      1997              1996           
                                                 ---------------   ---------------     
                                      
                                                              
   CURRENT LIABILITIES:                                  $1,000               $730          
    Notes payable                                                             
    Current maturities of                                 2,853              3,521        
     long-term debt                                      23,374             15,351         
    Accounts payable                                     35,973             22,908         
    Accrued network costs                                26,593             34,884         
    Other accrued expenses                                                    
                                                  ---------------   ---------------         
                                                         89,793             77,394         
      TOTAL CURRENT LIABILITIES                   ---------------   ---------------         
                                                                              
                                                          1,888              2,767        
   Deferred income taxes                          ---------------   ---------------         
                                                                              
                                                         90,221              6,007        
   Long-term debt                                 ---------------   ---------------         
                                                                              
                                                                              
                                                                              
 SHAREHOLDERS' EQUITY: 
  Preferred Stock, $1.00 par value, Authorized -
   1,990,000 shares; Issued - no shares                                                                      
  Class A Common Stock, $.015 par value                                                                      
   Authorized - 50,000,000 shares                          -                 -                       
   Issued - 18,297,145 in 1997 and                                                                           
   17,684,361  in 1996                                      275                265               
  Class B Common Stock, $.015 par value,                                                                     
   Authorized - 25,000,000 shares;                                                                           
   Issued - no shares                                      -                 -                       
  Capital in excess of par value                        126,707            116,878                 
  Cumulative translation adjustment                      (1,739)            (1,362)               
  Retained earnings                                      14,083              3,692               
                                                   ---------------   ---------------                
                                                        139,326            119,473                 
                                                                                                             
  Less-                                                                                                      
                                                                                                             
  Treasury stock, at cost (1,089,884                                                                         
    shares)                                              (1,610)            (1,610)               
                                                   ---------------   ---------------                
     TOTAL SHAREHOLDERS' EQUITY                         137,716            117,863                 
                                                   ---------------   ---------------                
                                                                                                             
     TOTAL LIABILITIES AND                                                                                   
     SHAREHOLDERS' EQUITY                              $319,618           $204,031                 
                                                   ===============   ===============                
 




 
ACC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except share and per share data)

 
 
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------

For the Years Ended December 31,                                  1997                  1996                  1995

- ------------------------------------------------------------------------------------------------------------------------------------

                                                                                                    
REVENUE:
 Toll revenue                                                   $327,490              $282,497              $175,269
 Local service and other                                          45,123                26,270                13,597
                                                        -----------------     -----------------     -----------------

Total revenue                                                    372,613               308,767               188,866

Network costs                                                    218,361               193,599               114,841
                                                        -----------------     -----------------     -----------------

Gross profit                                                     154,252               115,168                74,025

OTHER OPERATING EXPENSES:
  Depreciation and amortization                                   23,712                16,433                11,614
  Selling expenses                                                50,958                34,072                21,617
  General and administrative                                      60,069                50,439                39,248
  Management restructuring                                             -                     -                 1,328
                                                        -----------------     -----------------     -----------------
Total other operating expenses                                   134,739               100,944                73,807
                                                        -----------------     -----------------     -----------------

 Income from operations                                           19,513                14,224                   218

OTHER INCOME (EXPENSE):
  Interest income                                                    215                 1,151                   198
  Interest expense                                                (3,729)               (5,025)               (5,131)
  Merger costs                                                    (4,970)                   -                      -
  Foreign exchange gain (loss)                                      (162)                  509                  (110)
                                                        -----------------     -----------------     -----------------

Total other income (expense)                                      (8,646)               (3,365)               (5,043)
                                                        -----------------     -----------------     -----------------

 Income (loss) from operations before provision         
  for income taxes
  and minority interest                                           10,867                10,859                (4,825)

Provision for income taxes                                           476                 2,185                   396

 Minority interest in earnings of
  consolidated subsidiary                                              -                  (909)                 (133)
                                                        -----------------     -----------------     -----------------


 NET INCOME (LOSS)                                                10,391                 7,765                (5,354)
 Less Series A Preferred Stock dividend                                -                  (972)                 (401)
 Less Series A Preferred Stock accretion                               -                (1,509)                 (139)
                                                        -----------------     -----------------     -----------------

Net income (loss) applicable to Common Stock                     $10,391                $5,284               ($5,894)
                                                        =================     =================     =================

Net income (loss) per common share:
  Basic                                                            $0.62                 $0.37                ($0.52)
                                                        =================     =================     =================
  Diluted                                                          $0.59                 $0.34                ($0.52)
                                                        =================     =================     =================

Weighted average shares outstanding:
  Basic                                                       16,839,039            14,463,728            11,358,693
                                                        =================     =================     =================
  Diluted                                                     17,690,223            15,540,115            11,358,693
                                                        =================     =================     =================

The accompanying notes to consolidated financial statements are an integral part of these statements.

 


 
ACC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Amounts in 000s, except share and per share data)

 
 
                                                               Class A                                        
                                                             Common Stock       Capital in  Cumulative     Retained  
                                                          ---------------------  Excess of  Translation    Earnings  Treasury
                                                            Shares       Amount  Par Value   Adjustment    (Deficit)  Stock   Total
                                                          -------------------------------------------------------------------------
                                                                                                         
Balance, December 31, 1994                                 11,478,902    $172   $20,013   ($1,013)       $1,524   ($1,610)   $19,086
                                                                                                                          
Stock options exercised                                        50,287       1       479     -           -           -            480
Sale of stock                                               1,237,500      18    11,078     -           -           -         11,096
Employee stock purchase plan shares issued                     35,450       1       296     -           -           -            297
Stock warrants exercised                                      123,750       2     1,186     -           -           -          1,188
Stock warrants issued                                        -              -       200     -           -           -            200
Accretion of Series A Preferred Stock                        -              -      (139)    -           -           -          (139)
Series A Preferred Stock dividends                           -              -      (401)    -           -           -          (401)
Acceleration of stock option vesting due to termination      -              -       134     -           -           -           134
Dividends ($.02 per common share)                            -              -       -       -              (243)    -          (243)
Cumulative translation adjustment                            -              -       -         63        -           -            63
Net loss                                                     -              -       -       -            (5,354)    -        (5,354)
                                                         -------------------------------------------------------------------------
                                                          
                                                          
Balance, December 31, 1995                                 12,925,889    $194   $32,846    ($950)       ($4,073)  ($1,610)  $26,407
                                                          
Stock options exercised                                       587,881       9     4,712       -             -         -       4,721
Class A Common Stock offerings                              3,018,750      45    62,849       -             -         -      62,894
Conversion of Series A Preferred Stock                        937,500      14    11,915       -             -         -      11,929
Employee stock purchase plan shares issued                     19,341      -        343       -             -         -         343
Stock warrants exercised                                      195,000       3     2,077       -             -         -       2,080
Increase in investment in Canadian subsidiary                    -         -      1,254       -             -         -       1,254
Disqualifying dispositions                                       -         -      3,000       -             -         -       3,000
Accretion of Series A Preferred Stock                            -         -     (1,509)      -             -         -      (1,509)
Series A Preferred Stock dividends                               -         -       (972)      -             -         -        (972)
Acceleration of stock option vesting due to termination          -         -        206       -             -         -         206
Stock incentive rights issued                                    -         -        157       -             -         -         157
Cumulative translation adjustment                                -         -        -       (412)           -         -        (412)
Net income                                                       -         -        -         -           7,765       -       7,765
                                                           ------------------------------------------------------------------------
                                                          
                                                          
Balance, December 31, 1996                                 17,684,361    $265  $116,878  ($1,362)        $3,692   ($1,610) $117,863
                                                          
Stock options exercised                                       573,195       9     7,241      -             -        -         7,250
Employee stock purchase plan shares issued                     28,339       1       686      -             -        -           687
Stock warrants exercised                                       11,250       -       140      -             -        -           140
Disqualifying dispositions                                     -            -     1,200      -             -        -         1,200
Stock incentive rights issued                                  -            -       562      -             -        -           562
Cumulative translation adjustment                              -            -        -      (377)          -        -          (377)
Net income                                                     -            -        -       -            10,391    -        10,391
                                                           -----------------------------------------------------------------------
                                                          
Balance, December 31, 1997                                 18,297,145    $275  $126,707  ($1,739)        $14,083  ($1,610) $137,716
                                                           =======================================================================



The accompanying notes to consolidated financial statements are an integral part of these statements.
 


 
                          ACC CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Amounts in 000s)

 
 
                         
                                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                                       1997           1996          1995
                                                                     ----------    -----------    ----------
                                                                                          
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                                                     $10,391         $7,765       ($5,354)
                                                                                                   
 Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:
   Depreciation and amortization                                        23,712         16,433        11,614
   Deferred income taxes                                                  (930)         3,110           609
   Minority interest in earnings (loss) of consolidated subsidiary           -            909           133
   Unrealized foreign exchange (gain) loss                                (121)          (758)          180
   Amortization of deferred financing costs                                629            425           263
   (INCREASE) DECREASE IN ASSETS:
      Accounts receivable, net                                         (22,442)       (11,212)      (17,437)
      Other receivables                                                     87          1,955         1,782
      Prepaid expenses and other assets                                 (8,289)        (2,282)       (1,057)
      Deferred installation costs                                       (3,884)        (2,631)       (2,983)
      Other                                                                              (148)          846
   INCREASE (DECREASE) IN LIABILITIES:                                                             
      Accounts payable                                                   4,417          7,511        (7,013)
      Accrued network costs                                              9,627         (5,837)       17,824
      Other accrued expenses                                            (9,506)         9,008         4,560
                                                                     ----------    -----------    ----------
                                                                                                   

        Net cash provided by operating activities                        3,691         24,248         3,967
                                                                     ----------    -----------    ----------
                                                                                                   
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures, net                                            (68,479)       (33,030)      (12,424)
  Repurchase of minority interest                                            -        (32,092)        -
  Payment for purchase of subsidiaries, net of cash acquired           (21,958)        -             (2,313)
  Acquisition of customer base                                            (840)        (2,620)         (557)
                                                                     ----------    -----------    ----------
                                                                                                   
        Net cash used in investing activities                          (91,277)       (67,742)      (15,294)
                                                                     ----------    -----------    ----------
                                                                                                   
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under lines of credit and notes payable                   211,673         26,375       113,602
  Repayments under lines of credit and notes payable                  (123,145)       (48,676)     (119,204)
  Repayment of long-term debt, other than lines of credit              (10,414)        (3,704)       (3,078)
  Proceeds from issuance of common stock                                 9,839         72,669        13,261
  Proceeds from issuance of convertible debt                                 -              -        10,000
  Financing costs                                                       (1,805)          (495)       (2,876)
  Dividends paid                                                             -              -          (451)
                                                                     ----------    -----------    ----------
                                                                                                   
        Net cash provided by financing activities                       86,148         46,169        11,254
                                                                     ----------    -----------    ----------

Effect of exchange rate changes on cash                                  3,391         (1,158)         (430)
                                                                     ----------    -----------    ----------
                                                                                                   
Net increase (decrease) in cash                                          1,953          1,517          (503)

Cash and cash equivalents at beginning of year                           2,035            518         1,021
                                                                     ----------    -----------    ----------
                                                                                                   
Cash and cash equivalents at end of year                                $3,988         $2,035          $518
                                                                     ==========    ===========    ==========
                                                                                                   
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest                                                              $4,122         $2,840        $4,146
                                                                     ==========    ===========    ==========

  Income taxes, net of refunds                                            $884         $1,808          $203
                                                                     ==========    ===========    ==========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

  Equipment purchased through capital leases                            $2,333         -             $7,389
                                                                     ==========    ===========    ==========

  Fair value of assets acquired                                        $36,061         $5,136       $10,800
    Less -  cash paid at acquisition date, net of cash acquired        (21,958)        (3,001)       (1,500)
    Less  - short term notes payable                                         -              -        (2,966)
                                                                     ----------    -----------    ----------
  Liabilities assumed                                                  $14,103         $2,135        $6,334
                                                                     ==========    ===========    ==========

  Other assets purchased with long-term debt                                 -         $2,775              -
                                                                     ==========    ===========    ==========

  Conversion of convertible debt to Series A Preferred Stock                 -              -        $10,000
                                                                     ==========    ===========    ==========

  Conversion of Series A Preferred Stock to Class A Common
  Stock, including cumulative dividends and accretion                        -        $11,929         -
                                                                     ==========    ===========    ==========

The accompanying notes to consolidated financial statements are an integral part of these statements.

 


 
                           ACC. CORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A.  PRINCIPLES OF CONSOLIDATION:

     The consolidated financial statements include all accounts of ACC Corp. (a
Delaware corporation) and its direct and indirect subsidiaries ("the Company" or
"ACC").  Principal operating subsidiaries include:  ACC TeleCom ("ACC US"), ACC
TelEnterprises Ltd. ("ACC Canada"), ACC Long Distance UK Ltd. ("ACC UK"), and
ACC Telekommunikation GmbH ("ACC Germany").  All operating subsidiaries are
wholly-owned.  All significant intercompany accounts and transactions have been
eliminated.

     The accompanying consolidated financial statements reflect the results of
operations of acquired companies since their respective acquisition dates.

     B.  MINORITY INTEREST:

     On July 6, 1993, the Company's then wholly-owned Canadian subsidiary, ACC
TelEnterprises Ltd., completed an initial public offering of 2 million common
shares for Cdn. $11.00 per share.  The Company received net proceeds of
approximately Cdn. $20.7 million after underwriters' fees and before other
direct costs of the offering of Cdn. $1.3 million.  As a result of the offering,
ACC Corp.'s ownership was reduced to approximately 70%.

     Minority interest represents the non-Company owned shareholder interest in
ACC TelEnterprises Ltd.'s equity primarily resulting from the 1993 public
offering. In the third quarter of 1996, the Company made a cash tender offer of
Cdn. $21.50 per share for the repurchase of the minority-held shares.  In
September 1996, the tender offer was approved by the Boards of Directors of both
companies and, in the fourth quarter of 1996, approximately 1.9 million of the
outstanding shares, representing approximately 81.5% of the minority interest,
were tendered and purchased by the Company for Cdn. $40.4 million (US $29.5
million), increasing the Company's ownership in ACC Canada to 93.9% as of
December 31, 1996. As fewer than 90% of the publicly held shares were deposited
under the tender offer, the Company formed a subsidiary for the purpose of
acquiring the remaining minority interest of ACC Canada. Prior to December 31,
1996, the shareholders of ACC Canada approved the amalgamation of ACC Canada and
the new subsidiary.  The amalgamation was effective January 1, 1997 and the
remaining minority interest shares of ACC Canada were replaced with shares of
the new subsidiary.  These shares were purchased by the new subsidiary at a
price of Cdn. $21.50 per share (see Note 1 G).

     C.  REVENUE:

     The Company records as long distance toll revenue the amount of
communications services rendered, as measured by the related minutes of toll
traffic processed or flat-rate services billed, after deducting an estimate of
the traffic or services which will neither be billed nor collected.  Local
service and other revenue represents revenue derived from the provision of local
exchange services, including local dial tone, direct access lines, and monthly
subscription fees, as well as data services, and is recorded as the services are
provided and billed.  Revenue from prepaid calling cards is recognized when
received.

     D.  OTHER RECEIVABLES:

     Other receivables at December 31, 1997 consist of receivables primarily
related to taxes receivable (approximately $1.7 million), amounts due from
counterparties under cross-currency rate swap agreements (approximately $1.5
million), and other individually nominal, miscellaneous receivables
(approximately $0.5 million).  Other receivables at December 31, 1996 consist of
receivables primarily related to taxes receivable (approximately $1.8 million),
the financing of university projects (approximately $0.5 million), officer notes
receivable (approximately $0.4 million), and other individually nominal,
miscellaneous receivables (approximately $1.1 million).

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     E.  PROPERTY, PLANT, AND EQUIPMENT:

     The Company's property, plant, and equipment consisted of the following at
December 31, 1997 and 1996 (amounts in 000s):

                                                  1997      1996
                                                --------  --------
 
     Equipment................................  $126,661  $ 90,257
     Computer software and software licenses..    16,064    12,682
     Other....................................    46,524    16,459
                                                --------  --------
     Total....................................  $189,249  $119,398
                                                ========  ========

     Other property, plant and equipment includes accumulated costs for
uncompleted projects in progress of approximately $36.7 million as of December
31, 1997, and $9.5 million as of December 31, 1996.  These costs primarily
relate to projects to acquire, install and make operational switch and
transmission equipment, and major software systems.  Projects in progress at
December 31, 1997 are expected to be completed in the first half of 1998.

     Depreciation and amortization of property, plant, and equipment is computed
using the straight-line method over the following estimated useful lives:

     Leasehold improvements..............................  Life of lease  
     Equipment, including assets under capital leases....  2 to 15 years  
     Computer software and software licenses.............  5 to 7 years   
     Office equipment and fixtures.......................  3 to 10 years  
     Vehicles............................................  3 years         

     Equipment and computer software include assets financed under capital lease
obligations.   A summary of these assets at December 31, 1997 and 1996 is as
follows (amounts in 000s):
                                                  1997      1996   
                                                --------  -------- 
                                                                   
     Cost.....................................  $10,566   $14,336  
     Less -- accumulated amortization.........   (6,032)   (6,194) 
                                                -------   -------  
     Total, net...............................  $ 4,534   $ 8,142  
                                                =======   =======   

     Betterments, renewals, and extraordinary repairs that extend the life of
the asset are capitalized; other repairs and maintenance are expensed.  The cost
and accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition is recognized in income.

     The Company reviews long-lived assets to be held and used, including
related goodwill, for possible impairment when events or changes in
circumstances indicate that their carrying amounts may not be recoverable.  If
an impairment exists, a loss is recognized to the extent the carrying value of
the asset exceeds its fair value.

     F.  DEFERRED COSTS:

     Costs incurred for the installation of direct access lines are amortized on
a straight-line basis over the estimated useful life of three to ten years.
Accumulated amortization of deferred installation costs totaled approximately
$8.6 million and $6.4 million at December 31, 1997 and 1996, respectively.

     G.  GOODWILL AND CUSTOMER BASE:

     Each of the Company's acquisitions have been accounted for as purchases
and, accordingly, the purchase prices were allocated to the assets and
liabilities of the acquired companies based on their fair values at the
acquisition date.

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     As of August 1, 1995, ACC TelEnterprises Ltd. acquired Metrowide
Communications ("Metrowide").  Metrowide, based in Toronto, Canada, provides
local and long distance services to customers based in Ontario and Quebec,
Canada.  The results of operations of Metrowide are included in the accompanying
financial statements since the date of acquisition.  The total cost of the
acquisition was Cdn. $15.1 million (US $11.0 million) including Cdn. $9.1
million (US $6.6 million) of liabilities assumed.  All payments related to the
purchase price of the acquisition were made as of December 31, 1996.

     In May 1996, ACC Canada purchased certain assets and assumed certain
liabilities of Internet Canada Corp., a company based in Toronto, Canada, which
is engaged in the business of providing Internet access and website design and
development. The purchase price was Cdn. $5.2 million.  All payments related to
the purchase price of the acquisition were made as of December 31, 1996.

     Goodwill of Cdn. $11.1 million (US $8.1 million) associated with the ACC
TelEnterprises Ltd. asset purchases is being amortized over 20 years.

     Also in 1996, as described above, the Company repurchased a significant
portion of the minority interest in ACC TelEnterprises Ltd.  The minority-held
shares were purchased for Cdn. $21.50 per share, which represented a premium
over the book value of the shares. The total amount paid in 1996 for this
acquisition was Cdn. $43.7 million (US $32.0 million).  In 1997, the remaining
6.1% interest was acquired for Cdn. $9.0 million (US $6.6 million).  The
resulting goodwill, approximately Cdn. $48.0 million (US $35.0 million), will be
amortized over a 40 year life.

     The following unaudited pro forma summary gives effect to the acquisition
of Internet Canada Corp. and the acquisition of the minority interest of ACC
Canada as if they had occurred at the beginning of 1995, after giving effect to
certain pro forma adjustments, including elimination of the minority interest in
earnings of ACC Canada, amortization of the goodwill and customer base acquired
in the acquisitions, interest expense on the acquisition financing, and related
income tax effects.  This unaudited pro forma financial information is presented
for informational purposes only and may not be indicative of the results of
operations as they would have been if the acquisitions had occurred at the
beginning of 1995, nor is it necessarily indicative of the results of operations
which may occur in the future.  Anticipated efficiencies from the combination of
Internet Canada and ACC Canada are not fully determinable and therefore have
been excluded from the amounts included in the pro forma summary below (amounts
in 000s, except share and per share data).

                                                     (Unaudited)
                                                    -------------
                                                Years ended December 31,
                                                   1996         1995
                                                ----------  -------------
 
Total revenue                                     $308,767    $188,866    
Income (loss) from operations                       13,175      (1,066)   
Net income (loss)                                    5,372      (8,659)   
Share data:                                                               
Net income (loss)                                 $   0.34    $  (0.74)   
Net income (loss) applicable to common stock      $   0.18    $  (0.79)   
Weighted average shares outstanding                 15,641      11,685     

     During 1997, the Company consummated several business combinations, all
accounted for as purchases, as follows:


     ACC UK acquired Transphone International Ltd. ("Transphone"), a long
distance reseller based in London, UK  The results of operations of Transphone
are reflected in the 1997 consolidated results of operations effective June 1,
1997.  Transphone reported 1.5 million pounds sterling (US $2.4 million) in
annual revenues for the calendar year ended December 31, 1996.

     ACC UK acquired United Telecom Ltd. ("UT"), a pre-paid calling card and
long distance services provider based in London, UK  The results of operations
of UT are reflected in 1997 consolidated results of operations effective July 1,
1997.  UT reported 2.8 million pounds sterling (US $4.5 million) in annual
revenue for the fiscal year ended April 30, 1997.

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     ACC US acquired VISTA International Communications Inc. ("VISTA"), a
privately held switch-based long distance provider based in Mount Arlington, New
Jersey.  VISTA provides services to small-to-medium sized commercial customers
in the Northeastern US, with concentrations primarily in New Jersey and
Pennsylvania.  The results of operations of VISTA are reflected in the 1997
consolidated results of operations effective August 1, 1997.   VISTA reported
$10 million in annual revenue for the calendar year ended December 31, 1996.

     ACC Germany acquired all the interests of Telenational Communications
Deutschland Limited Partnership ("TNC"), a privately held telecommunications
services provider based in Hamburg, Germany.  TNC was a supplier of prepaid
calling cards, and developed affinity programs with large commercial customers.
The results of operations of TNC are reflected in the 1997 consolidated results
of operations effective July 1, 1997.  TNC reported annualized revenue of German
Deutsche Marks (DM) 7.8 million (US $4.3 million).

     The aggregate amount paid for these acquisitions was US $22.9 million.  The
estimated fair value of assets acquired (including intangibles) was US $37.0
million, and liabilities assumed was US $14.1 million.  Goodwill associated with
these acquisitions was US $21.6 million, and is being amortized from 20 to 40
years.  Customer base intangibles associated with these acquisitions was US
$7.1 million, and is being amortized from 5 to 7 years.

     Accumulated amortization of all goodwill approximated US $2.3 million and
$0.5 million at December 31, 1997 and 1996, respectively.  The Company amortizes
acquired customer bases on a straight-line basis over five to seven years.
Accumulated amortization of customer base totaled approximately $8.3 million and
$5.5 million at December 31, 1997 and 1996, respectively.

     H.  EARNINGS PER SHARE:

     During 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share".  Adoption of this Statement did
not have a material effect on the reported earnings per share of the Company.
All prior-period earnings per share data have been restated to conform to the
provisions of the Statement.

     The following table reconciles the numerators and denominators of basic and
diluted earnings per share (amounts in 000s, except share and per share data):





                                                              FOR THE YEAR ENDED DECEMBER 31, 1997

                                                      Income                  Shares                Per-Share
                                                   (Numerator)             (Denominator)              Amount
                                                   -----------             -------------              ------
                                                                                      
BASIC EPS                                  
Net income applicable to common stock                $10,391                 16,839,039                $0.62
                                                                             ----------                -----
                                           
EFFECT OF DILUTIVE SECURITIES              
Stock options and warrants                              -                       851,184
                                                   -----------               ----------                 
DILUTED EPS                                           
Net income applicable to common stock                $10,391                 17,690,223                $0.59
                                                     -------                 ----------                -----

                                        

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   
  
                                                                     FOR THE YEAR ENDED DECEMBER 31, 1996
           
                                                             Income                  Shares                Per-Share
                                                          (Numerator)            (Denominator)              Amount
                                                          -----------            -------------              ------         
                                                                                            
Net income                                                $ 7,765
Less:  Series A Preferred Stock dividend                     (972)
          Series A Preferred Stock accretion               (1,509)
                                                          ------- 
 
BASIC EPS
Net income applicable to common stock                       5,284              14,463,728                   $0.37
                                                                                                            -----
 
EFFECT OF DILUTIVE SECURITIES
Stock options and warrants                                   -                  1,076,387
                                                          -------              ----------
 
DILUTED EPS
Net income applicable to common stock                       5,284              15,540,115                   $0.34
                                                           -------             ----------                   -----

                                        
     No reconciliation is provided for 1995 as the effect would be anti-
dilutive.  All share information noted above represents the weighted-average
number of shares during the period.  All references to common shares have been
retroactively restated to reflect an August 8, 1996 three-for-two stock
dividend.

     I.  FOREIGN CURRENCY TRANSLATION:

     Assets and liabilities of ACC Canada,  ACC UK and ACC Germany, operating in
Canada, the United Kingdom and Germany, respectively, are translated into US
dollars using the exchange rates in effect at the balance sheet date.  Results
of operations are translated using the exchange rate at the date of the
transaction.  The effects of exchange rate fluctuations on translating foreign
currency assets and liabilities into US dollars are included as part of the
cumulative translation adjustment component of shareholders' equity, while gains
and losses resulting from foreign currency transactions are included in net
income.

     J.  INCOME TAXES:

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes."  Deferred income taxes reflect the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end.

     K.  CASH EQUIVALENTS:

     The Company considers investments with a maturity of less than three months
to be cash equivalents.

     L.  DERIVATIVE FINANCIAL INSTRUMENTS:

     The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates.  The
Company does not hold or issue financial instruments for speculative trading
purposes.  The derivative instruments used are currency forward contracts and
interest rate swap agreements.  These derivatives are non-leveraged and involve
little complexity.

     The Company monitors and controls its risk in the derivative transactions
referred to above by periodically assessing the cost of replacing, at market
rates, those contracts in the event of default by the counterparty.  The Company
believes such risk to be remote.  In addition, before entering into derivative
contracts, and periodically during the life of the contracts, the Company
reviews the counterparty's financial condition.

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The Company enters into contracts to buy and sell foreign currencies in the
future in order to protect the value of the US dollar denominated net
liabilities of its foreign subsidiaries.  The fair value method is used to
account for these instruments.  Under the fair value method, changes in fair
value are recognized in the consolidated balance sheets as a component of other
accrued expenses, and in the consolidated statements of operations as foreign
currency gain or loss.  For reporting purposes, the contractual assets or
liabilities of the foreign currency agreements are offset because the agreements
provide for a right of offset.  Any premiums or discounts related to foreign
currency contracts are amortized over the life of the contracts.

     At December 31, 1997, the Company had net foreign currency contracts
outstanding to buy forward the US dollar equivalent of Cdn. $45.4 million, 15.9
million pounds sterling and DM 6.4 million.  These contracts mature through May
1998.

     At December 31, 1996, the Company had net foreign currency contracts
outstanding to buy forward the US dollar equivalent of Cdn. $38.4 million and
14.5 million pounds sterling.

     The Company has entered into a cross-currency rate swap transaction with a
financial institution which hedges the foreign currency risk associated with a
portion of intercompany debt due from the Canadian subsidiary to ACC Corp. and
also converts the variable rate of interest to a fixed rate.  The agreement,
which commenced on December 31, 1996, has a two-year term.  Under the agreement,
the Company pays a fixed rate of interest on a notional amount of Cdn. $33.5
million at a rate of 6.98% and receives a variable rate of interest at the US
prime rate on a notional amount of $25.0 million. Interest is paid quarterly.
The net of the notional amounts based on the exchange rate at December 31, 1997
is reflected on the balance sheet at December 31, 1997.

     The Company uses interest rate swaps to effectively convert variable rate
obligations to a fixed rate basis.  The differentials to be received or paid
under these agreements are recognized as an adjustment to interest expense
related to the debt.  Gains and losses on terminations of interest rate swaps
are recognized when terminated in conjunction with the retirement of the
associated debt.  The fair value of interest rate swap agreements is estimated
based on quotes from the market makers of these instruments and represents the
estimated amounts that the Company would expect to receive or pay to terminate
these agreements.  The Company's exposure related to these interest rate swap
agreements is limited to fluctuations in the interest rate.  At December 31,
1997, the Company has entered into two interest rate swap agreements.  The first
agreement is for a notional amount of Cdn. $19.3 million, expires March 26,
1999, and ACC Canada pays interest at a fixed rate of 4.82% and receives
interest at the floating rate based on three month LIBOR.  The second agreement
is for a notional amount of 7.2 million pounds sterling, expires January 7,
2000, and ACC UK pays interest at a fixed rate of 7.41% and receives interest at
the floating rate based on three month LIBOR.  These swaps are settled every
three months and the related LIBOR rates are determined at each settlement date.
At December 31, 1996, the Company was not a party to any interest rate swap
agreements.

     M.  FINANCIAL INSTRUMENTS:

     The carrying amounts of cash and cash equivalents, trade receivables, other
current assets, accounts payable, and amounts included in accruals meeting the
definition of a financial instrument approximate fair value because of the
short-term maturity of these instruments.  The carrying value and related
estimated fair values for the Company's remaining financial instruments are as
follows:

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



                                                           December 31, 1997     December 31, 1996
                                                          --------------------  --------------------
                                                          Carrying  Estimated   Carrying  Estimated
                                                           Amount   Fair Value   Amount   Fair Value
                                                          --------  ----------  --------  ----------
                                                                      (amounts in 000s)
                                                                              
 
Off balance sheet financial instruments:
Foreign exchange forward contracts                         $     -     $61,751   $     -     $52,800
 
Foreign currency swap agreement receivable                  25,000      25,000    25,000      25,000
Foreign currency swap agreement payable                     23,448      23,448    24,516      24,516
Senior credit facility and lines of credit                  88,824      88,824       730         730
Capitalized lease obligation,including current portion       5,250       5,250     9,528       9,528
Interest Rate Swaps                                              -          12         -           -


     Based on borrowing rates currently available to the Company for loans and
lease agreements with similar terms and average maturities, the fair value of
its debt approximates its recorded value.  Foreign currency contract obligations
are estimated by obtaining quotes from brokers.  Interest rate swaps are
estimated by obtaining quotes from the financial institution.  Letters of credit
and line of credit amounts are based on fees currently charged for similar
arrangements.

     N.  STOCK-BASED COMPENSATION:

     In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits either recording the
estimated  value of stock-based compensation over the applicable vesting period
or disclosing the unrecorded cost and the related effect on earnings per share
in the notes to the financial statements.  The Company has elected to comply
with the disclosure provisions of the statement.  The effects of SFAS No. 123 in
the pro forma disclosures are not indicative of future amounts.  The statement
does not apply to awards prior to 1995, and additional awards are anticipated.

     O.  USE OF ESTIMATES:

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.

     P.  RECLASSIFICATIONS:

     Certain reclassifications have been made to previously reported balances
for 1995 and 1996 to conform to the 1997 presentation.

2.   OPERATING INFORMATION

     Description of Business

     ACC is a switch-based provider of telecommunications services in the United
States, Canada, the United Kingdom and Germany.  The Company primarily provides
long distance telecommunications services to a diversified customer base of
businesses, residential customers, and educational institutions.  ACC also
provides local telephone service as a switch-based local exchange reseller in
upstate New York  and Massachusetts and as a reseller of local exchange services
in Ontario and Quebec, Canada.  ACC entered the German market during 1997 as a
switchless reseller of long distance telecommunications services and became a
switch-based provider in Germany in February  1998.  ACC operates an advanced
telecommunications network, consisting of ten long distance international and
domestic switches located in the US, Canada, the UK and Germany, six local
exchange switches located in the US, leased transmission lines, IRU's and
network management systems designed to optimize traffic routing.

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     ACC primarily targets business customers with both local service and long
distance needs, selected residential customers, and colleges and universities.
For the year ended December 31, 1997, long distance revenues accounted for
approximately 88% of total Company revenues, while local exchange and other
revenues were 12% of total Company revenues.

     At December 31, 1997, approximately $21.8 million of the Company's
telecommunications equipment was located on 65 university, college, and
preparatory school campuses in the northeastern United States and in the United
Kingdom.  Each of these institutions has signed agreements, with original terms
ranging from three to eleven years, for the provision of a variety of services
by the Company.

     In the United States, the Federal Communications Commission ("FCC") and
relevant state Public Service Commissions ("PSCs") have the authority to
regulate interstate and intrastate rates, respectively, ownership of
transmission facilities, and the terms and conditions under which the Company's
services are provided. Legislation that substantially revises the US
Communications Act of 1934 (the "US Communications Act") was signed into law on
February 8, 1996.  The legislation provides specific guidelines under which the
regional operating companies ("RBOCs") can provide long distance services, which
will permit the RBOCs to compete with the Company in the provision of domestic
and international long distance services.  Further, the legislation, among other
things, opens local service markets to competition from any entity (including
long distance carriers such as AT&T, cable television companies, and utilities).

     Because the legislation opens the Company's US markets to additional
competition, particularly from the RBOCs, the Company's ability to compete could
be adversely affected.  Moreover, as a result of and to implement the
legislation, certain federal and other governmental regulations will be amended
or modified, and any such amendment or modification could have a material
adverse effect on the Company's business, results of operations, and financial
condition.

     In Canada, services provided by ACC TelEnterprises Ltd. are subject to or
affected by certain regulations of the Canadian Radio-television and
Telecommunications Commission (the "CRTC").  During 1997, the CRTC issued rules
that open the local telephone market to competition.  It is expected that these
rules will enable ACC Canada to bundle services and provide customers with local
as well as long distance services in areas that are not presently open to
competition.

     The telecommunications services provided by ACC Long Distance UK Ltd. are
subject to and affected by regulations introduced by The Office of
Telecommunications, the UK telecommunications regulatory authority ("Oftel").

     The German telecommunications market is expected to deregulate in January
1998, as a result of the European Union mandate to open telecommunications
markets to competition.  Most significantly, the Germany market is scheduled to
be open for interconnection in January 1998.   The telecommunications services
provided by ACC Telekommunikation GmbH  will be subject to and affected by
regulations introduced by the German Ministry of Post and Telecommunications.
During 1997, the Company received a Class 4 full voice telephony license which
is a requirement for the Company to become a switch-based provider of
telecommunications services in Germany.

     In addition to regulation, the Company is subject to other various risks in
connection with the operation of its business.  These risks include, among
others, dependence on transmission facilities-based carriers and suppliers,
price competition, and competition from larger industry participants.

     Concentrations with respect to trade receivables are limited, except with
respect to resellers, due to the large number of customers comprising the
Company's customer base and their dispersion across many different industries
and geographic regions.  At December 31, 1997, approximately 26% of the
Company's billed accounts receivable balance was due from resellers.

3.         DEBT, LINES OF CREDIT, AND FINANCING ARRANGEMENTS

     A.    DEBT:

     The Company had the following debt outstanding as of December 31, 1997 and
1996 (amounts in 000s):

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



                                                                        1997       1996
                                                                      ---------  ---------
                                                                           
 
          Senior credit facility....................................   $87,824    $     -
          Working capital lines of credit...........................     1,000        730
          Capitalized lease obligations payable in total monthly
             installments of $283 including interest, with rates
             ranging from 3.9% to 18.8%, maturing through
             2002, collateralized by related equipment..............     5,250      9,528
                                                                       -------   --------

                                                                       $94,074    $10,258
          Less current maturities                                       (3,853)    (4,251)
                                                                      --------   --------
                                                                       $90,221    $ 6,007
                                                                       =======   ========
 
                                                                        Year      Amount
                                                                      --------   --------
                                                                       (amounts in 000s)
 
          Maturities of debt, including capital lease obligations,
             are as follows at December 31, 1997:                         1998    $ 3,853
                                                                          1999      1,685
                                                                          2000        608
                                                                          2001     33,859
                                                                          2002     54,069
                                                                                 --------
                                                                                  $94,074
                                                                                 ========



     B.  SENIOR CREDIT FACILITY AND LINES OF CREDIT:

     On July 21, 1995, the Company entered into an agreement for a $35.0 million
five year senior revolving credit facility with two financial institutions.
Borrowings were limited individually to $5.0 million for ACC UK and $2.0 million
for ACC US, with total borrowings for the Company limited to $35.0 million.
Initial borrowings under the agreement were used to pay down and terminate the
Company's previously existing lines of credit and to pay fees related to the
transaction.  Subsequent borrowings were used to finance capital expenditures
and to provide working capital.  On January 14, 1997 this facility was amended
and restated increasing the aggregate commitment to $100 million and including
three additional banks in the syndicate.  The amendment also allowed for
borrowing in Canadian dollars and increased the sublimits individually for ACC
UK to $20.0 million, ACC US to $15.0 million and Canada to $30.0 million.  Both
the $35 million facility and the $100 million facility had financial and other
covenants similar to those described below.

     In conjunction with the closing of the $35 million facility, the Company
issued to a financial advisor warrants to purchase 45,000 shares of the
Company's Class A Common Stock at an exercise price of $10.67 per share.  The
warrants were exercised in October 1996.

     Under the $35 million facility, the Company was obligated to pay the
financial institution an aggregate contingent interest payment based on the
minimum of $750,000 or the appreciation in value of 140,000 shares of the
Company's Class A Common Stock over the 18-month period ending January 21, 1997,
but not to exceed $2.1 million.  A payment of $2.1 million was made on January
15, 1997 in conjunction with the first amendment and restatement of the credit
facility, and was reflected as an accrued expense on the accompanying balance
sheet at December 31, 1996.

     On December 19, 1997, the Company amended and restated its credit facility
increasing the amount to $150 million.  The amended credit facility is
syndicated among six financial institutions.  Borrowings can be made in US
dollars, Canadian dollars, British pounds and German Deutsche Marks, and are
limited individually to $30.0 million for ACC Canada, $50.0 million for ACC UK,
and $20.0 million for ACC Germany, with any unused capacity available for ACC

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Corp. and its US subsidiaries.  The amended facility will be used to finance
investments, acquisitions and capital expenditures and provide working capital.
The agreement limits the amount that may be borrowed against this facility based
on the Company's operating cash flow.  The agreement also contains certain
covenants including restrictions on the payment of dividends, maintenance of a
maximum leverage ratio, minimum debt service coverage ratio, maximum fixed
charge coverage ratio, and minimum net worth, all as defined under the agreement
and subjective covenants.  At December 31, 1997, the Company had available $59.0
million under this facility. Borrowings under the facility are secured by
certain of the Company's assets and will bear interest at either the LIBOR rate
or the base rate (base rate being the greater of the prime interest rate or the
federal funds rate plus  1/2%), with additional percentage points added based on
a ratio of debt to operating cash flow, as defined in the agreement. The maximum
aggregate commitment and the sublimits of the amended facility are required to
be reduced by 8.0% per quarter commencing on March 31, 2000 until December 31,
2001, and by 9.0% per quarter commencing on March 31, 2002 until maturity of the
loan in December 2002.  All amounts outstanding under the amended facility may
become due and payable, at the discretion of the financial institutions, upon
closing of the merger with Teleport Communications Group (see Note 10,
"Mergers").  The Company is currently negotiating with its lenders to obtain a
waiver of this requirement.

     In connection with the credit facility, the Company has entered into two
interest rate swap agreements.  The amended and restated $150 million facility
requires the Company to enter into hedging agreements with respect to interest
rate exposure with an aggregate notional principal amount equal to 50% of the
outstanding borrowings if the Company's leverage ratio is equal to or exceeds
2.0 to 1.0.  The agreements have certain conditions regarding the interest
rates, and must have durations of at least two years.

     The weighted average interest rate during 1997 under these facilities was
6.97%.  Expenses related to obtaining these agreements are being amortized over
the original terms of the agreements.

     At December 31, 1997, the Company had issued letters of credit totaling
$3.2 million which reduce the available balance of the credit facility.  The
letters of credit guarantee performance to third parties.  Management does not
expect any material losses to result from these off-balance sheet instruments
because the Company will meet its obligations to the third parties.

     C.  WORKING CAPITAL LINES OF CREDIT:

     The Company has four working capital lines of credit for daily cash
management, one in each of the countries in which it operates.  The aggregate
amount available under these facilities at December 31, 1997 was approximately
$5.2 million of which $1.0 million was borrowed.  These facilities are due on
demand and are secured by a corporate guarantee or a letter of credit.  The
interest rates charged on these facilities are generally floating rates based on
the prime rate or local equivalent in each country.

     The Company had two working capital lines of credit for daily cash
management in 1996.  The first was a US $1.0 million facility, due on demand,
with an interest rate equal to US prime.  Outstanding borrowings on this line at
December 31, 1996 totaled $730,000 and the weighted average interest expense for
the year ended December 31, 1996 was 8.25%.  The second line was a Cdn. $1.0
million facility, due on demand, with an interest rate equal to Canadian prime
plus  1/2%.  There were no outstanding borrowings on this line at December 31,
1996.

4.   INCOME TAXES

     The following is a summary of the US and non-US income (loss) from
operations before provision for (benefit from) income taxes and minority
interest, the components of the provision for (benefit from) income taxes and
deferred income taxes, and a reconciliation of the US statutory income tax rate
to the effective income tax rate.

     Income (loss) from operations before provision for (benefit from) income
taxes and minority interest (amounts in 000s):



                                                                                       1997          1996      1995
                                                                                     ---------     --------  ---------
                                                                                                     

 

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




                                                                                                     
     US............................................................................  $  5,292      $ 6,675   $ 1,510
     Non-US........................................................................     5,575        4,184    (6,335)
                                                                                     --------      -------   -------
                                                                                     $ 10,867      $10,859   $(4,825)
                                                                                     ========      =======   =======
 
     Provision for (benefit from) income taxes (amounts in 000s):
 
                                                                                         1997         1996      1995
                                                                                     --------      -------   -------
 
     Current:
       US..........................................................................  $  1,797      $ 2,689   $   581
 
       Non-US......................................................................        --           --        --
                                                                                     --------      -------   -------
                                                                                        1,797        2,689       581
                                                                                     --------      -------   -------
     Deferred:
       US..........................................................................       107         (504)     (185)
 
       Non-US......................................................................    (1,428)          --        --
                                                                                     --------      -------   -------
                                                                                       (1,321)        (504)     (185)
                                                                                     --------      -------   -------
                                                                                     $    476      $ 2,185   $   396
                                                                                     ========      =======   =======
     Provision for (benefit from) deferred income taxes (amounts in 000s):
 
                                                                                         1997         1996      1995
                                                                                     --------      -------   -------
 
     Difference between tax and book depreciation
       and amortization............................................................  $  1,457      $   526   $   772
     Valuation allowance...........................................................    (1,894)          98     2,223
 
     Contingent interest...........................................................       459         (459)       --
     Severance costs...............................................................       113         (568)       --
     Software development costs....................................................        --            -      (502)
     Bad debt reserve..............................................................      (189)           -        --
 
     Other temporary differences...................................................    (1,267)        (101)     (103)
     Net operating loss............................................................        --           --    (2,575)
                                                                                     --------      -------   -------
                                                                                      ($1,321)       ($504)    ($185)
                                                                                     ========                =======
 
     Reconciliation of US statutory income tax rate to effective income tax rate:
 
                                                                                         1997         1996      1995
                                                                                     --------      -------   -------
 
     US statutory income tax rate..................................................      34.0%        34.0%    (34.0%)
     Non-deductible goodwill and customer base.....................................       6.1          2.6       2.7
     Foreign income taxes, including
       valuation allowance.........................................................     (34.0)       (13.1)     44.6

 

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



                                                                                       1997          1996      1995
                                                                                     ---------     --------  ---------
                                                                                                    

     State tax benefit.............................................................        -            -       (2.4)
     Other.........................................................................      (1.7)        (3.4)     (2.7)
                                                                                     --------      -------   -------
     Effective income tax rate.....................................................       4.4%        20.1%      8.2%
                                                                                     ========                =======


     Deferred income tax assets and liabilities reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.  At
December 31, 1997, the Company had unused tax benefits of approximately $4.6
million related to non-US net operating loss carryforwards totaling $10.3
million for income tax purposes, of which $2.5 million expire in 2000, $4.8
million expire in 2001, $0.9 million expire in 2002, and $2.1 million expire in
2004.  However, the Company has the ability to adjust certain depreciation and
amortization adjustments in Canada which may be used to extend its ability to
utilize certain net operating losses.  In addition, the Company had $.9 million
of deferred tax assets related to non-US temporary differences.  The valuation
allowance was decreased by $4.4 million to approximately $5.2 million to reflect
tax benefits recognized during 1997.  The remaining valuation allowance reflects
the uncertainty of realizing the benefit of the non-US loss carryforwards and
temporary differences.

     The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1997 and 1996 (amounts in
000s):

                                                            1997      1996   
                                                          --------  --------
 
     Deferred tax assets:
       Depreciation and amortization -- non-US..........  $    93   $   967
       Contingent interest..............................        -       459
       Severance costs..................................      227       568
       Other non-deductible reserves and accruals.......      916       528
       Non-US operating loss carryforwards..............    4,644     6,702
       Less -- valuation allowance for non-US deferred
          tax assets....................................   (3,309)   (7,669)
                                                          -------   -------
       Net deferred tax assets..........................    2,571     1,555
     Deferred tax liabilities:
       Depreciation and amortization....................   (1,888)   (2,767)
                                                          -------   -------
                                                          $   683   $(1,212)
                                                          =======   =======

5.   REDEEMABLE PREFERRED STOCK

     On May 22, 1995, the Company completed a $10.0 million private placement of
12% subordinated convertible debt to a group of investors.  The notes were
converted into 10,000 shares of cumulative, convertible Series A Preferred Stock
on September 1, 1995. The Series A Preferred Stock had a liquidation value of
$1,000 per share, and accrued cumulative dividends, compounded on the
accumulated and unpaid balance, as defined, at a rate of 12% annually. The
Series A Preferred Shares were converted into 937,500 shares of Class A Common
Stock at a conversion price of $10.67 per share in October 1996.  Pursuant to
the terms of the Series A Preferred Stock, the cumulative dividends were
forfeited, due to conversion by the investors.

     The Series A Preferred Stock contained terms of mandatory redemption, on
the seventh anniversary of the private placement, at a price per share equal to
the greater of (i) the liquidation value of $1,000 per share plus all accrued
and unpaid dividends; or (ii) the fair market value of the underlying Class A
Common Stock into which the Series A Preferred Stock was convertible.

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Concurrent with the private placement, warrants to purchase 150,000 shares
of the Company's Class A Common Stock were issued at an initial exercise price
of $10.67 per share.  These warrants were exercised in October 1996.  In
addition, the Company issued warrants to purchase Class A Common Stock that were
to become exercisable upon one or more optional repayments of the Series A
Preferred Stock at an exercise price of $10.67 per share, subject to
adjustments, as defined, and permitted each holder to acquire initially the same
number of shares of Class A Common Stock into which the Series A Preferred Stock
was convertible as of the relevant repayment date.  These warrants were
extinguished in October 1996, as a result of the conversion of the Series A
Preferred shares.  Upon conversion in October 1996, unamortized issuance costs
of approximately $1.1 million were reclassified into the appropriate equity
accounts.

6.   EQUITY

     During 1995, the Company's shareholders approved an amendment to the
Company's Certificate of Incorporation that authorized the creation of 2,000,000
shares of Series A Preferred Stock, par value $1.00 per share; authorized the
creation of 25,000,000 shares of Class B non-voting Common Stock, par value
$.015 per share; and redesignated the 50,000,000 shares of Common Stock, par
value $.015 per share, that were previously authorized, for issuance as
50,000,000 shares of Class A Common Stock.

     On June 14, 1996, the Company's Board of Directors authorized a three-for-
two stock split in the form of a stock dividend issued on August 8, 1996 of the
Company's Class A Common Stock to shareholders of record as of July 3, 1996.
Share and per share amounts in the accompanying financial statements and
footnotes have been adjusted for the split.

     A.  PUBLIC OFFERINGS:

     In May 1996, the Company completed a public offering of 3,018,750 shares of
its Class A Common Stock at a price of $22.50 per share. The offering raised net
proceeds of $63.1 million, after deduction of fees and expenses of approximately
$4.8 million.  The net proceeds were used to reduce all indebtedness under the
Company's credit facility, for working capital needs, and for capital
expenditures.

     In October 1996, the Company completed a public offering of 1,194,722
shares of its Class A Common Stock, on behalf of selling shareholders, at a
price of $45.00 per share.  937,500 of the shares resulted from the conversion
to Class A Common Stock of all of the outstanding Series A Preferred Stock (see
Note 5). Additionally, outstanding warrants and options to purchase the
Company's Class A Common Stock were exercised by the holders and the underlying
shares of Class A Common Stock were sold. The Company received the exercise
price of the warrants and options, approximately $2.1 million, and incurred fees
and expenses of approximately $270,000.

     B.  PRIVATE PLACEMENT:

     During 1995, the Company made an offshore sale of 1,237,000 shares of its
Class A Common Stock at an average price of $9.69 per share.  The sale raised
net proceeds of $11.1 million after deduction of fees and expenses of $0.9
million.  In conjunction with this transaction, warrants to purchase 123,750
shares of Class A Common Stock at an exercise price of $9.60 per share were
issued.  These warrants were exercised in 1995.

     C.  STOCK-BASED COMPENSATION:

     The Company has four stock-based compensation plans, which are described
below.  The Company accounts for these plans under APB Opinion No. 25.
Accordingly, no compensation cost has been recognized for incentive stock
options, nonqualified stock options, and the employee stock purchase plan.  Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (amounts in 000s, except per share data):

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
                                                       1997     1996     1995
                                                       ----     ----     ----

Net income (loss)                        As reported  $10,391  $7,765  $(5,354)
                                         Pro forma    $ 2,866  $4,869  $(6,251)
 
Net income (loss) per share - basic      As reported  $  0.62  $ 0.37  $ (0.52)
                                         Pro forma    $  0.17  $ 0.17  $ (0.60)
 
Net income (loss) per share - diluted    As reported  $  0.59  $ 0.34  $ (0.52)
                                         Pro forma    $  0.16  $ 0.15  $ (0.60)
 

     Compensation cost for stock incentive right agreements recognized in the
statement of operations for the years ended December 31, 1997 and 1996 was
approximately $0.6 million and $0.1 million respectively.  Stock incentive
rights issued in 1997 and 1996 were 25,000 and 30,000 respectively.  The SFAS
No. 123 method of accounting has not been applied to options granted prior to
January 1, 1995, so the resulting pro forma compensation cost may not be
representative of that to be expected in future years.

     In connection with the merger with Teleport Communications Group Inc.
("TCG") all outstanding and unexercised options and SIRs will be converted to
options and SIRs of TCG upon the closing of the merger (See Note 10, "Mergers").

     EMPLOYEE LONG-TERM INCENTIVE PLAN:

     The Company has an Employee Long-Term Incentive Plan (the "Plan"), whereby
options to purchase shares of Class A Common Stock may be granted to officers
and key employees of the Company.  In July 1995, shareholders of the Company
approved an additional 750,000 shares of Class A Common Stock to be reserved for
issuance under this Plan, and authorized the issuance of stock incentive rights
("SIRs") thereunder.  In June 1996, the Company's shareholders approved an
additional 750,000 shares for issuance under the Plan.  In June 1997, the
Company's shareholders approved an additional 800,000 shares for issuance under
the Plan, bringing the total shares reserved for issuance to 5,300,000.  The
exercise price of the stock options must not be less than the market value per
share at the date of grant, and no options shall be exercisable after ten years
and one day from the date of grant.  Options generally become exercisable on a
pro-rata basis over a four-year period beginning on the date of grant and 25% on
each of the three anniversary dates thereafter.  SIRs represent the right to
receive shares of the Company's Class A Common Stock without any cash payment to
the Company, conditioned only on continued employment with the Company through a
specified incentive period of at least three years.  At December 31, 1997,  SIRs
for 55,000 shares had been awarded.  50% of the shares vest over a three-year
period beginning on the date of grant, and 25% on each of the two anniversary
dates thereafter.

     For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1997, 1996 and 1995:

                                              1997      1996      1995
                                              ----      ----      ---- 
 
Dividend yield                                0%        0%        0%
Expected volatility                           51%       43%       44%
Risk-free interest rate                       6.04%     5.60%     7.26%
Expected life                                 3 years   3 years   3 years
 
 Changes in the status of the Plan during 1997, 1996, and 1995
  are summarized as follows:

 
                                                                          1997                 1996                   1995
                                                                          ----                 ----                   ----
                                                                    Shares    Wtd. Avg.   Shares   Wtd. Avg     Shares    Wtd. Avg
                                                                    (000s)    Ex. Price   (000s)   Ex. Price   (000s)    Ex. Price
                                                                    -------   ---------   ------   ---------   -------   ---------
                                                                                                           
 

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                                                                          
Outstanding at beginning of year                                      1,598      $13.97    1,606      $ 8.81     1,178      $ 9.02
Granted                                                               1,095       29.99      681       14.95       512       10.23
Exercised                                                              (573)      12.61     (588)       7.99       (50)       9.53
Forfeited                                                              (243)      27.84     (101)       8.72       (34)      10.42
                                                                     ------               ------                ------
Outstanding at end of year                                            1,877       21.98    1,598       13.97     1,606        8.81
                                                                     ======               ======                ======
Number of options at end of year:
Exercisable                                                             617       17.00      637       12.65       608        7.94
Available for grant                                                     843                  895                   725
Weighted average fair
value of options granted                                             $12.37               $ 7.09                 $3.69
 



     The following table summarizes information about stock options outstanding
at December 31, 1997 (shares in thousands):



                      Options Outstanding                           Options Exercisable
                      -------------------                           -------------------
                     Number          Wtd-Avg.              Number
Range of           Outstanding       Remaining            Wtd. Avg.       Exercisable  Weighted Avg.
Exer. Prices       at 12/31/97      Cont. Life           Exer. Price      at12/31/97   Exercise Price
- -----------------  -----------  -------------------  -------------------  -----------  --------------
                                                                        
 
$0 to 9.50                 149                  7.6 years         $ 5.90           39          $ 9.25
$9.83 to 12.50             402                  6.9                10.69          285           10.84
$15.37                     304                  8.0                15.37          128           15.37
$17.50 to 23.00            130                  9.4                21.09            6           23.00
$28.83                      93                  8.5                28.83           43           28.83
$30.25 to 32.00            678                  9.1                30.57          104           30.53
$43.38                     121                  9.8                43.38           12           43.38
                         -----                                                    ---
$0 to 43.38              1,877                  8.1                21.98          617           17.00
                         =====                                                    ===


     Employee Stock Purchase Plan:


     In October 1994, the Company's shareholders approved an employee stock
purchase plan which allows eligible employees to purchase shares of the
Company's Class A Common Stock at 85% of market value on the date on which the
annual offering period begins, or the last business day of each calendar quarter
in which shares are purchased during the offering period, whichever is lower.
In June 1997, the Company's shareholders approved an additional 200,000 shares
for issuance under the plan, bringing the total shares available for issuance to
950,000.  Class A Common Stock reserved for future employee purchases aggregated
847,748 shares at December 31, 1997.  There were 35,450 shares issued at an
average price of $8.37 per share during the year ended December 31, 1995; 19,341
shares issued at an average price of $17.69 per share during the year ended
December 31, 1996; and 28,339 shares issued at an average price of $24.24 per
share during the year ended December 31, 1997.  There have been no charges to
income in connection with this plan other than incidental expenses related to
the issuance of shares.  The weighted average fair value of shares offered in
1997 and 1996 were $14.82 and $3.80, respectively.  In connection with the
merger with Teleport Communications Group Inc., the employee stock purchase plan
has been discontinued effective January 1, 1998 (see Note 10, "Mergers").

     For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following  weighted-average assumptions used for
grants in 1997, 1996 and 1995:

                             1997       1996       1995
                             ----       ----       ----    
                             
Dividend yield               0%         0%         0%      
Expected volatility          57%        19%        18%
Risk-free interest rate      6.04%      5.77%      7.66%

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Expected life              3 months   3 months   3 months
 

     NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN:

     In June 1996, the Company's shareholders approved a Non-Employee Directors'
Stock Option Plan (the Directors' Stock Option Plan).  The Directors' Stock
Option Plan provides for grants of options to purchase 7,500 shares of Class A
Common Stock at an exercise price of 100% of the fair market value of the stock
on the date of grant, which options vest at the first anniversary of the date of
grant.  The maximum number of shares with respect to which options may be
granted under the Directors' Stock Option Plan is 375,000 shares, subject to
adjustment for stock splits, stock dividends, and the like.

     Each option shall be exercisable for ten years and one day after its date
of grant.  Any vested option is exercisable during the holder's term as a
director (in accordance with the option's terms) and remains exercisable for one
year following the date of termination as a director (unless the director is
removed for cause).  Exercise of the options would involve payment in cash,
securities, or a combination of cash and securities.

For purposes of the pro forma disclosure above, the fair value of each option
grant is estimated on the date of the grant using the Black-Scholes option-
pricing model with the following  weighted-average assumptions used for grants
in 1997, 1996 and 1995:

                             1997      1996    1995
                           --------  --------  ----
 
Dividend yield                   0%        0%     -
Expected volatility             54%       44%     -
Risk-free interest rate       6.36%     5.39%     -
Expected life              3 years   3 years      -

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Changes in the status of the Directors' Stock Option Plan during 1997 and 1996
are summarized as follows:



                                                   1997                             1996        
                                                   ----                             ----         
                                         Shares       Weighted Average       Shares       Weighted Average
                                         (000s)        Exercise Price        (000s)        Exercise Price
                                     ---------------  ----------------  ----------------  ----------------
                                                                              
 
Outstanding at beginning of year           60             $22.08               --                 --       
Granted                                    45              17.50               60             $22.08       
Exercised                                  --                 --                                           
Forfeited                                   7              17.50               --                 --       
                                          ---                                 ---        
Outstanding at end of year                 98             $20.32               60             $22.08
Number of options at end of year:        
Exercisable                                60             $22.08               30             $15.33
Available for grant                       277                                 315
 
Range of prices:
   Granted during the year           $        17.50                     $15.33 - $28.83
   Outstanding at end of year        $15.33 - 28.83                     $15.33 - $28.83
   Exercised during the year         $  -                               $  -
Weighted average fair
 value of options granted            $         7.33                     $ 5.41



The table summarizing information about stock options outstanding, required by
SFAS No. 123, is not included, as the impact of the application of this
statement would not be material.

     UNITED KINGDOM SHARESAVE SCHEME:

     In August 1996, the Executive Compensation Committee of the Board of
Directors approved the United Kingdom Sharesave Scheme whereby eligible
employees of ACC UK  are entitled to purchase shares of the Company's Class A
Common Stock at an exercise price equal to 85% of market value on the date that
the purchase period begins.  Employees contribute the purchase price through
monthly payroll deduction of a predetermined amount, not to exceed 250 pounds
sterling, over a three year period, at the end of which the shares are
purchased.  A total of 150,000 shares are reserved for issuance under this plan,
of which options for 17,160 shares at an exercise price of $32.08 were granted
in 1996, and options for 7,259 shares at an exercise price of $26.56 were
granted in 1997.  The weighted average fair value of options offered in 1997 and
1996 was $12.63 and $14.29.

     For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1997, 1996 and 1995:

                             1997      1996    1995
                           --------  --------  ----
 
Dividend yield             0%        0%         -
Expected volatility        48%       40.8%      -
Risk-free interest rate    5.93%     6.45%      -
Expected life              3 years   3 years    -


The table summarizing information about stock options outstanding, required by
SFAS No. 123, is not included, as the impact of the application of this
statement would not be material.

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     D.  SHAREHOLDER RIGHTS PLAN:

     In October 1997, the Board of Directors adopted a Shareholder Rights Plan.
In connection with this plan, the Board of Directors declared a dividend of one
Preferred Stock Purchase Right (Right) on each outstanding share of ACC Common
Stock.  The dividend was distributed on October 15, 1997 to shareholders of
record on that date.  Subject to certain exceptions, the Rights would be
exercisable only if a person or group acquired 15% or more of ACC's Common Stock
or announced a tender or exchange offer which would result in ownership by a
person or group of 15% or more of the Common Stock.  The plan was amended in
November 1997 to reduce the threshold by which the Rights become exercisable
from 15% to 7.5%.  Any shareholder whose ownership exceeded 7.5% on November 6,
1997, and who did not acquire additional shares, was exempt from this amendment.
Each Right entitles its holder to buy one one-thousandth of a share of Series A
preferred stock at an exercise price of $150.00.  Each Right entitles its holder
(other than the acquiring person or group) to purchase, at the exercise price,
shares of the preferred stock or shares of the acquiring company having a market
value of twice such price.  The Company could redeem the rights for $.01 per
Right before the acquisition by a person or group of 7.5% or more of ACC's
Common Stock  and thereafter under certain circumstances.  In connection with
the merger with Teleport Communications Group Inc. ("TCG") (see Note 10,
"Mergers"), the Board of Directors amended the Shareholder Rights Plan to exempt
TCG from the 7.5% threshold by which the rights become exercisable.  The
amendment will remain in effect until December 31, 1998.

7.   COMMITMENTS AND CONTINGENCIES

     A.  OPERATING LEASES:

     The Company leases office space and other items under various agreements
expiring through 2004.  At December 31, 1997, the minimum aggregate payments
under non-cancelable operating leases are summarized as follows (amounts in
000s):

               Year                                      Amount
               ----                                      ------

               1998.................................    $ 6,373
               1999.................................      5,339
               2000.................................      4,991
               2001.................................      4,753
               2002.................................      4,665
               Thereafter...........................      6,916
                                                        -------
                                                        $33,037
                                                        =======

     Rent expense for the years ending December 31, 1997, 1996, and 1995 was
approximately $4,583,000, $4,006,000, and $1,965,000, respectively.

     B.  EMPLOYMENT AND OTHER AGREEMENTS:

     On December 5, 1997 the Company's Chairman and Chief Executive Officer died
unexpectedly.  As an interim measure, the Board of Directors created an Office
of the Chief Executive, electing each of Christopher Bantoft (President of
European Operations), Steve Dubnik (President and Chief Operating Officer of
North American Operations), and Michael Daley (Executive Vice President and
Chief Financial Officer) to this office.  The Company has employment agreements
with each of Messrs. Bantoft, Dubnik and Daley, which provides for continuation
of salary and benefits in the event each is terminated without cause or in the
event of a change in control of the Company.  At December 31, 1997, the
Company's maximum potential liability for each of these individuals separately
is approximately $350,000.

     The Company had a contract with a former Chairman which provided for an
annual base salary, including an annual bonus and other benefits during his
employment term, and also for a payment of $1.0 million, payable over a three
year term, in the event that he resigned or was terminated without cause. During
1996, the Chairman of the Board resigned his position as Chairman of the
Company.  At December 31, 1996, under this agreement, the Company had accrued
the entire $1.0 million, and a payment of $0.3 million was made in each of
January 1997 and January 1998.  In consideration 

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

for a non-compete agreement which has a three-year term beginning in January
1997, the former Chairman received a payment of $750,000, which was expensed in
1995.

     The Company has entered into employee continuation incentive agreements
with certain other key management personnel.  These agreements provide for
continued compensation and continued vesting of options previously granted under
the Company's Employee Long-Term Incentive Plan for a period of up to one year
in the event of termination without cause or in the event of termination after a
change in control of the Company.  At December 31, 1997, the Company's estimated
maximum potential liability under these agreements totaled approximately $3.7
million (excluding the Office of the Chief Executive).

     C.  PURCHASE COMMITMENTS:

     At December 31, 1997, the Company had outstanding purchase commitments
totaling approximately $7.5 million primarily related to the purchase of local
exchange switches for the US business, the purchase of a microwave for the UK
operation and other capital expenditures.

     In 1993, ACC Long Distance Ltd., a subsidiary of ACC TelEnterprises Ltd.,
entered into an agreement with one of its vendors to lease long distance
facilities totaling a minimum of Cdn. $1.0 million per month for seven years.
The Company currently leases more than Cdn. $1.0 million per month of such
facilities from this vendor.  This commitment allows the Company to receive up
to a 60% discount on certain monthly charges from this vendor.

     D.  DEFINED CONTRIBUTION PLANS:

     The Company provides a defined contribution 401(k) plan to substantially
all US employees.  Amounts contributed to this plan by the Company were
approximately $314,000, $240,000, and $183,000 in 1997, 1996, and 1995,
respectively.  The Company's Canadian subsidiary provides a registered
retirement savings plan to substantially all Canadian employees.  Amounts
contributed to this plan by the Company were Cdn. $229,000, Cdn. $186,000, and
Cdn. $106,000 in 1997, 1996, and 1995, respectively.  In 1997, the Company's UK
subsidiary established a group retirement plan available to substantially all UK
employees.  Amounts contributed to this plan in 1997 were 37,400 pounds
sterling.

     E.  ANNUAL INCENTIVE PLAN:

     During 1997, no incentive bonuses were authorized, as performance criteria
specified under the incentive plan were not met.  During 1996, the Company's
Board of Directors authorized incentive bonuses based upon the Company's sales,
gross margin, operating expenses, and operating income.  Prior to 1995,
incentive bonuses were discretionary as determined by the Company's management
and approved by the Board of Directors.  The amounts included in operations for
these incentive bonuses were approximately $0, $2.6 million, and  $1.4 million
for the years ended December 31, 1997, 1996, and 1995, respectively.

     F.  LEGAL MATTERS:

     The Company is subject to litigation from time to time in the ordinary
course of business.  Although the amount of any liability with respect to such
litigation cannot be determined, in the opinion of management, such liability as
of December 31, 1997 will not have a material adverse effect on the Company's
financial condition or results of operations.

8.    GEOGRAPHIC AREA INFORMATION (AMOUNTS IN 000S)
Year ended December 31, 1997:



                                   United                       United
                                   States        Canada        Kingdom       Germany       Eliminations      Consolidated
                                   ------        ------        -------       -------       ------------      ------------  
                                                                                          
Revenue from unaffiliated
   customers                        $120,627      $116,638       $132,151      $ 3,197   $                         $372,613
Intercompany revenue                  43,460         3,875          7,377            -            (54,712)                -
                                    --------      --------       --------      -------          ---------          --------
 

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




                                                                                          
Total revenue                       $164,087      $120,513       $139,528      $ 3,197          $ (54,712)         $372,613
                                    --------      --------       --------      -------          ---------          --------
Income (loss)  from operations
   before income taxes              $  8,254      $ (1,079)      $  6,654      $(2,962)  $             -           $ 10,867
                                    --------      --------       --------      -------          ---------          --------
Identifiable assets at
   December 31, 1997                $258,390      $ 96,679       $ 90,649      $12,929          $(142,335)         $316,312
                                    --------      --------       --------      -------          ---------          --------


YEAR ENDED DECEMBER 31, 1996:



                                   United                      United
                                   States        Canada       Kingdom       Germany      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 (loss)  from operations
   before income taxes              $  6,676      $  3,452       $   731  $        -   $              -          $ 10,859
                                    --------      --------       -------  -----------         ---------          --------
Identifiable assets at
   December 31, 1996                $182,435      $ 94,165       $49,667  $        -          $(122,236)         $204,031
                                    --------      --------       -------  -----------         ---------          --------




Year ended December 31, 1995:



                                 United                      United
                                 States        Canada        Kingdom       Germany      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
                                  --------       -------       -------   -----------         --------          --------


     Intercompany revenue is recognized when calls are originated in one country
and terminated in another country over the Company's leased network.  This
revenue is recognized at rates similar to those charged by unaffiliated
companies.  Income from operations before income taxes of the Canadian, United
Kingdom and German operations includes corporate charges for general corporate
expenses and interest.

     Corporate general and administrative expenses are allocated to subsidiaries
based on time dedicated to each subsidiary by members of corporate management
and staff.

9.   RELATED PARTY TRANSACTIONS

     The Company's headquarters is in a building owned by a partnership in which
the Company's former chairman of the board has a 50% ownership interest.  A
Special Committee of the Company's Board of Directors reviewed the lease to
ensure that the terms and conditions were commercially reasonable and fair to
the Company prior to approval of the plan in February 1994.  Minimum monthly
lease payments for this space range from $44,000 to $60,000 over the ten-year
term of the lease, which began on May 1, 1994.  The Company also pays a pro-rata
share of maintenance costs.  

 
                           ACC. CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Total rent and maintenance payments under this lease were approximately
$0.8 million, $0.8 million, and $0.6 million during 1997, 1996, and 1995,
respectively.

     During 1994 and early 1995, the Company initiated efforts to obtain new
telecommunications software programs from a software development company.  The
Company's former chairman of the board and chief executive officer was a
controlling shareholder of the software development company during such period.
In May 1995, anticipating material agreements with the software development
company, all of the common shares owned by the Company's former chairman of the
board were placed in escrow under the direction of a Special Committee of the
Company's Board of Directors.  The Special Committee, its outside consultants,
and the Company's management then proceeded to review and evaluate the software
technology and the terms and conditions of the proposed transactions.

     In 1996, the Special Committee approved a software license agreement
between the Company and a newly formed company (the purchaser of the software
development company's intellectual property and other assets and an affiliate of
such company).  Immediately prior to entering into the agreement, the shares of
the software development company held in escrow were returned to such company
and the related party nature of the Company's relationship with the software
development company was thereby extinguished.  Total amounts accrued at December
31, 1997, 1996, and 1995 relating to this vendor were $0, $0 and $44,000,
respectively.  For an aggregate consideration of $1.8 million, paid in 1996, the
Company received a perpetual right to use the telecommunications software
programs.  Approximately $0.2 million was paid to the vendor in 1996 and was
expensed prior to entering into the agreement.  During 1995, the Company paid
the software development company $1.2 million, of which $772,000, relating to
the purchase of certain hardware and acquisition of certain software licenses,
was capitalized and recorded on the balance sheet as a component of property,
plant, and equipment and $500,000 relating to software development was expensed.

     The Company had notes receivable from two officers which totaled $370,000
as of December 31, 1996.  These notes were paid in full in 1997.

10.  MERGERS

     On October 28, 1997, the Company entered into an agreement and plan merger
with US WATS Inc. ("USW"), a switch-based long distance provider based in Bala
Cynwyd, Pennsylvania.  Upon consummation of the merger, USW was to become a
wholly owned subsidiary of ACC, and the shares of USW common stock that were
issued and outstanding at the effective of the USW merger, other than the shares
held by shareholders who perfected their statutory dissenters' rights, would
have been converted automatically into the right to receive a number of shares
of ACC stock determined pursuant to the merger agreement.

     On March 11, 1998, ACC and USW agreed to a mutual termination of the
agreement and plan of merger, by and among USW and ACC.

     In November 1997, the Company signed a definitive agreement to be acquired
by Teleport Communications Group Inc. ("TCG"), the largest competitive local
exchange carrier in the US, in a stock for stock merger.  Under the agreement,
ACC shareholders will receive $50 in value of TCG Class A common stock for each
share of ACC stock, based upon the average closing price of TCG stock for a ten
trading day period preceding the date of merger.  The total value of the
transaction would be approximately $1 billion.  However, if TCG's average
closing price during the ten day trading period prior to closing is below $45 or
above $55, the exchange ratios will be fixed at 1.11111 shares of TCG stock or
0.90909 shares of TCG stock, respectively.  It is anticipated that the merger
will be treated as a tax-free exchange.  The merger is subject to the approval
of the holders of a majority of the outstanding shares of ACC and to other
conditions, including various regulatory consents in the US and certain foreign
jurisdictions.

     In connection with the proposed mergers with USW and TCG, the Company has
incurred costs for certain investment advisory, legal, accounting and other
professional services.  The Company has recorded $5.0 million of such costs
(reflected in the consolidated statements of operations as "merger costs")  in
1997, of which $1.3 million as been paid through December 31, 1997 and the
remaining $3.7 million is accrued and expected to be paid during 1998.

 
     (b) The following Financial Statements for ACC Corp. Employee Stock
Purchase Plan are included herewith as follows:

     Report of Independent Public Accountants

     Statements of Financial Condition, December 31, 1997 and 1996

     Statements of Changes in Participants' Equity for the years ended December
     31, 1997, 1996 and 1995

     Notes to Financial Statements

 
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Plan Administrator of the ACC Corp. Employee Stock Purchase Plan:

     We have audited the accompanying statements of financial condition of the
ACC Corp. Employee Stock Purchase Plan as of December 31, 1997 and 1996, and the
related statements of changes in participants' equity for each of the three
years ended December 31, 1997.  These financial statements are the
responsibility of the Plan's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of the Plan as of December 31,
1997 and 1996, and the results of its changes in participants' equity for each
of the three years ended December 31, 1997 in conformity with generally accepted
accounting principles.

                              /s/ Arthur Andersen LLP

Rochester, New York
March 13, 1998

 
                                   ACC Corp.
                          Employee Stock Purchase Plan
                       Statements of Financial Condition
                           December 31, 1997 and 1996
 
 
ASSETS:                                        1997          1996  
                                              ------        ------ 
                                                                   
     Receivable from ACC Corp.                $2,361        $1,627 
                                              ------        ------ 
TOTAL ASSETS                                  $2,361        $1,627 
                                              ======        ======  
                                                                    

LIABILITIES AND PARTICIPANTS' EQUITY:

     Participants' equity                     $2,361        $1,627
                                               -----         -----
                                                            
TOTAL LIABILITIES AND PARTICIPANTS' EQUITY    $2,361        $1,627
                                               =====        ======



The accompanying notes to financial statements are an integral part of these
statements.

 
                                   ACC Corp.
                          Employee Stock Purchase Plan
                 Statements of Changes in Participants' Equity
              For the Years Ended December 31, 1997, 1996 and 1995
 
 
ADDITIONS:                                            1997      1996      1995
                                                    --------  --------  --------

     Employee contributions                         $595,062  $356,514  $331,256
                                                    --------  --------  --------
DEDUCTIONS:                                  
     Stock purchased                                 583,349   343,870   297,027
     Employee withdrawals                             10,979    11,700    34,103
                                                    --------  --------  --------
     Total deductions                                594,328   355,570   331,130
                                                    --------  --------  --------
NET INCREASE IN PARTICIPANTS' EQUITY                     734       944       126
PARTICIPANTS' EQUITY, BEGINNING OF PERIOD              1,627       683       557
                                                    --------  --------  --------
PARTICIPANTS' EQUITY, END OF PERIOD                 $  2,361  $  1,627  $    683
                                                    ========  ========  ========
The accompanying notes to financial statements are an integral part of these
statements.

 
                                   ACC Corp.
                          Employee Stock Purchase Plan
                         Notes to Financial Statements


1.   PLAN DESCRIPTION:

     The ACC Corp. Employee Stock Purchase Plan (the "Plan") was adopted by the
Board of Directors on February 8, 1994 and was ratified by the shareholders on
October 13, 1994.  The first offering period began July 1, 1994.  Officers did
not participate until the ratification by the shareholders occurred.  The Plan
was established to provide employees with increased employment and performance
incentives and to enhance ACC Corp.'s (the "Company") efforts to attract and
retain employees of outstanding ability.  The Plan permits eligible Company
employees to make periodic purchases of shares of the Company's Class A Common
Stock through payroll deductions at prices below then-prevailing market prices.
As of December 31, 1997, 651,692 shares of the Company's Class A Common Stock
(which may be treasury shares, authorized and unissued shares, or a combination
thereof at the Company's discretion) are reserved for future issuance under the
Plan.  The Plan is administered by the Executive Compensation Committee of the
Board of Directors of ACC Corp. (the "Committee").  None of the members of the
Committee is eligible to participate in the Plan.  Reference should be made to
the Plan for more complete information.

     Any employee of the Company or any of its subsidiaries who is employed at
least 20 hours per week is eligible to participate in the Plan.  Participants
may enroll in the Plan prior to an offering commencement date.  Employees may
authorize payroll deductions of up to 15% of their then-current straight-time
earnings during the term of an offering, which will be applied to the purchase
of shares under the Plan.  These payroll deductions will begin on that offering
commencement date and will end on the last purchase date applicable to any
offering in which he/she holds any options to purchase shares of the Company's
Class A Common Stock, or if sooner, on the effective date of his/her termination
of participation in the Plan.  Newly hired employees hired subsequent to an
offering commencement date may begin participation in the Plan at the beginning
of the next calendar quarter following their date of hire.

     Payroll deductions will be held by the Company as part of its general funds
for the credit of the participants and will not accrue interest pending the
periodic purchase of shares under the Plan.  On the last business day of each
calendar quarter during the term of an offering, a participant will
automatically be deemed to have exercised his/her options to purchase, at the
applicable purchase price, the maximum number of full shares that can be
purchased with the amounts deducted from the participant's pay during that
quarter, together with any excess funds from preceding quarters.  The purchase
price at which shares may be purchased under the Plan is 85% of the closing
price of the Company's Class A Common Stock in Nasdaq trading on either a) the
offering commencement date (or, in the case of interim participation by newly
hired employees, the date on which they are permitted to begin participation in
that offering) or b) the date on which shares are purchased through the
automatic exercise of an option to purchase shares under the Plan, whichever is
lower.  The maximum number of shares that a participant will be permitted to
purchase in any single offering is subject to certain limitations, as set forth
in the plan document.

     A participant may, at any time and for any reason, withdraw from further
participation in any offering or from the Plan by giving written notice.  In
such event, the participant's payroll deductions which have been credited to
his/her plan account and not already expended to purchase shares under the Plan
will be refunded without interest.  No further payroll deductions will be made
from his/her pay during the term of that offering.  No withdrawing participant
will be permitted to re-commence his/her participation in an offering, however,
termination of participation in an offering or in the Plan will not have any
effect upon subsequent eligibility to participate in the Plan.  A participant's
retirement, death or other termination of employment will be treated as a
permanent withdrawal from participation.  In the event of a participant's death,
his/her estate or designated beneficiary shall have the right to elect, no later
than 60 days following his/her date of death, to receive either the accumulated
payroll deductions in the deceased participant's plan account or to exercise, on
the next subsequent purchase date, the deceased participant's options to
purchase the number of full shares of Class A Common Stock that can be purchased
with the balance in the decedent's plan account as of his/her date of death,
together with the return of any excess cash, without interest.

     In connection with the merger with Teleport Communications Group Inc. the
Plan has been discontinued effective January 1, 1998.

 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     The financial statements are prepared using the accrual basis of
accounting.  The Company pays all of the Plan's administrative expenses.

3.   INCOME TAX STATUS:

     The Plan is intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code.  In order for favorable tax treatment
to be available to the participant, the participant cannot dispose of any shares
acquired under the Plan within two years following the date the option to
purchase was granted, nor within one year following the date the shares were
actually purchased.

4.   STOCK PURCHASES:

     Stock purchases by offering period are as follows:

                                            Purchase price     Number of
Offering Period          Valuation Date       per share     shares purchased
- ---------------------  -------------------  --------------  ----------------

January 1, 1995 -      December 31, 1994        $ 9.83           26,903    
  December 31, 1995    March 31, 1995*          $11.17              105    
                       June 30, 1995*           $ 9.83              101    
                       September 30, 1995*      $11.00               77    
                                                                           
July 1, 1995 -         June 30, 1995            $ 9.83            7,746    
 December 31, 1995     September 30, 1995*      $11.00              519    
                                                                           
January 1, 1996 -      December 30, 1995        $15.37           12,544    
 June 30, 1996         March 31, 1996*          $19.75              158    
                                                                           
July 1, 1996 -         June 30, 1996            $32.42            2,834    
 December 31, 1996     December 31, 1996        $30.25            3,806    
                                                                           
January 1, 1997 -      March 31, 1997           $18.91            6,784    
 June 30, 1997         March 31, 1997           $18.91              584    
                       December 31, 1996        $25.71            5,458    
                                                                           
July 1, 1997-          June 30, 1997            $26.25            5,494    
 December 31, 1997     September 30, 1997       $26.25            6,075     

     *For those employees who began participation during the offering period.


     The valuation date is the date during the offering period, as defined, on
which the stock price was the lowest, therefore becoming the base for the
calculation of shares to be purchased.

 
          (2) FINANCIAL STATEMENT SCHEDULES.  The following Financial Statement
              -----------------------------                                    
Schedules and the accountant's report thereon are included herewith as follows:

          Report of Independent Public Accountants

     II             Consolidated Valuation and Qualifying Accounts for the years
          ended December 31, 1997, 1996 and 1995

All other schedules are not submitted because they are not applicable, not
required or because the required information is included in the consolidated
financial statements or notes thereto.

          (3) EXHIBITS.  The following constitutes the list of exhibits required
              --------                                                          
to be filed as a part of this Report pursuant to Item 601 of Regulation S-K:

 
                                LIST OF EXHIBITS


 

EXHIBIT NUMBER      Description                                         Location
- --------------      -----------                                         --------                                       

                                                                   
 3-1                First Restated Certificate of Incorporation of ACC   Incorporated by Reference to Exhibit 3 to the
                    Corp.                                                Company's Quarterly Report on Form 10-Q for 
                                                                         its Quarter Ended September 30, 1995        
                                                                         ("September 30, 1995 10-Q")                 
                                                                                                                     
 3-2                Certificate of Designation of the Voting Powers,     Incorporated by Reference from Exhibit 1 to 
                    Designation, Preferences and Relative,               the Company's Registration Statement on Form
                    Participating, Optional or other Special Rights      8-A dated October 3, 1997 (as amended on Form
                    and Qualifications, Limitations and Restrictions     8-A/A dated December 10, 1997).             
                    of the Series A Preferred Stock of ACC Corp.                                                     
                                                                                                                     
 3-3                Bylaws of ACC Corp., as amended on May 21, 1996      Incorporated by Reference to Exhibit 99.5 to
                                                                         the Company's Current Report on Form 8-K    
                                                                         filed on September 17, 1996 ("September 17, 
                                                                         1996 8-K")                                   

 4-1                Form of ACC Corp. Class A Common Stock Certificate   Incorporated by Reference to Exhibit 4-1 to    
                                                                         the Company's Registration Statement on Form   
                                                                         S-3, No. 333-01157 declared effective May 2,   
                                                                         1996                                           
                                                                                                                        
 4-2                Form of Warrant to purchase 7,500 Shares of Class    Incorporated by Reference to Exhibit 99.4 to   
                    A Common Stock dated October 30, 1995                the Company's Current Report on Form 8-K       
                                                                         filed on February 22, 1996 8-K ("February 22,  
                                                                         1996 8-K")                                     
                                                                                                                        
 4-5                Form of Rights Agreement, dated as of October 3,     Incorporated by Reference from Exhibit 1 to    
                    1997, between ACC Corp. and First Union National     the Company's Registration Statement on Form   
                    Bank, as Rights Agent, which includes as Exhibit     8-A dated October 3, 1997 (as amended on Form  
                    A-Form of Rights Certificate; Exhibit B-Summary of   8-A/A dated December 10, 1997).                
                    Rights to Purchase Preferred Stock; and Exhibit                                                     
                    C-Certificate of Designation                                                                         

10-1                Form of Employment Continuation Incentive            Incorporated by Reference to Exhibit 99.3 to 
                    Agreement between ACC Corp. and certain of its Key   the Company's February 22, 1996 8-K          
                    Employees                                                                                         
                                                                                                                      
10-2                ACC Corp. Employee Long Term Incentive Plan, as      Incorporated by Reference to Exhibit 4-1 to  
                    amended through February 5, 1996                     the Company's Registration Statement on Form 
                                                                         S-8, No. 333-01219, effective February 26,   
                                                                         1996                                          
                                                                             
10-3                Form of ACC Corp. Indemnification Agreement with     Incorporated by Reference to Exhibit 10-29 to
                    its Directors and certain of its Executive Officers  the Company's Report on Form 10-K for its
                                                                         year ended December 31, 1987


 

 

                                                                   
10-4                ACC Corp. Employee Stock Purchase Plan               Incorporated by Reference to Exhibit 4-4 to   
                                                                         the Company's Registration Statement on Form  
                                                                         S-8, No. 33-75558, effective February 22, 1994
                                                                                                                       
10-5                Employment Agreement between ACC Corp. and David     Incorporated by Reference to Exhibit 10-2 to  
                    K. Laniak, dated October 6, 1995                     the Company's September 30, 1995 10-Q          

10-6                Salary Continuation and Deferred Compensation        Incorporated by Reference to Exhibit 10-3 to    
                    Agreement between ACC Corp. and Richard T. Aab,      the Company's September 30, 1995 10-Q           
                    dated October 6, 1995                                                                                
                                                                                                                         
10-7                Non-Competition Agreement between ACC Corp. and      Incorporated by Reference to Exhibit 10-4 to    
                    Richard T. Aab, dated October 6, 1995                the Company's September 30, 1995 10-Q           
                                                                                                                         
10-8                Release and Settlement Agreement between ACC Corp.   Incorporated by Reference to Exhibit 99.2 to    
                    and Francis Coleman, dated December 29, 1995         the Company's February 22, 1996 8-K             
                                                                                                                         
10-9                Software License Agreement dated March 30, 1995 by   Incorporated by Reference to Exhibit 99.5 to    
                    and between AMBIX Systems Corp. and ACC Corp.        the Company's February 22, 1996 8-K              

10-10               Software License Agreement dated February 21, 1996   Incorporated by Reference to Exhibit 99.6 to     
                    between AMBIX Acquisition Corp. and ACC Corp.        the Company's February 22, 1996 8-K 
                                                                                                                          
10-11               Bill of Sale from AMBIX Systems Corp. to ACC Corp.   Incorporated by Reference to Exhibit 99.7 to     
                    dated February 6, 1996                               the Company's February 22, 1996 8-K              
                                                                                                                          
10-12               Letter Agreement dated April 27, 1995 between the    Incorporated by Reference to Exhibit 99.8 to     
                    Special Committee of the Board of Directors of ACC   the Company's February 22, 1996 8-K              
                    Corp. and Richard T. Aab                                                                              
                                                                                                                          
10-13               Lease dated January 25, 1994 between the Hague       Incorporated by Reference to Exhibit 99.9 to     
                    Corporation and ACC Corp., as modified by a Lease    the Company's February 22, 1996 8-K              
                    Modification Agreement No. 1 dated May 31, 1994                                                       
                    and a Lease Modification Agreement No. 2 dated May                                                    
                    31, 1994, relating to the leased premises located                                                     
                    at 400 West Avenue, Rochester, New York                                                                

10-14               Amended and Restated Lease Agreement dated March     Incorporated by Reference to Exhibit 99.10 to     
                    1, 1994 between ACC Long Distance                    the Company's February 22, 1996 8-K               
                    Inc./Interurbains ACC Inc. and Coopers & Lybrand                                                       
                    relating to the leased premises located at 5343                                                        
                    Dundas Street West, Etobicoke, Ontario, Canada                                                         
                                                                                                                           
10-15               Underlease Agreement dated December 23, 1993         Incorporated by Reference to Exhibit 99.11 to     
                    between ACC Long Distance UK Limited, IBM United     the Company's February 22, 1996 8-K               
                    Kingdom Limited, and ACC Corp. relating to the                                                         
                    leased premises located on the tenth floor at The                                                      
                    Chiswick Centre 414 Chiswick High Road, London,                                                        
                    England                                                                                                 


 
                                                                   
10-16               Underlease Agreement dated June 6, 1995 between      Incorporated by Reference to Exhibit 99.12 to    
                    ACC Long Distance UK Limited, IBM United Kingdom     the Company's February 22, 1996 8-K              
                    Limited, and ACC Corp. relating to the leased                                                         
                    premises located on the first floor at The                                                            
                    Chiswick Centre 414 Chiswick High Road, London,                                                       
                    England                                                                                               
                                                                                                                          
10-17               Supplemental Lease Agreement dated June 3, 1994      Incorporated by Reference to Exhibit 99.13 to    
                    between ACC Long Distance UK Limited, IBM United     the Company's February 22, 1996 8-K              
                    Kingdom Limited, and ACC Corp. relating to the                                                        
                    leased premises located on the ninth floor at The                                                     
                    Chiswick Centre 414 Chiswick High Road, London,                                                       
                    England                                                                                                

10-18               Second Amended and Restated Credit Agreement,        Filed herewith                               
                    dated as of December 19, 1997, by and among ACC                                                   
                    Corp. and certain Subsidiaries as Borrowers, ACC                                                  
                    Corp. as Guarantor, First Union National Bank of                                                  
                    North Carolina as Managing Agent and                                                              
                    Administrative Agent, and Fleet National Bank, as                                                 
                    Managing Agent and Documentation Agent                                                            
                                                                                                                      
10-19               Leasehold Mortgage dated July 21, 1995 between ACC   Incorporated by Reference to Exhibit 99.16 to
                    Corp. and First Union National Bank of North         the Company's February 22, 1996 8-K          
                    Carolina relating to the leased premises located                                                  
                    at 400 West Avenue, Rochester, New York                                                           
                    ("Rochester Leasehold Mortgage")                                                                   

10-20               Modification to Rochester Leasehold Mortgage dated   Incorporated by Reference to Exhibit 10-20 to 
                    January 14, 1997                                     the Company's Annual Report on Form 10-K for  
                                                                         the Year Ended December 31, 1996              
10-21               Leasehold Mortgage dated July 21, 1995 between ACC   Incorporated by Reference to Exhibit 99.16 to 
                    Corp. and First Union National Bank of North         the Company's February 22, 1996 8-K           
                    Carolina relating to the leased premises located                                                   
                    at Suite 206, State Tower Building, 109 South                                                      
                    Warren Street, Syracuse, New York ("Syracuse                                                       
                    Leasehold Mortgage")                                                                               
10-22               Modification to Syracuse Leasehold Mortgage dated    Incorporated by Reference to Exhibit 10-22 to 
                    January 14, 1997                                     the Company's Annual Report on Form 10-K for  
                                                                         the Year Ended December 31, 1996               

10-23               Leasehold Mortgage dated July 21, 1995 between ACC   Incorporated by Reference to Exhibit 99.17 to  
                    Corp. and First Union National Bank of North         the Company's February 22, 1996 8-K            
                    Carolina relating to the leased premises located                                                    
                    at Suite 2200, Suite 204 and Suite 205, State                                                       
                    Tower Building, 109 South Warren Street, Syracuse,                                                  
                    New York ("Additional Syracuse Leasehold Mortgage")                                                  



 

 
                                                                   

10-24               Modification to Additional Syracuse Leasehold        Incorporated by Reference to Exhibit 10-24 to
                    Mortgage dated January 14, 1997                      the Company's Annual Report on Form 10-K for
                                                                         the Year Ended December 31, 1996

10-25               Mortgage of Leasehold Interest, dated as of          Incorporated by Reference to Exhibit 10-25 to     
                    January 14, 1997, between ACC TelEnterprises         the Company's Annual Report on Form 10-K for      
                    Ltd./TelEnterprises ACC LTEE and First Union         the Year Ended December 31, 1996                  
                    National Bank of North Carolina, as Agent,                                                             
                    relating to the leased premises located at One                                                         
                    Toronto Street, Toronto, Ontario, Canada                                                               

10-26               Mortgage of Leasehold Interest, dated as of          Incorporated by Reference to Exhibit 10-26 to     
                    January 14, 1997, between ACC TelEnterprises         the Company's Annual Report on Form 10-K for      
                    Ltd./TelEnterprises ACC LTEE and First Union         the Year Ended December 31, 1996                  
                    National Bank of North Carolina, as Agent,                                                             
                    relating to the leased premises located at 5343                                                        
                    Dundas Street West, Etobicoke, Ontario, Canada                                                         

10-27               Second Amended and Restated Pledge Agreement dated   Filed herewith                                    
                    as of December 19, 1997 by ACC Corp. in favor of                                                       
                    First Union National Bank of North Carolina as                                                         
                    Administrative Agent                                                                                    
 
10-28               Amended and Restated Pledge Agreement dated as of    Incorporated by Reference to Exhibit 10-28 to    
                    January 14, 1997 by ACC National Long Distance       the Company's Annual Report on Form 10-K for     
                    Corp. in favor of First Union National Bank of       the Year Ended December 31, 1996                 
                    North Carolina as Administrative Agent                                                                

10-29               Seconded Amended and Restated Security Agreement     Filed herewith                                   
                    dated as of December 19, 1997 between ACC Corp.,                                                      
                    certain Domestic Subsidiaries of the Company and                                                      
                    First Union National Bank of North Carolina as                                                        
                    Administrative Agent                                                                                  

10-30               Amended and Restated Trademark Security Agreement    Incorporated by Reference to Exhibit 10-30 to    
                    dated as of January 14, 1997 between ACC Corp. and   the Company's Annual Report on Form 10-K for     
                    First Union National Bank of North Carolina as       the Year Ended December 31, 1996                 
                    Administrative Agent                                                                                  

10-31               License Agreement dated July 1, 1993 between         Incorporated by Reference to Exhibit 99.23 to    
                    Hudson's Bay Company and ACC Long Distance Inc.      the Company's February 22, 1996 8-K               


10-32               Employment Agreement between Christopher Bantoft     Incorporated by Reference to Exhibit 10-29 of 
                    and ACC Long Distance UK Ltd. dated November 16,     the Company's Report on Form 10-K for its     
                    1993, as amended                                     year ended December 31, 1995 ("December 31,   
                                                                         1995 10-K")                                   
                                                                                                                       
10-33               Employment Agreement between Steve M. Dubnik and     Incorporated by Reference to Exhibit 10-30 of 
                    ACC TelEnterprises Ltd. Dated August 4, 1994         the Company's December 31, 1995 10-K           

 



 
                                                                   

10-34               ACC Corp. Non-Employee Directors' Stock Option Plan  Incorporated by Reference to Exhibit 99.6 to  
                                                                         the Company's September 17, 1996 8-K          
                                                                                                                       
10-35               Rules of the ACC Corp. 1996 UK Sharesave Scheme      Incorporated by Reference to Exhibit 10-35 to 
                    dated August 5, 1996                                 the Company's Annual Report on Form 10-K for  
                                                                         the Year Ended December 31, 1996              
                                                                                                                       
10-36               Net Settlement Agreement dated September 9, 1996     Incorporated by Reference to Exhibit 99.6 to  
                    between Teletek, Inc. and ACC Long Distance Corp.    the Company's September 17, 1996 8-K          
                                                                                                                       
10-37               License Agreement between EDS of Canada Ltd. And     Incorporated by Reference to Exhibit 99.7 to  
                    ACC TelEnterprises Ltd. Dated June 24, 1996          the Company's September 17, 1996 8-K          
                                                                                                                       
10-38               Amendment to Salary Continuation and Deferred        Incorporated by Reference to Exhibit 99.8 to  
                    Compensation Agreement between ACC Corp. and         the Company's September 17, 1996 8-K          
                    Richard T. Aab dated September 13, 1996                                                             

10-39               License Granted by the Secretary of State for        Incorporated by Reference to Exhibit 10-39 to 
                    Trade and Industry to ACC Long Distance UK Ltd.      the Company's Annual Report on Form 10-K for  
                    Under Section 7 of the Telecommunications Act 1984   the Year Ended December 31, 1996              
                                                                                                                       
10-40               Leasehold Mortgage dated as of January 14, 1997 by   Incorporated by Reference to Exhibit 10-40 to 
                    and among ACC National Telecom Corp. and First       the Company's Annual Report on Form 10-K for  
                    Union National Bank of North Carolina as             the Year Ended December 31, 1996              
                    Administrative Agent relating to the leased                                                        
                    premises located at One Commerce Plaza, Albany,                                                    
                    New York                                                                                           
                                                                                                                       
10-41               Leasehold Mortgage dated as of January 14, 1997 by   Incorporated by Reference to Exhibit 10-41 to 
                    and among ACC Long Distance Corp. and First Union    the Company's Annual Report on Form 10-K for  
                    National Bank of North Carolina as Administrative    the Year Ended December 31, 1996              
                    Agent relating to the leased premises located at                                                   
                    69 Delaware Avenue, Buffalo, New York                                                               

10-42               Leasehold Mortgage dated as of January 14, 1997 by   Incorporated by Reference to Exhibit 10-42 to 
                    and among ACC National Telecom Corp. and First       the Company's Annual Report on Form 10-K for  
                    Union National Bank of North Carolina as             the Year Ended December 31, 1996              
                    Administrative Agent relating to the leased                                                        
                    premises located at 32 Old Slip, New York, New York                                                
                                                                                                                       
10-43               Mortgage of Leasehold Interest, dated as of          Incorporated by Reference to Exhibit 10-43 to 
                    January 14, 1997, between ACC TelEnterprises         the Company's Annual Report on Form 10-K for  
                    Ltd./TelEnterprises ACC LTEE and First Union         the Year Ended December 31, 1996              
                    National Bank of North Carolina as Administrative                                                  
                    Agent relating to the leased premises located in                                                   
                    Vancouver, British Columbia, Canada                                                                 




 
                                                                   
10-44               Agreement for Lease, dated October 9, 1997, among    Filed herewith  
                    ACC Long distance U.K. Limited, ACC Corp. and                        
                    Lasmo (ULX) Limited relating to leased premises at                   
                    626 Chiswick High Road, London, England                               

11                  Statement re: Computation of Per Share Earnings      See Note 1 to the Notes to the Consolidated
                                                                         Financial Statements filed herewith        
                                                                                                                    
21                  Subsidiaries of ACC Corp.                            Filed herewith                             
                                                                                                                    
23                  Accountant's Consent                                 Filed herewith                             
                                                                                                                    
27                  Financial Data Schedule                              Filed only with EDGAR filing, per Reg. S-K,
                                                                         Rule 601(c)(1)(v)                          

27-1                Restated Financial Data Schedules                    Filed only with EDGAR filing, per Reg. S-K,
                                                                         Rule 601(c)(1)(v)




 
     (b) REPORTS ON FORM 8-K.  The following Reports on Form 8-K were filed for
         -------------------                                                   
the quarter ended December 31, 1997.

         Form 8-K dated October 3, 1997

         Form 8-K dated November 26, 1997

     (c) EXHIBITS.  See Exhibit Index.
         -----------------------------

     (d) FINANCIAL STATEMENT SCHEDULES.  Financial Statement Schedules, along
         -----------------------------                                       
with the report of the independent public accountants thereon, are as follows:

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To ACC Corp.:

     We have audited in accordance with generally accepted auditing standards,
the financial statements of ACC Corp. included in this Form 10-K and have issued
our report thereon dated February 3, 1998.  Our audit was made for the purpose
of forming an opinion on those statements taken as a whole.  The schedule listed
in the accompanying index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements.  The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.


Rochester, New York
February 3, 1998



                                    /s/ Arthur Andersen LLP

 
                                  SCHEDULE II

                           ACC CORP AND SUBSIDIARIES

                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

               For the Years Ended December 31, 1997, 1996, 1995
                                    (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, 1997
Allowance for doubtful accounts                  $ 3,795  $  3,810            -    ($2,314)  $ 5,291
Valuation allowance for deferred tax assets      $ 7,669   ($4,360)           -          -   $ 3,309
 
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts                  $ 2,085  $  5,143            -    ($3,433)  $ 3,795
Valuation allowance for deferred tax assets      $10,938   ($3,269)           -          -   $ 7,669

YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts                  $ 1,035  $  3,284            -    ($2,234)  $ 2,085
Valuation allowance for deferred tax assets      $ 7,454  $  2,223   $1,261  (1)         -   $10,938


- -----------------------------------
(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 25, 1998                   By:   /s/Michael R. Daley
                                            ------------------------------------
                                                        Michael R. Daley
                                                    Executive Vice President
                                                       and Chief Financial
                                                            Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons, on behalf of the Company and in
the capacities and on the dates indicated.

Dated:  March 25, 1998                   By:     /s/Michael R. Daley
                                            ------------------------------------
                                                        Michael R. Daley,
                                                    Executive Vice President
                                                      and Chief Financial 
                                                      Officer (Principal 
                                                      Executive Officer and 
                                                      Principal Financing and 
                                                       Accounting Officer)


Dated:  March 25, 1998                   By:     /s/Steve M. Dubnik
                                            ------------------------------------
                                                        Steve M. Dubnik,
                                                    Executive Vice President
                                                      (Principal Executive
                                                            Officer)


Dated:  March 25, 1998                   By:     /s/Christopher B. Bantoft
                                            ------------------------------------
                                                      Christopher Bantoft,
                                                    Executive Vice President
                                                      (Principal Executive
                                                           Officer)


Dated:  March 25, 1998                   By:     /s/Hugh F. Bennett
                                            ------------------------------------
                                                        Hugh F. Bennett,
Director


Dated:  March 25, 1998                   By:     /s/Arunas A. Chesonis
                                            ------------------------------------
                                                      Arunas A. Chesonis,
                                                    President and a Director


Dated:  March 25, 1998                   By: /s/    Willard Z. Estey, Director
                                            ------------------------------------
                                                    Willard Z. Estey, Director
                        

Dated:  March 25, 1998                   By:     /s/   Leslie D. Shroyer
                                            ------------------------------------
                                                       Leslie D. Shroyer,
Director

 
Dated:  March   , 1998                  By:
             __                             ------------------------------------
                                                   Daniel D. Tessoni, Director


Dated:  March 25, 1998                   By:    /s/Robert M. Van Degna
                                            ------------------------------------
                                                   Robert M. Van Degna, Director

 
                                LIST OF EXHIBITS





Exhibit Number      Description                                         Location
- --------------      -----------                                         --------
 
                                                                   
3-1                 First Restated Certificate of Incorporation of ACC   Incorporated by Reference to Exhibit 3 to the
                    Corp.                                                Company's Quarterly Report on Form 10-Q for
                                                                         its Quarter Ended September 30, 1995
                                                                         ("September 30, 1995 10-Q")
 
3-2                 Certificate of Designation of the Voting Powers,     Incorporated by Reference from Exhibit 1 to
                    Designation, Preferences and Relative,               the Company's Registration Statement on Form
                    Participating, Optional or other Special Rights      8-A/A dated October 3, 1997 (as amended on
                    and Qualifications, Limitations and Restrictions     Form 8-A/A dated December 10, 1997)
                    of the Series A Preferred Stock of ACC Corp.
 
3-3                 Bylaws of ACC Corp., as amended on May 21, 1996      Incorporated by Reference to Exhibit 99.5 to
                                                                         the Company's Current Report on Form 8-K
                                                                         filed on September 17, 1996 ("September 17,
                                                                         1996 8-K")
 
4-1                 Form of ACC Corp. Class A Common Stock Certificate   Incorporated by Reference to Exhibit 4-1 to
                                                                         the Company's Registration Statement on Form
                                                                         S-3, No. 333-01157 declared effective May 2,
                                                                         1996
 
4-2                 Form of Warrant to purchase 7,500 Shares of Class    Incorporated by Reference to Exhibit 99.4 to
                    A Common Stock dated October 30, 1995                the Company's Current Report on Form 8-K
                                                                         filed on February 22, 1996 8-K ("February 22,
                                                                         1996 8-K")
 
4-5                 Form of Rights Agreement, dated as of October 3,     Incorporated by Reference from Exhibit 1 to
                    1997, between ACC Corp. and First Union National     the Company's Registration Statement on Form
                    Bank, as Rights Agent, which includes as Exhibit A   8-A/A dated October 3, 1997 (as amended on
                    Form of Rights Certificate; Exhibit B  Summary of    Form 8-A/A dated December 10, 1997)
                    Rights to Purchase Preferred Stock; and Exhibit C
                    Certificate of Designation
 
10-1                Form of Employment Continuation Incentive            Incorporated by Reference to Exhibit 99.3 to
                    Agreement between ACC Corp. and certain of its Key   the Company's February 22, 1996 8-K
                    Employees
 
10-2                ACC Corp. Employee Long Term Incentive Plan, as      Incorporated by Reference to Exhibit 4-1 to
                    amended through February 5, 1996                     the Company's Registration Statement on Form
                                                                         S-8, No. 333-01219, effective February 26,
                                                                         1996
 
10-3                Form of ACC Corp. Indemnification Agreement with     Incorporated by Reference to Exhibit 10-29 to
                    its Directors and certain of its Executive Officers  the Company's Report on Form 10-K for its
                                                                         year ended December 31, 1987
 
 

 
                                                                    
10-4                ACC Corp. Employee Stock Purchase Plan               Incorporated by Reference to Exhibit 4-4 to
                                                                         the Company's Registration Statement on Form
                                                                         S-8, No. 33-75558, effective February 22, 1994
 
10-5                Employment Agreement between ACC Corp. and David     Incorporated by Reference to Exhibit 10-2 to
                    K. Laniak, dated October 6, 1995                     the Company's September 30, 1995 10-Q
 
10-6                Salary Continuation and Deferred Compensation        Incorporated by Reference to Exhibit 10-3 to
                    Agreement between ACC Corp. and Richard T. Aab,      the Company's September 30, 1995 10-Q
                    dated October 6, 1995
 
10-7                Non-Competition Agreement between ACC Corp. and      Incorporated by Reference to Exhibit 10-4 to
                    Richard T. Aab, dated October 6, 1995                the Company's September 30, 1995 10-Q
 
10-8                Release and Settlement Agreement between ACC Corp.   Incorporated by Reference to Exhibit 99.2 to
                    and Francis Coleman, dated December 29, 1995         the Company's February 22, 1996 8-K
 
10-9                Software License Agreement dated March 30, 1995 by   Incorporated by Reference to Exhibit 99.5 to
                    and between AMBIX Systems Corp. and ACC Corp.        the Company's February 22, 1996 8-K
 
10-10               Software License Agreement dated February 21, 1996   Incorporated by Reference to Exhibit 99.6 to
                    between AMBIX Acquisition Corp. and ACC Corp.        the Company's February 22, 1996 8-K
 
10-11               Bill of Sale from AMBIX Systems Corp. to ACC Corp.   Incorporated by Reference to Exhibit 99.7 to
                    dated February 6, 1996                               the Company's February 22, 1996 8-K
 
10-12               Letter Agreement dated April 27, 1995 between the    Incorporated by Reference to Exhibit 99.8 to
                    Special Committee of the Board of Directors of ACC   the Company's February 22, 1996 8-K
                    Corp. and Richard T. Aab
 
10-13               Lease dated January 25, 1994 between the Hague       Incorporated by Reference to Exhibit 99.9 to
                    Corporation and ACC Corp., as modified by a Lease    the Company's February 22, 1996 8-K
                    Modification Agreement No. 1 dated May 31, 1994
                    and a Lease Modification Agreement No. 2 dated May
                    31, 1994, relating to the leased premises located
                    at 400 West Avenue, Rochester, New York
 
10-14               Amended and Restated Lease Agreement dated March     Incorporated by Reference to Exhibit 99.10 to
                    1, 1994 between ACC Long Distance                    the Company's February 22, 1996 8-K
                    Inc./Interurbains ACC Inc. and Coopers & Lybrand
                    relating to the leased premises located at 5343
                    Dundas Street West, Etobicoke, Ontario, Canada
 

10-15               Underlease Agreement dated December 23, 1993         Incorporated by Reference to Exhibit 99.11 to
                    between ACC Long Distance UK Limited, IBM United     the Company's February 22, 1996 8-K
                    Kingdom Limited, and ACC Corp. relating to the
                    leased premises located on the tenth floor at The
                    Chiswick Centre 414 Chiswick High Road, London,
                    England
 
 

 

 
                                                                    

10-16               Underlease Agreement dated June 6, 1995 between      Incorporated by Reference to Exhibit 99.12 to
                    ACC Long Distance UK Limited, IBM United Kingdom     the Company's February 22, 1996 8-K
                    Limited, and ACC Corp. relating to the leased
                    premises located on the first floor at The
                    Chiswick Centre 414 Chiswick High Road, London,
                    England
 
10-17               Supplemental Lease Agreement dated June 3, 1994      Incorporated by Reference to Exhibit 99.13 to
                    between ACC Long Distance UK Limited, IBM United     the Company's February 22, 1996 8-K
                    Kingdom Limited, and ACC Corp. relating to the
                    leased premises located on the ninth floor at The
                    Chiswick Centre 414 Chiswick High Road, London,
                    England
 
10-18               Second Amended and Restated Credit Agreement,        Filed herewith
                    dated as of December 19, 1997, by and among ACC
                    Corp. and certain Subsidiaries as Borrowers, ACC
                    Corp. as Guarantor, First Union National Bank of
                    North Carolina as Managing Agent and
                    Administrative Agent, and Fleet National Bank, as
                    Managing Agent and Documentation Agent
 
10-19               Leasehold Mortgage dated July 21, 1995 between ACC   Incorporated by Reference to Exhibit 99.16 to
                    Corp. and First Union National Bank of North         the Company's February 22, 1996 8-K
                    Carolina relating to the leased premises located
                    at 400 West Avenue, Rochester, New York
                    ("Rochester Leasehold Mortgage")
 
10-20               Modification to Rochester Leasehold Mortgage dated   Incorporated by Reference to Exhibit 10-20 to
                    January 14, 1997                                     the Company's Annual Report on Form 10-K for
                                                                         the Year Ended December 31, 1996
 
10-21               Leasehold Mortgage dated July 21, 1995 between ACC   Incorporated by Reference to Exhibit 99.16 to
                    Corp. and First Union National Bank of North         the Company's February 22, 1996 8-K
                    Carolina relating to the leased premises located
                    at Suite 206, State Tower Building, 109 South
                    Warren Street, Syracuse, New York ("Syracuse
                    Leasehold Mortgage")
 
10-22               Modification to Syracuse Leasehold Mortgage dated    Incorporated by Reference to Exhibit 10-22 to
                    January 14, 1997                                     the Company's Annual Report on Form 10-K for
                                                                         the Year Ended December 31, 1996
 
10-23               Leasehold Mortgage dated July 21, 1995 between ACC   Incorporated by Reference to Exhibit 99.17 to
                    Corp. and First Union National Bank of North         the Company's February 22, 1996 8-K
                    Carolina relating to the leased premises located
                    at Suite 2200, Suite 204 and Suite 205, State
                    Tower Building, 109 South Warren Street, Syracuse,
                    New York ("Additional Syracuse Leasehold Mortgage")
 
 
 

 
                                                                    
10-24               Modification to Additional Syracuse Leasehold        Incorporated by Reference to Exhibit 10-24 to
                    Mortgage dated January 14, 1997                      the Company's Annual Report on Form 10-K for
                                                                         the Year Ended December 31, 1996
 
10-25               Mortgage of Leasehold Interest, dated as of          Incorporated by Reference to Exhibit 10-25 to
                    January 14, 1997, between ACC TelEnterprises         the Company's Annual Report on Form 10-K for
                    Ltd./TelEnterprises ACC LTEE and First Union         the Year Ended December 31, 1996
                    National Bank of North Carolina, as Agent,
                    relating to the leased premises located at One
                    Toronto Street, Toronto, Ontario, Canada
 
10-26               Mortgage of Leasehold Interest, dated as of          Incorporated by Reference to Exhibit 10-26 to
                    January 14, 1997, between ACC TelEnterprises         the Company's Annual Report on Form 10-K for
                    Ltd./TelEnterprises ACC LTEE and First Union         the Year Ended December 31, 1996
                    National Bank of North Carolina, as Agent,
                    relating to the leased premises located at 5343
                    Dundas Street West, Etobicoke, Ontario, Canada
 
10-27               Second Amended and Restated Pledge Agreement dated   Filed herewith
                    as of December 19, 1997 by ACC Corp. in favor of
                    First Union National Bank of North Carolina as
                    Administrative Agent
 
10-28               Amended and Restated Pledge Agreement dated as of    Incorporated by Reference to Exhibit 10-28 to
                    January 14, 1997 by ACC National Long Distance       the Company's Annual Report on Form 10-K for
                    Corp. in favor of First Union National Bank of       the Year Ended December 31, 1996
                    North Carolina as Administrative Agent
 
10-29               Seconded Amended and Restated Security Agreement     Filed herewith
                    dated as of December 19, 1997 between ACC Corp.,
                    certain Domestic Subsidiaries of the Company and
                    First Union National Bank of North Carolina as
                    Administrative Agent
 
10-30               Amended and Restated Trademark Security Agreement    Incorporated by Reference to Exhibit 10-30 to
                    dated as of January 14, 1997 between ACC Corp. and   the Company's Annual Report on Form 10-K for
                    First Union National Bank of North Carolina as       the Year Ended December 31, 1996
                    Administrative Agent
 
10-31               License Agreement dated July 1, 1993 between         Incorporated by Reference to Exhibit 99.23 to
                    Hudson's Bay Company and ACC Long Distance Inc.      the Company's February 22, 1996 8-K
 
10-32               Employment Agreement between Christopher Bantoft     Incorporated by Reference to Exhibit 10-29 of
                    and ACC Long Distance UK Ltd. dated November 16,     the Company's Report on Form 10-K for its
                    1993, as amended                                     year ended December 31, 1995 ("December 31,
                                                                         1995 10-K")
 
10-33               Employment Agreement between Steve M. Dubnik and     Incorporated by Reference to Exhibit 10-30 of
                    ACC TelEnterprises Ltd. dated August 4, 1994         the Company's December 31, 1995 10-K
 

 

 
                                                                    
10-34               ACC Corp. Non-Employee Directors' Stock Option Plan  Incorporated by Reference to Exhibit 99.6 to
                                                                         the Company's September 17, 1996 8-K
 
10-35               Rules of the ACC Corp. 1996 UK Sharesave Scheme      Incorporated by Reference to Exhibit 10-35 to
                    dated August 5, 1996                                 the Company's Annual Report on Form 10-K for
                                                                         the Year Ended December 31, 1996
 
10-36               Net Settlement Agreement dated September 9, 1996     Incorporated by Reference to Exhibit 99.6 to
                    between Teletek, Inc. and ACC Long Distance Corp.    the Company's September 17, 1996 8-K
 
10-37               License Agreement between EDS of Canada Ltd. and     Incorporated by Reference to Exhibit 99.7 to
                    ACC TelEnterprises Ltd. Dated June 24, 1996          the Company's September 17, 1996 8-K
 
10-38               Amendment to Salary Continuation and Deferred        Incorporated by Reference to Exhibit 99.8 to
                    Compensation Agreement between ACC Corp. and         the Company's September 17, 1996 8-K
                    Richard T. Aab dated September 13, 1996
 
10-39               License Granted by the Secretary of State for        Incorporated by Reference to Exhibit 10-39 to
                    Trade and Industry to ACC Long Distance UK Ltd.      the Company's Annual Report on Form 10-K for
                    Under Section 7 of the Telecommunications Act 1984   the Year Ended December 31, 1996
 
10-40               Leasehold Mortgage dated as of January 14, 1997 by   Incorporated by Reference to Exhibit 10-40 to
                    and among ACC National Telecom Corp. and First       the Company's Annual Report on Form 10-K for
                    Union National Bank of North Carolina as             the Year Ended December 31, 1996
                    Administrative Agent relating to the leased
                    premises located at One Commerce Plaza, Albany,
                    New York
 
10-41               Leasehold Mortgage dated as of January 14, 1997 by   Incorporated by Reference to Exhibit 10-41 to
                    and among ACC Long Distance Corp. and First Union    the Company's Annual Report on Form 10-K for
                    National Bank of North Carolina as Administrative    the Year Ended December 31, 1996
                    Agent relating to the leased premises located at
                    69 Delaware Avenue, Buffalo, New York
 
10-42               Leasehold Mortgage dated as of January 14, 1997 by   Incorporated by Reference to Exhibit 10-42 to
                    and among ACC National Telecom Corp. and First       the Company's Annual Report on Form 10-K for
                    Union National Bank of North Carolina as             the Year Ended December 31, 1996
                    Administrative Agent relating to the leased
                    premises located at 32 Old Slip, New York, New York
 
10-43               Mortgage of Leasehold Interest, dated as of          Incorporated by Reference to Exhibit 10-43 to
                    January 14, 1997, between ACC TelEnterprises         the Company's Annual Report on Form 10-K for
                    Ltd./TelEnterprises ACC LTEE and First Union         the Year Ended December 31, 1996
                    National Bank of North Carolina as Administrative
                    Agent relating to the leased premises located in
                    Vancouver, British Columbia, Canada
 
 

 

 
                                                                    
10-44               Agreement for Lease, dated October 9, 1997, among    Filed herewith
                    ACC Long distance U.K. Limited, ACC Corp. and
                    Lasmo (ULX) Limited relating to leased premises at
                    626 Chiswick High Road, London, England
 
11                  Statement re: Computation of Per Share Earnings      See Note 1 to the Notes to the Consolidated
                                                                         Financial Statements filed herewith
 
21                  Subsidiaries of ACC Corp.                            Filed herewith
 
23                  Accountant's Consent re: Incorporation by Reference  Filed herewith
 
27                  Financial Data Schedule                              Filed only with EDGAR filing, per Reg. S-K,
                                                                         Rule 601(c)(1)(v)
27-1                Restated Financial Data Schedules                    Filed only with EDGAR filing, per Reg. S-K,
                                                                         Rule 601(c)(1)(v)
 

EX-10.18

 
 ------------------------------------------------------------------------------


                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT

                          dated as of December 19, 1997

                                  by and among


                                   ACC CORP.,
               and certain Subsidiaries thereof designated herein,
                                  as Borrowers,

                                   ACC CORP.,

                                  as Guarantor,

                         the Lenders referred to herein,


                           FIRST UNION NATIONAL BANK,
                   as Managing Agent and Administrative Agent,

                                       and

                              FLEET NATIONAL BANK,
                    as Managing Agent and Documentation Agent


 ------------------------------------------------------------------------------

 
                                TABLE OF CONTENTS



ARTICLE I  DEFINITIONS ........................................................1
              SECTION 1.1.         Definitions ................................1
              SECTION 1.2.         General ...................................20
              SECTION 1.3.         Other Definitions and Provisions ..........20
                     


ARTICLE II  CREDIT FACILITY...................................................21
              SECTION 2.1.         Revolving Credit Loans.....................21
              SECTION 2.2.         Swingline Loans............................21
              SECTION 2.3.         Procedure for Advances of Revolving 
                                   Credit and Swingline Loans.................23
              .  35
              SECTION 2.4.         Repayment of Extensions of Credit.........24
              SECTION 2.5.         Notes.....................................26
              SECTION 2.6.         Permanent Reductions of the Aggregate 
                                   Commitment.................................26
              SECTION 2.7.         Termination of Credit Facility.............28
              SECTION 2.8.         Use of Proceeds............................28
              SECTION 2.9.         Nature of Obligations; Security............28
              


ARTICLE III  LETTER OF CREDIT FACILITY........................................29
              SECTION 3.1.         L/C Commitment.............................29
              SECTION 3.2.         Procedure for Issuance of 
                                    Letters of Credit.........................29
              SECTION 3.3.         Fees and Other Charges.....................30
              SECTION 3.4.         L/C Participations.........................30
              SECTION 3.5.         Reimbursement Obligation of 
                                    the Borrower..............................31
              SECTION 3.6.         Obligations Absolute.......................32
              SECTION 3.7.         Effect of Application......................32
              

ARTICLE IV  GENERAL LOAN PROVISIONS...........................................33
              SECTION 4.1.         Interest...................................35
              SECTION 4.2.         Notice and Manner of Conversion or
                                   Continuation of Revolving Credit Loans.....36
              SECTION 4.3.         Fees.......................................36
              SECTION 4.4.         Manner of Payment..........................37
              SECTION 4.5.          Crediting of Payments and Proceeds........38
              SECTION 4.6.          Nature of Obligations of Lenders 
                                    Regarding Extensions of Credit; 
                                    Assumption by
                                    Administrative Agent......................38
              SECTION 4.7.         Mandatory Redenomination of 
                                   Alternative Currency Loans ................39
              SECTION 4.8.         Regulatory Limitation..................... 39
              SECTION 4.9.         Changed Circumstances..................... 39
              SECTION 4.10.        Indemnity................................. 42
                                

 
              SECTION 4.11.        Capital Requirements.......................42
              SECTION  4.12.       Taxes......................................42


ARTICLE V  CLOSING; CONDITIONS OF CLOSING AND BORROWING.......................44
              SECTION 5.1.         Closing....................................44
              SECTION 5.2.         Conditions to Closing and 
                                    Initial Extensions of Credit .............44
              SECTION 5.3.          Conditions to All Extensions of Credit ...49



ARTICLE VI  REPRESENTATIONS AND WARRANTIES OF BORROWERS.......................50
              SECTION 6.1.         Representations and Warranties.............50
              SECTION 6.2.         Survival of Representations and 
                                   Warranties, Etc............................58


ARTICLE VII  FINANCIAL INFORMATION AND NOTICES................................58
              SECTION 7.1.         Financial Statements and Projections.......58
              SECTION 7.2.         Officer's Compliance Certificate...........59
              SECTION 7.3.         Accountants' Certificate...................59
              SECTION 7.4.         Other Reports..............................59
              SECTION 7.5.         Notice of Litigation and Other Matters.....60
              SECTION 7.6.         Accuracy of Information................... 61



ARTICLE VIII  AFFIRMATIVE COVENANTS.......................................... 62
              SECTION 8.1.         Preservation of Corporate Existence 
                                    and Related Matters...................... 62
               SECTION 8.2.        Maintenance of Property................... 62
              SECTION 8.3.         Insurance................................. 62
              SECTION 8.4.         Accounting Methods and Financial Records.. 62
              SECTION 8.5.         Payment and Performance of Obligations.... 62
              SECTION 8.6.         Compliance With Laws and Approvals........ 63
              SECTION 8.7.         Environmental Laws........................ 63
              SECTION 8.8.         Employee Benefit, Pension and 
                                    Retirement Laws.......................... 63
              SECTION 8.9.         Compliance With Agreements................ 64
              SECTION 8.10.        Conduct of Business....................... 64
              SECTION 8.11.        Visits and Inspections.................... 64
              SECTION 8.12.        Material Subsidiaries; Additional 
                                    Collateral............................... 65
              SECTION 8.13.        Hedging Agreement......................... 66
              SECTION 8.14.        Further Assurances........................ 65
              SECTION 8.15.        Post-Closing Matters...................... 65


ARTICLE IX  FINANCIAL COVENANTS.............................................. 65
              SECTION 9.1.         Maximum Leverage Ratio.................... 66
              SECTION 9.2.         Minimum Pro Forma Debt Service
                                    Coverage Ratio........................... 66
              SECTION 9.3.         Fixed Charge Coverage Ratio............... 66
              SECTION 9.4.         Capital Expenditures...................... 66
              SECTION 9.5.         Minimum Net Worth......................... 67

 
ARTICLE X  NEGATIVE COVENANTS................................................ 67
              SECTION 10.1.        Limitations on Debt....................... 67
              SECTION 10.2.        Limitations on Contingent Obligations..... 67
              SECTION 10.3.        Limitations on Liens...................... 68
              SECTION 10.4.        Limitations on Loans, Advances, 
                                    Investments and Acquisitions............. 69
              SECTION 10.5.        Limitations on Mergers and Liquidation.... 71
              SECTION 10.6.        Limitations on Sale of Assets............. 71
              SECTION 10.7.        Limitations on Dividends and 
                                    Distributions............................ 71
              SECTION 10.8.        Limitations on Exchange and   
                                    Issuance of Capital Stock................ 72
              SECTION 10.9.        Transactions with Affiliates.............. 72
              SECTION 10.10.       Certain Accounting Changes................ 72
              SECTION 10.11.       Amendments; Payments and Prepayments 
                                    of Subordinated Debt..................... 72
              SECTION 10.12.       Restrictive Agreements.................... 72
              SECTION 10.13.       Hedging Agreements........................ 72


ARTICLE XI  UNCONDITIONAL GUARANTY........................................... 73
              SECTION 11.1.        Guaranty of Obligations................... 73
              SECTION 11.2.        Nature of Guaranty........................ 73
              SECTION 11.3.        Demand by the Administrative Agent........ 74
              SECTION 11.4.        Waivers................................... 74
              SECTION 11.5.        Modification of Loan Documents etc........ 74
              SECTION 11.6.        Reinstatement............................. 75
              SECTION 11.7.        No Subrogation............................ 75


ARTICLE XII  DEFAULT AND REMEDIES............................................ 76
              SECTION 12.1.        Events of Default......................... 76
              SECTION 12.2.        Remedies.................................. 78
              SECTION 12.3.        Rights and Remedies Cumulative; 
                                   Non-Waiver; etc........................... 79
              SECTION 12.4.        Consents.................................. 80
              SECTION 12.5.        Judgment Currency......................... 80
              SECTION 12.6.        Adjustments............................... 81


ARTICLE XIII  THE AGENTS .....................................................81
              SECTION 13.1.        Appointment............................... 81
              SECTION 13.2.        Delegation of Duties...................... 81
              SECTION 13.3.        Exculpatory Provisions.................... 82
              SECTION 13.4.        Reliance by Agents........................ 82
              SECTION 13.5.        Notice of Default......................... 82
              SECTION 13.6.        Non-Reliance on Such Agents 
                                    and Other Lenders........................ 83
              SECTION 13.7.        Indemnification........................... 84
              SECTION 13.8.        Each of the Agents in Its 
                                    Individual Capacity...................... 84
              SECTION 13.9.        Resignation of Agents; Successor Agents... 84
              SECTION 13.10        Documentation Agent....................... 85

 
ARTICLE XIV  MISCELLANEOUS ...................................................85
              SECTION 14.1.        Notices................................... 85
              SECTION 14.2.        Expenses.................................. 86
              SECTION 14.3.        Set-off................................... 87
              SECTION 14.4.        Governing Law............................. 87
              SECTION 14.5.        Consent to Jurisdiction................... 87
              SECTION 14.6.        Binding Arbitration; Waiver of 
                                    Jury Trial............................... 87
              SECTION 14.7.        Reversal of Payments...................... 89
              SECTION 14.8.        Injunctive Relief......................... 89
              SECTION 14.9.        Accounting Matters........................ 89
              SECTION 14.10.       Successors and Assigns; Participations.... 89
              SECTION 14.11.       Amendments, Waivers and Consents; 
                                    Renewal.................................. 93
              SECTION 14.12.       Performance of Duties..................... 94
              SECTION 14.13.       Indemnification........................... 94
              SECTION 14.14.       All Powers Coupled with Interest.......... 94
              SECTION 14.15.       Survival of Indemnities................... 95
              SECTION 14.16.       Titles and Captions....................... 95
              SECTION 14.17.       Severability of Provisions................ 95
              SECTION 14.18.       Counterparts.............................. 95
              SECTION 14.19.       ACC as Agent for Other Borrowers.......... 95
              SECTION 14.20.       Term of Agreement......................... 96
              SECTION 14.21.       Inconsistencies with Other Documents; 
                                   Independent Effect of Covenants........... 96

 
EXHIBITS

Exhibit A-1     -   Form of Domestic Revolving Credit Note
Exhibit A-2     -   Form of U.K. Revolving Credit Note
Exhibit A-3     -   Form of Canadian Revolving Credit Note
Exhibit A-4     -   Form of German Revolving Credit Note
Exhibit A-5     -   Form of Swingline Note
Exhibit B       -   Form of Notice of Borrowing
Exhibit C       -   Form of Notice of Prepayment
Exhibit D       -   Form of Notice of Conversion/Continuation
Exhibit E       -   Form of Officer's Certificate
Exhibit F       -   Form of Notice of Account Designation
Exhibit G       -   Form of Assignment and Acceptance
Exhibit H       -   Form of Pledge Agreement
Exhibit I       -   Form of Security Agreement
Exhibit J       -   Form of Modification to Leasehold Mortgage
Exhibit K       -   Form of Joinder Agreement
Exhibit L       -   Form of Intercompany Subordination Agreement

SCHEDULES

Schedule 1      -   Lenders and  Commitments  
Schedule 1.2    -   Sublimits  
Schedule 1.3    -   Canadian Security  Documents  
Schedule 1.4    -   German Security  Documents 
Schedule 1.5    -   U.K.  Security  Documents 
Schedule 6.1(a) -   Jurisdictions of Organization and  Qualification  
Schedule 6.1(b) -   Subsidiaries and  Capitalization  
Schedule 6.1(d) -   Governmental  Approvals 
Schedule 6.1(h) -   ERISA Plans 
Schedule 6.1(l) -   Material Contracts 
Schedule 6.1(m) -   Labor and Collective  Bargaining Agreements
Schedule 6.1(r) -   Real  Property   
Schedule 6.1(t) -   Debt  and  Contingent Obligations 
Schedule 6.1(u) -   Litigation 
Schedule 6.1(v) -   Communications Licenses and PUC  Authorizations  
Schedule 10.3   -   Existing Liens 
Schedule 10.4       Existing Loans, Advances and Investments

 
                                                                   EXHIBIT-10.18
                 


         SECOND AMENDED AND RESTATED CREDIT AGREEMENT,  dated as of the 19th day
of December,  1997, by and among ACC CORP.,  a corporation  organized  under the
laws of Delaware ("ACC"),  and the Subsidiaries  thereof designated as Borrowers
herein,  as Borrowers,  ACC, as  Guarantor,  the Lenders who are or may become a
party to this  Agreement,  FIRST UNION  NATIONAL BANK  (formerly  known as First
Union  National Bank of North  Carolina),  a national  banking  association,  as
Managing  Agent and  Administrative  Agent and FLEET  NATIONAL  BANK, a national
banking association, as Managing Agent and Documentation Agent.


                              STATEMENT OF PURPOSE

         The Borrowers  have  requested and the Lenders have agreed to amend and
restate the First Amended and Restated Credit Agreement (as hereinafter defined)
pursuant to the terms hereof in order to extend certain credit facilities to the
Borrowers.  ACC, as parent of the other  Borrowers,  will  benefit  directly and
indirectly from the extension of such credit facilities to such other Borrowers.
As a precondition to making any extensions of credit hereunder, the Lenders have
required ACC, and ACC has agreed, to execute this Agreement as Guarantor.

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:


                                    ARTICLE I

                                   DEFINITIONS


         SECTION  1.1.  Definitions.  The  following  terms  when  used  in this
Agreement shall have the meanings assigned to them below:

         "ACC"  means  ACC  Corp.,  a  corporation  organized  under the laws of
Delaware, and its successors.

         "ACC Canada" means ACC  TelEnterprises  Ltd., a  corporation  organized
under the laws of Ontario, and its successors.

         "ACC Germany" means ACC Telekommunikation GMBH, a corporation organized
under the laws of the Federal Republic of Germany, and its successors.

         "ACC  National"  means ACC National Long Distance  Corp., a corporation
organized under the laws of Delaware, and its successors.

         "ACC National Pledge  Agreement"  means the Second Amended and Restated
Pledge  Agreement  of  even  date  executed  by ACC  National  in  favor  of the
Administrative Agent for the 

 
benefit of itself  and the  Lenders  substantially  in the form of Exhibit H, as
amended, restated or otherwise modified.

         "ACC Pledge  Agreement"  means the Second  Amended and Restated  Pledge
Agreement of even date executed by ACC in favor of the Administrative  Agent for
the benefit of itself and the Lenders substantially in the form of Exhibit H, as
amended, restated or otherwise modified.

         "ACC U.K." means ACC Long Distance U.K., Ltd., a corporation  organized
under the laws of the United Kingdom, and its successors.

         "Additional  Borrower" means any Material Subsidiary which has become a
Borrower hereunder in accordance with Section 8.12.

         "Administrative   Agent"   means  First   Union  in  its   capacity  as
administrative agent hereunder,  and any successor thereto appointed pursuant to
Section 13.9.

         "Administrative Agent's Correspondent" means First Union National Bank,
London  Branch,   or  any  other   financial   institution   designated  by  the
Administrative  Agent to act as its  correspondent  hereunder  with  respect  to
distribution  and payment of Extensions  of Credit  denominated  in  Alternative
Currencies.

         "Administrative  Agent's Office" means the office of the Administrative
Agent  specified in or determined in accordance  with the  provisions of Section
14.1.

         "Affiliate" means, with respect to any Person and its Subsidiaries, any
other Person  (other than a Subsidiary  thereof)  which  directly or  indirectly
through one or more intermediaries,  controls,  or is controlled by, or is under
common  control  with,  such first Person or any of its  Subsidiaries.  The term
"control"  means  (a)  the  power  to  vote  ten  percent  (10%)  or more of the
securities or other equity  interests of a Person having  ordinary voting power,
or (b) the possession,  directly or indirectly,  of any other power to direct or
cause the direction of the management and policies of a Person,  whether through
ownership of voting securities, by contract or otherwise.

         "Agents"  means  the  collective  reference  to  the  Managing  Agents,
Documentation Agent and Administrative Agent.

         "Aggregate  Commitment"  means the  aggregate  amount  of the  Lenders'
Commitments hereunder,  as such amount may be reduced or modified at any time or
from time to time  pursuant  to the  terms  hereof.  On the  Closing  Date,  the
Aggregate Commitment shall be One Hundred Fifty Million Dollars ($150,000,000).

         "Agreement" means this Second Amended and Restated Credit Agreement, as
further amended, restated or otherwise modified from time to time.

         "Alternative   Currency"   means   Sterling,    Canadian   Dollars   or
Deutschemarks, or any combination of such currencies, as the context requires.

 
         "Alternative  Currency  Amount" means with respect to each Extension of
Credit  made  or  continued  (or to be  made  or  continued)  in an  Alternative
Currency,  the amount of such  Alternative  Currency  which is equivalent to the
principal  amount in Dollars of such  Extension of Credit at the most  favorable
spot exchange rate determined by the Administrative Agent to be available to its
London branch at  approximately  11:00 a.m.  (London time) two (2) Business Days
before such  Extension  of Credit is made,  continued  or issued (or to be made,
continued  or  issued).  When used with  respect to any other sum  expressed  in
Dollars, "Alternative Currency Amount" shall mean the amount of such Alternative
Currency  which is  equivalent to the amount so expressed in Dollars at the most
favorable  spot  exchange  rate  determined  by the  Administrative  Agent to be
available to it at the relevant time.

         "Applicable  Law" means all  applicable  provisions  of  constitutions,
laws,  statutes,  treaties,  rules,  regulations and orders of all  Governmental
Authorities and all orders and decrees of all courts and arbitrators.

         "Applicable Margin" shall have the meaning assigned thereto in Section
4.1(c).

         "Application"  means  an  application,  in the  form  specified  by the
Issuing  Lender  from time to time,  requesting  the  Issuing  Lender to issue a
Letter of Credit.

         "Assignment and Acceptance" shall have the meaning assigned thereto in
Section 14.10.

         "Available  Commitment"  means, as to any Lender at any time, an amount
equal to the excess,  if any,  of (a) such  Lender's  Commitment  minus (b) such
Lender's Extensions of Credit.

         "Authorized  Officer"  means  with  respect  to any  Person,  the chief
executive officer, chief financial officer, or vice president of finance of such
Person.

         "Base Rate" means, at any time, the rate of interest per annum which is
the higher of (a) the Prime Rate or (b) the Federal  Funds Rate as determined by
the Administrative Agent plus 1/2 of 1%; each change in the Base Rate shall take
effect simultaneously with the corresponding change or changes in the Prime Rate
or the Federal Funds Rate.

         "Base Rate Loan" means any Loan denominated in Dollars bearing interest
at a rate  determined  with  reference  to the Base Rate as  provided in Section
4.1(a) hereof.

         "Borrowers" means the collective  reference to the Domestic  Borrowers,
Canadian  Borrowers,  U.K.  Borrowers and German  Borrowers  party hereto on the
Closing  Date  and  each  Additional  Borrower  in its  capacity  as a  Borrower
hereunder.

         "Business  Day" means (a) for all  purposes  other than as set forth in
clause (b)  below,  any day other than a  Saturday,  Sunday or legal  holiday on
which  banks in  Charlotte,  North  Carolina  are open for the  conduct of their
domestic and international  commercial banking business, and (b) with respect to
all notices and determinations in connection with, and payments of principal and

 
 interest  on,  any  Extension  of Credit to be  denominated  in an  Alternative
Currency or on any LIBOR Rate Loan, any day (i) that is a Business Day described
in  clause  (a) and  that is also a day for  trading  by and  between  banks  in
deposits for the applicable  Permitted  Currency in the London  interbank market
and  (ii) on  which  banks  are  open for the  conduct  of  their  domestic  and
international  banking business in the place where the  Administrative  Agent or
the  Administrative  Agent's  Correspondent  shall make available  Extensions of
Credit in such Permitted Currency.

         "Canadian  Base Rate"  shall  mean,  at any time,  that  annual rate of
interest quoted, published or announced by Bank of Montreal from time to time or
commonly known to be its Canadian  Dollar Prime Rate (which may not  necessarily
be its  lowest or best rate then in effect  for  determining  interest  rates on
commercial  loans made in Canada by it),  as  adjusted  to conform to changes in
such rate as of the  opening of  business on the date of any such change in such
rate without notice to any Borrower,  plus the Applicable Margin with respect to
Base Rate Loans in effect at such time.  Each Loan or  portion  thereof  bearing
interest based on the Canadian  Dollar Prime Rate shall be a "Canadian Base Rate
Loan."

         "Canadian  Borrowers"  means the collective  reference to all Borrowers
organized under the laws of Canada or any province thereof.

     "Canadian  Dollars" means, at any time of determination,  the then official
currency of Canada.

         "Canadian Law" means all applicable provisions of constitutions,  laws,
statutes,  treaties,  rules,  regulations and orders of Canada and any political
subdivision  thereof and all orders and decrees of all courts and arbitrators of
such jurisdictions.

         "Canadian  Plan"  means  any  employee  benefit  plan  which ACC or any
Subsidiary thereof maintains or to which it is obligated to contribute and which
is subject to any  Canadian  federal or  provincial  law  relating  to  employee
benefit plans, pension benefits or retirement savings.

         "Canadian  Security  Documents"  means  the  collective   reference  to
documents set forth on Schedule 1.3 and any other agreement or writing  pursuant
to which a Canadian Borrower or Canadian Subsidiary pledges or grants a security
interest in its assets in order to secure the payment and/or  performance of any
Canadian  Borrower under a Loan Document,  in each case as amended,  restated or
otherwise modified.

         "Canadian  Subsidiary"  means a Subsidiary  organized under the laws of
Canada or any province thereof.

         "Canadian  Termination  Event" means any termination of a Canadian Plan
or any other event or condition which would constitute  grounds for or result in
(a) the  termination of a Canadian Plan; or (b) the  appointment of a trustee to
administer any Canadian  Plan; or (c) the partial or complete  withdrawal of ACC
or any of its  Subsidiaries  from a Canadian  Plan;  or (d) the  imposition of a
lien,  charge  or prior  claim on the  assets  of a  Canadian  Plan;  or (d) the
reorganization or insolvency of a Canadian Plan; or (e) a material  liability of
any applicable

 
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,   OFTEL,   the   Regulating   Authority  for
Telecommunications    and    Postal    Services     (Regulierungsbehorde     fur
Telekommunikation   und  Post)  or  other  applicable   Governmental   Authority
including,  without limitation,  any of the foregoing  authorizing or permitting
the  acquisition,  construction or operation of Network  Facilities or any other
long distance telecommunications system.

         "Consolidated"  means, when used with reference to financial statements
or financial  statement  items of ACC and its  Subsidiaries,  such statements or
items on a  consolidated  basis in  accordance  with  applicable  principles  of
consolidation under GAAP.

         "Contingent   Obligation"   means,   with   respect   to  ACC  and  its
Subsidiaries,  without duplication, any obligation,  contingent or otherwise, of
any such  Person  pursuant  to which such  Person  has  directly  or  indirectly
guaranteed  any  Debt or other  obligation  of any  other  Person  and,  without
limiting the generality of the foregoing,  any  obligation,  direct or indirect,
contingent or  otherwise,  of any such Person (a) to purchase or pay (or advance
or supply  funds for the  purchase or payment of) such Debt or other  obligation
(whether  arising by virtue of  partnership  arrangements,  by agreement to keep
well, to purchase assets, goods,  securities or services, to take-or-pay,  or to
maintain financial statement condition or otherwise) or (b) entered into for the
purpose  of  assuring  in any other  manner  the  obligee  of such Debt or other
obligation  of the payment  thereof or to protect such  obligee  against loss in
respect  thereof  (in  whole or in  part);  provided,  that the term  Contingent
Obligation  shall not  include  endorsements  for  collection  or deposit in the
ordinary course of business.

         "Controlled  Venture" means any joint venture with respect to which ACC
beneficially owns a greater than 66.6% equity interest.

         "Credit  Facility"  means the  collective  reference  to the  revolving
credit facility and swingline facility established pursuant to Article II hereof
and the L/C Facility.

         "CRTC"  means  the  Canadian   Radio-Television  and Telecommunications
Commission  or  any  successor Governmental Authority.

         "Debt" means,  with respect to ACC and its Subsidiaries at any date and
without  duplication,  the sum of the following  calculated  in accordance  with
GAAP:  (a) all  liabilities,  obligations  and  indebtedness  for borrowed money
including but not limited to obligations evidenced by bonds,  debentures,  notes
or other similar  instruments of any such Person, (b) all obligations to pay the
deferred purchase price of property or services of any such Person, except trade
payables  arising in the  ordinary  course of business not more than ninety (90)
days past due, (c) all  obligations  of any such Person as lessee under  Capital
Leases,  (d) all Debt of any other Person  secured by a Lien on any asset of any
such  Person,  (e) all  Contingent  Obligations  of any such  Person and (f) all
obligations,  contingent or otherwise,  of any such Person  relative to the face
amount of letters of credit,  whether or not drawn, including without limitation
any Reimbursement Obligation, and banker's acceptances issued for the account of
any such Person.

 
         "Default" means any of the events  specified in Section 12.1 which with
the  passage  of time,  the  giving  of notice  or any  other  condition,  would
constitute an Event of Default.

         "Deutschemarks" means, at any time of determination,  the then official
currency of the Federal Republic of Germany, subject to Section 4.7.

         "Documentation  Agent"  means Fleet in its  capacity  as  Documentation
Agent hereunder.  "Dollars" or "$" means, unless otherwise  qualified,  the then
official currency of the United States of America.

         "Dollar  Amount"  means (a) with respect to each Loan made or continued
(or to be made or continued), or each Letter of Credit issued (or to be issued),
in Dollars,  the principal amount thereof and (b) with respect to each Loan made
or continued (or to be made or  continued),  or each Letter of Credit issued (or
to be  issued),  in an  Alternative  Currency,  the amount of  Dollars  which is
equivalent  to the  principal  amount  of such  Extension  of Credit at the most
favorable  spot  exchange  rate  determined  by  the  Administrative   Agent  at
approximately  11:00 A.M.  (Charlotte  time) two (2)  Business  Days before such
Extension of Credit is made,  continued  or issued (or to be made,  continued or
issued).  When used with respect to any other sum  expressed  in an  Alternative
Currency,  "Dollar  Amount" shall mean the amount of Dollars which is equivalent
to the amount so expressed in such  Alternative  Currency at the most  favorable
spot exchange rate determined by the Administrative  Agent to be available to it
at the relevant time.

         "Domestic  Borrowers"  means the collective  reference to all Borrowers
organized  under the laws of any State of the United  States or the  District of
Columbia.

         "Domestic  Subsidiary"  means a Subsidiary  organized under the laws of
any State of the United States or the District of Columbia.

         "DTI" means the  Department of Trade and Industry of the United Kingdom
or any successor Governmental Authority.

         "Eligible  Assignee"  means,  with  respect  to any  assignment  of the
rights,  interest and obligations of a Lender hereunder, a Person that is at the
time of such  assignment (a) a commercial  bank organized  under the laws of the
United  States or any state  thereof,  having  combined  capital  and surplus in
excess  of  $500,000,000,  (b) a finance  company,  insurance  company  or other
financial institution which in the ordinary course of business extends credit of
the  type   extended   hereunder   and  that  has  total  assets  in  excess  of
$1,000,000,000,  (c) already a Lender hereunder (whether as an original party to
this  Agreement  or as the  assignee  of another  Lender)  or (d) the  successor
(whether by transfer of assets, merger or otherwise) to all or substantially all
of the commercial lending business of the assigning Lender,  and, in the case of
(a),  (b) or any other  Person,  has been  approved  in writing  as an  Eligible
Assignee by ACC and the Administrative Agent.

 
         "Employee  Benefit  Plan" means any  employee  benefit  plan within the
meaning of Section 3(3) of ERISA which (i) is maintained for employees of ACC or
any ERISA  Affiliate or (ii) has at any time within the preceding six years been
maintained for the employees of ACC or any current or former ERISA Affiliate.

         "Environmental Laws" means any and all federal,  state,  provincial and
local  laws,  statutes,  ordinances,  rules,  regulations,   permits,  licenses,
approvals,  interpretations  and orders of courts or  Governmental  Authorities,
relating to the protection of human health or the  environment,  including,  but
not  limited  to,  requirements  pertaining  to  the  manufacture,   processing,
distribution,  use,  treatment,  storage,  disposal,  transportation,  handling,
reporting,  licensing,  permitting,  investigation  or  remediation of Hazardous
Materials.

         "ERISA" means the Employee  Retirement Income Security Act of 1974, and
the rules and  regulations  thereunder,  each as amended,  restated or otherwise
modified from time to time.

         "ERISA Affiliate" means any Person who together with the ACC is treated
as a single employer  within the meaning of Section  414(b),  (c), (m) or (o) of
the Code or Section 4001(b) of ERISA.

         "Event of Default"  means any of the events  specified in Section 12.1,
provided  that any  requirement  for passage of time,  giving of notice,  or any
other condition, has been satisfied.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Existing Letters of Credit" means letters of credit issued pursuant to
the First Amended and Restated Credit Agreement which remain  outstanding on the
Closing  Date,  including  but not limited to the German letter of credit issued
pursuant to the waiver letter dated as of August 19, 1997.

         "Extensions of Credit"  means,  as to any Lender at any time, an amount
equal to the sum of (a) the aggregate  principal Dollar Amount of all Loans made
by such Lender then outstanding and (b) such Lender's  Commitment  Percentage of
the L/C Obligations then outstanding.

         "FCC"  means the Federal  Communications  Commission  or any  successor
Governmental Authority.

         "Federal  Funds Rate" means,  the rate per annum (rounded  upwards,  if
necessary,  to the next higher 1/100th of 1%)  representing  the daily effective
federal  funds  rate as quoted by the  Administrative  Agent  and  confirmed  in
Federal  Reserve  Board  Statistical  release  H.15  (519) or any  successor  or
substitute  publication selected by such Agent. If, for any reason, such rate is
not  available,  then  "Federal  Funds  Rate"  shall  mean a daily rate which is
determined,  in the opinion of the Administrative Agent, to be the rate at which
federal funds are being offered for sale in the national federal funds market at
9:00 a.m.  (Charlotte time). The rate for a weekend or holiday shall be the same
as the rate for the most immediate preceding Business Day.

 
         "First  Amended and Restated  Credit  Agreement"  means the Amended and
Restated  Credit  Agreement  dated as of January 14, 1997, by and among ACC, and
certain  Subsidiaries   thereof  designated  therein,  as  Borrowers,   ACC,  as
Guarantor,  the lenders referred to therein,  First Union, as Managing Agent and
Administrative Agent, and Fleet National Bank, as Managing Agent, as modified by
the letter  agreement  dated  August 19,  1997 and the  letter  agreement  dated
October 27, 1997.

         "First Union" means First Union National Bank (formerly  known as First
Union National Bank of North Carolina), a national banking association,  and its
successors.

         "Fiscal Year" means the fiscal year of ACC and its Subsidiaries  ending
on December 31.

         "Fixed Charges" means,  with respect to ACC and its  Subsidiaries,  for
any period, the following without  duplication,  each calculated for such period
in accordance with GAAP: (a) all principal  payments or similar amounts required
to be paid with  respect to Total Debt  during  such  period  plus (b)  Interest
Expense  required to be paid during such period plus (c) total cash dividends or
distributions paid or payable by ACC during such period plus (d) all payments in
respect of any retirement,  redemption or other acquisition of the capital stock
of ACC and its Subsidiaries  consummated during such period plus (e) all Capital
Expenditures  during such period plus (f) all income and franchise taxes paid or
payable in cash during such period.

         "Fleet" means Fleet National Bank, a national banking association,  and
its successors.

         "GAAP" means generally accepted accounting principles, as recognized by
the  American  Institute  of  Certified  Public  Accountants  and the  Financial
Accounting Standards Board,  consistently applied and maintained on a consistent
basis for ACC and its Subsidiaries throughout the period indicated.

         "German  Base  Rate"  shall  mean,  at any  time,  that  rate per annum
announced by Deutsche Bundesbank  Frankfurt to be its Lombard Rate (Lombardsatz)
from time to time (which may not  necessarily  be its lowest or best  rate),  as
adjusted  to conform to changes as of the opening of business on the date of any
such change in such rate, plus the sum of (a) the Applicable Margin with respect
to Base Rate Loans in effect at such time and (b) two percent (2%). Each Loan or
portion  thereof  bearing  interest  based on the  German  Base Rate  shall be a
"German Base Rate Loan."

         "German  Borrowers"  means the  collective  reference to all  Borrowers
organized  under the laws of the Federal  Republic of Germany or any subdivision
thereof.

         "German Law" means all applicable  provisions of  constitutions,  laws,
statutes,  treaties,  rules,  regulations and orders of the Federal  Republic of
Germany and any political  subdivision thereof and all orders and decrees of all
courts and arbitrators of such jurisdictions.

         "German  Plan"  means  any  employee  benefit  plan  which  ACC  or any
Subsidiary thereof maintains or to which it is obligated to contribute and which
is subject to any German federal or

 
 provincial  law or any German  contract  relating  to employee  benefit  plans,
pension benefits or retirement savings.

         "German Pledge  Agreement" means the Pledge Agreement dated on or about
the date  hereof,  executed  by ACC in favor of the  Lenders,  as  described  on
Schedule 1.4, as amended, restated or otherwise modified.

         "German  Security  Documents"  means the  collective  reference  to the
German Pledge  Agreement  and the other  documents set forth on Schedule 1.4 and
any other  agreement  or writing  pursuant to which a German  Borrower or German
Subsidiary  pledges  or grants a  security  interest  in its  assets in order to
secure  the  payment  and/or  performance  of any German  Borrower  under a Loan
Document, in each case as amended, restated or otherwise modified.

         "German Subsidiary" means a Subsidiary  organized under the laws of the
Federal Republic of Germany or any subdivision thereof.

         "Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of,  registrations and filings with, and reports to, all
Governmental  Authorities,   including  without  limitation  all  Communications
Licenses and PUC Authorizations.

         "Governmental Authority" means any nation, province, state or political
subdivision  thereof,  and any  government or any Person  exercising  executive,
legislative,   regulatory  or  administrative  functions  of  or  pertaining  to
government,  and any  corporation or other entity owned or  controlled,  through
stock or capital  ownership or  otherwise,  by any of the  foregoing,  including
without  limitation  the  FCC,  CRTC,  DTI,  OFTEL,  any PUC and the  Regulating
Authority for  Telecommunications and Postal Services  (Regulierungsbehorde  fur
Telekommunikation und Post).

         "Guaranteed  Obligations"  shall have the meaning  assigned  thereto in
Section 11.1.

         "Guarantor" means ACC in its capacity as guarantor under Article XI.

         "Guaranty" means the unconditional  guaranty agreement of ACC set forth
in Article XI.

         "Hazardous  Materials"  means any substances or materials (a) which are
or  become  defined  as  hazardous  wastes,  hazardous  substances,  pollutants,
contaminants  or toxic  substances  under any  Environmental  Law, (b) which are
toxic, explosive, corrosive, flammable, infectious,  radioactive,  carcinogenic,
mutagenic or otherwise  harmful to human  health or the  environment  and are or
become  regulated  by any  Governmental  Authority,  (c) the  presence  of which
require  investigation or remediation under any Environmental Law or common law,
(d) the  discharge or emission or release of which  requires a permit or license
under any Environmental Law or other Governmental Approval, (e) which are deemed
to  constitute  a  nuisance,  a  trespass  or pose a health or safety  hazard to
persons  or  neighboring  properties,  (f) which  are  materials  consisting  of
underground or aboveground  storage  tanks,  whether empty,  filled or partially
filled with any substance or (g) which contain,  without  limitation,  asbestos,
polychlorinated biphenyls, urea formaldehyde

 
foam insulation, petroleum hydrocarbons,  petroleum derived substances or waste,
crude oil, nuclear fuel, natural gas or synthetic gas.

         "Hedging  Agreement"  means any  agreement  with respect to an interest
rate swap,  collar,  cap, floor or a forward rate  agreement or other  agreement
regarding the hedging of interest  rate or currency  risk  exposure  executed in
connection with hedging the interest rate or currency exposure of the Borrowers,
and any confirming  letter executed pursuant to such hedging  agreement,  all as
amended, restated or otherwise modified.

         "Intercompany  Note" shall have the meaning assigned thereto in Section
10.4(a).

         "Intercompany  Subordination  Agreement"  means the Second  Amended and
Restated  Subordination  Agreement  of even  date  substantially  in the form of
Exhibit L, as amended, restated or otherwise modified, executed by the Borrowers
and other  Subsidiaries  party  thereto with respect to the loans by ACC to such
Persons as described on Schedule 10.4.

         "Interest  Expense" means, with respect to ACC and its Subsidiaries for
any  period,  total  interest  expense  of ACC and its  Subsidiaries  (including
without  limitation,  interest  expense  attributable  to Capital Leases and any
other  capitalized  interest  expense) and, to the extent not included  therein,
fees and other  charges  payable with respect to all Debt,  (including  fees and
charges  payable  with  respect  to  Hedging  Agreements,  letters of credit and
similar investments),  all determined on a Consolidated basis for such period in
accordance with GAAP.

         "Interest  Period" shall have the meaning  assigned  thereto in Section
4.1(b).

         "Issuing  Lender"  means First  Union in its  capacity as issuer of any
Letter of Credit.

     "Joinder  Agreement" means an Second Amended and Restated Joinder Agreement
substantially  in the form of Exhibit K executed by each Material  Subsidiary in
accordance with Section 8.12, as amended, restated or otherwise modified.

         "Landlord  Consents" means the Landlord  Agreements  delivered by or on
behalf  of a  Borrower  pursuant  to  the  First  Amended  and  Restated  Credit
Agreement, as any such Landlord Agreement may be amended,  restated or otherwise
modified.

         "L/C   Commitment"   means  the  lesser  of  (a)  Ten  Million  Dollars
($10,000,000) and (b) the Aggregate Commitment.

         "L/C Facility" means the letter of credit facility established pursuant
to Article III hereof.

         "L/C Obligations"  means at any time, an amount equal to the sum of (a)
the aggregate  undrawn and unexpired amount of the then  outstanding  Letters of
Credit and (b) the  aggregate  amount of drawings  under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.

 
         "L/C  Participants"  means the collective  reference to all the Lenders
other than the Issuing Lender.

         "Lender"  means each Person  executing  this  Agreement as a Lender set
forth on the  signature  pages hereto and each Person that  hereafter  becomes a
party to this Agreement as a Lender pursuant to Section 14.10.

         "Lending Office" means, with respect to any Lender,  the office of such
Lender maintaining such Lender's Extensions of Credit.

         "Letters of Credit" shall have the meaning  assigned thereto in Section
3.1.

         "Leverage  Ratio"  shall have the meaning  assigned  thereto in Section
9.1.

         "LIBOR" means the rate of interest per annum determined on the basis of
the rate for deposits in the currency in which the  corresponding  loan is to be
denominated in an amount  substantially  equal to the  corresponding  loan for a
period  equal  to the  applicable  Interest  Period  appearing  on the  relevant
Telerate Page (rounded upward, if necessary, to the nearest one-sixteenth of one
percent  (1/16%)) as of 11:00 a.m.  (London time) two Business Days prior to the
first day of the applicable  Interest  Period.  In the event that such rate does
not  appear  on  such a  Telerate  Page,  "LIBOR"  shall  be  determined  by the
Administrative Agent to be the arithmetic average (rounded upward, if necessary,
to the nearest  one-sixteenth  of one percent  (1/16%)) of the rate per annum at
which  deposits in the  Permitted  Currency in which the Loan  bearing  interest
based upon such rate is denominated would be offered by first class banks in the
London  interbank  market to the  Administrative  Agent  (or the  Administrative
Agent's  Correspondent)  at approximately  11:00 a.m. (London time) two Business
Days prior to the first day of the applicable Interest Period for a period equal
to such Interest  Period and in an amount  substantially  equal to the amount of
the applicable Loan.

         "LIBOR  Rate"  means  the rate per  annum  equal to (a)  LIBOR  divided
by (b) one (1) less the Reserve Percentage.

         "LIBOR Rate Loan" means any Loan bearing  interest at a rate determined
with reference to the LIBOR Rate as provided in Section 4.1(a) hereof.

         "Lien" means,  with respect to any asset, any mortgage,  lien,  pledge,
charge,  security interest,  hypothecation or encumbrance of any kind in respect
of such asset.  For the purposes of this Agreement,  a Person shall be deemed to
own  subject to a Lien any asset which it has  acquired or holds  subject to the
interest of a vendor or lessor under any  conditional  sale  agreement,  Capital
Lease or other title retention agreement relating to such asset.

         "Loan" means any Revolving  Credit Loan or any  Swingline  Loan made to
any Borrower  pursuant to Section 2.1 or 2.2,  respectively,  and all such Loans
collectively as the context requires.

 
         "Loan Documents" means,  collectively,  this Agreement,  the Notes, the
Applications,  the  Letters of  Credit,  any  Joinder  Agreement,  the  Security
Documents and any  supplements  thereto  executed in connection with any Joinder
Agreement,  any  Hedging  Agreement  executed by any  Lender,  the  Intercompany
Subordination  Agreement  and each  other  document,  instrument  and  agreement
executed and delivered by any Borrower, a Subsidiary thereof or their counsel in
connection  with this Agreement or otherwise  referred to herein or contemplated
hereby, all as may be amended, restated or otherwise modified from time to time.

         "Managing  Agents"  means  First  Union and Fleet in their  capacity as
managing  agents  hereunder,  and any successor  thereto in each case  appointed
pursuant to Section 13.9; each, a "Managing Agent."

         "Material   Adverse  Effect"  means,   with  respect  to  the  Domestic
Borrowers,  Canadian Borrowers,  German Borrowers or U.K. Borrowers,  a material
adverse effect on the properties,  business, prospects,  operations or condition
(financial  or  otherwise)  of any such group of Borrowers or the ability of any
such group of Borrowers to perform its  obligations  under the Loan Documents to
which it is a party.

         "Material Contract" means (a) any contract or other agreement,  written
or oral, of any Borrower or any of its Subsidiaries involving monetary liability
of or to any such Person in an amount in excess of $5,000,000 per annum,  or (b)
any other contract or agreement,  written or oral, of any Borrower or any of its
Subsidiaries  the failure to comply with which could  reasonably  be expected to
have a Material Adverse Effect.

         "Material  Subsidiary"  means any direct or indirect  Subsidiary of ACC
which Subsidiary has total assets equal to or in excess of $5,000,000.

         "Mortgage"  means  a  Leasehold  Mortgage  delivered  pursuant  to  the
Original Credit Agreement (as modified by the Modification to Leasehold Mortgage
delivered  pursuant to the First Amended and Restated  Credit  Agreement and the
modification to Leasehold  Mortgage  substantially  in the form of Exhibit J) or
any other real property security  agreement  delivered by a Borrower pursuant to
which a Borrower  grants a Lien on its interest in a parcel of real  property to
the Administrative Agent for the benefit of itself and the Lenders.

         "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3)  of  ERISA to which  ACC or any  ERISA  Affiliate  is  making,  or is
accruing an obligation to make, contributions within the preceding six years.

         "Net Cash Proceeds" means, as applicable,  (a) with respect to any sale
of assets,  the gross cash proceeds  received by ACC or any of its  Subsidiaries
from such sale less the sum of (i) all legal,  title,  recording,  transfer  and
income tax expenses, commissions and similar fees and expenses incurred, and all
other federal, state, provincial, local and foreign taxes assessed in connection
therewith and (ii) the aggregate  outstanding  principal amount of, premium,  if
any,  and  interest  on any Debt  secured  by a Lien on the  asset (or a portion
thereof) sold,  which Debt is required to be repaid in connection with such sale
of assets, (b) with respect to any offering of debt

 
or equity  securities,  the gross cash  proceeds  received  by ACC or any of its
Subsidiaries  therefrom  less  all  legal,  underwriting  and  similar  fees and
expenses  incurred in  connection  therewith and (c) with respect to any payment
under an insurance  policy,  the amount of cash proceeds  received by ACC or its
applicable Subsidiary from the related insurance company.

         "Net Income" means,  with respect to ACC and its  Subsidiaries  for any
period,  the  Consolidated  net income (or loss) of ACC and its Subsidiaries for
such period  determined in accordance with GAAP;  provided,  that there shall be
excluded from net income (or loss) (a) if the ability of ACC to receive, recover
or  repatriate  cash or receive  economic  benefits  (other than any increase in
value of ACC's stock or ownership interest in a Subsidiary  thereof) from any of
its  Subsidiaries  is materially  limited or restricted for a material period of
time at any date of  determination  by  operation of the terms of the charter of
such Subsidiary or any agreement,  instrument, or Applicable Law, the portion of
the  income of each such  Subsidiary  so  restricted  and (b) the  effect of any
currency translation adjustments.

         "Network Agreement" means any document or agreement entered into by ACC
or any of its  Subsidiaries  regarding the use,  operation or maintenance of, or
otherwise concerning, any of the Network Facilities.

         "Network Facilities" means the network of digital and analog facilities
owned or leased by ACC or any of its Subsidiaries.

         "Net Worth" means, at any date of determination thereof, the sum of the
capital stock (excluding treasury stock,  cumulative translation adjustments and
capital stock subscribed and unissued) and retained  earnings  (including earned
surplus,  capital surplus and the balance of the current profit and loss account
not  transferrable  to retained  earnings)  accounts of ACC and its Subsidiaries
appearing on a Consolidated  balance sheet of ACC and its Subsidiaries  prepared
in accordance with GAAP.

         "Notes" means (a) the separate  Second  Amended and Restated  Revolving
Credit Notes made by the applicable  Borrower or Borrowers  payable to the order
of each Lender,  substantially in the form of Exhibit A-1 hereto with respect to
the Domestic  Borrowers,  Exhibit A-2 hereto with respect to the U.K. Borrowers,
Exhibit A-3 hereto with  respect to the Canadian  Borrowers,  Exhibit A-4 hereto
with respect to the German  Borrowers;  (b) the separate  Swingline Note and (c)
any amendments and  modifications  thereto,  any substitutes  therefor,  and any
replacements,  restatements, renewals or extension thereof, in whole or in part;
"Note" means any of such Notes.

         "Notice of Account Designation" shall have the meaning assigned thereto
in Section 2.3(b).

         "Notice  of  Borrowing"  shall  have the  meaning  assigned  thereto in
Section 2.3(a).

         "Notice of  Conversion/Continuation"  shall have the  meaning  assigned
thereto in Section 4.2.

 
         "Notice of  Prepayment"  shall  have the  meaning  assigned  thereto in
Section 2.4(d).

         "Obligations"  means,  in  each  case,  whether  now  in  existence  or
hereafter  arising:  (a)  the  aggregate  outstanding  principal  amount  of and
interest on (including  interest  accruing after the filing of any bankruptcy or
similar  petition) the Loans, (b) all payment and other net obligations owing by
a Borrower to any Lender or Agent under any Hedging Agreement permitted pursuant
to Section 10.13, (c) the L/C Obligations,  (d) the obligations of the Guarantor
pursuant  to  Article  XI and (e) all  other  fees  and  commissions  (including
attorney's  fees),  charges,   indebtedness,   loans,   liabilities,   financial
accommodations,  obligations,  covenants  and duties  owing by a Borrower or the
Guarantor to the Lenders or to any Agent, of every kind, nature and description,
direct or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated,  and whether or not evidenced by any note,
and  whether  or not for the  payment  of  money  under  or in  respect  of this
Agreement, any Note, any Letter of Credit or any of the other Loan Documents.

         "Officer's  Compliance  Certificate"  shall have the  meaning  assigned
thereto in Section 7.2.

         "OFTEL" means the United  Kingdom Office of  Telecommunications  or any
successor Governmental Authority.

         "Operating Cash Flow" means,  with respect to ACC and its  Subsidiaries
for any period, the following,  each calculated on a Consolidated basis for such
period without  duplication in accordance with GAAP: (a) Net Income, plus (b) to
the extent  deducted in determining  Net Income (i) income and franchise  taxes,
(ii) Interest  Expense,  (iii)  amortization  and depreciation and other similar
non-cash charges and (iv) charges  associated with ACC's merger  agreements with
U.S.  Wats and Teleport  Communications  Group,  Inc.,  respectively,  which are
reflected as  "nonrecurring  charges"  less (c) the sum of (i) interest  income,
(ii) non-cash income, (iii) capitalized  internally generated software costs and
expenses  (provided that capitalized  software costs relating to billing systems
shall be  amortized  over a period  not to exceed 7 years) and (iv) any items of
gain (or plus any non-cash items of loss) which were included in determining Net
Income and were not realized in the ordinary course of business. For purposes of
calculating compliance with Article IX, Operating Cash Flow shall be adjusted in
a manner  reasonably  satisfactory  to the Managing  Agents to include as of the
first day of any  calculation  period any  acquisition  consummated  during such
period in accordance  with this Agreement and exclude as of the first day of any
calculation  period  any  Subsidiary  or  assets  sold in  accordance  with this
Agreement during such period.

         "Original Credit Agreement" means the Credit Agreement dated as of July
21, 1995, by and among ACC, and certain Subsidiaries thereof designated therein,
as Borrowers, ACC, as Guarantor, the lenders referred to therein, First Union as
Managing Agent and  Administrative  Agent, and Fleet National Bank (as successor
to Shawmut Bank  Connecticut,  N.A.),  as Managing  Agent, as amended by a First
Amendment dated as of October 31, 1995 and a Second  Amendment dated as of March
29, 1996, and as modified by certain waiver letters.

         "Other  Taxes"  shall  have the  meaning  assigned  thereto  in Section
4.12(b).

 
         "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
fifty-one percent (51%) of the Revolving Credit Loans and L/C Obligations, or if
no Revolving Credit Loans or L/C Obligations are outstanding, any combination of
Lenders whose Commitment Percentages aggregate at least fifty-one percent (51%).

         "Reserve   Percentage"  means  the  maximum  daily  arithmetic  reserve
requirement  imposed by the Board of Governors of the Federal Reserve System (or
any successor)  under  Regulation D on  Eurocurrency  liabilities (as defined in
Regulation  D) for the  applicable  Interest  Period as of the first day of such
Interest Period, but subject to any changes in such reserve requirement becoming
effective  during the Interest  Period.  For purposes of calculating the Reserve
Percentage,  the  reserve  requirement  shall be as set  forth in  Regulation  D
without benefit of credit for prorations, exemptions or offsets under Regulation
D, and further  without  regard to whether or not any Lender  elects to actually
fund any Loan or portion thereof with Eurocurrency liabilities. Each calculation
by the  Administrative  Agent of the LIBOR Rate shall be conclusive  and binding
for all purposes, absent manifest error.

         "Revolving  Credit Loans" means the  collective  reference to revolving
credit loans established pursuant to Section 2.1.

         "Revolving  Credit  Termination  Date" means the  earliest of the dates
referred to in Section 2.7.

         "Security  Agreement"  means the Second  Amended and Restated  Security
Agreement  of even date  substantially  in the form of Exhibit I executed by the
Domestic  Borrowers  in favor of the  Administrative  Agent for the  benefit  of
itself and the Lenders, as amended, restated or otherwise modified.

         "Security  Documents"  means the  collective  reference to the Security
Agreement, the Trademark Assignment,  the Pledge Agreements,  the Mortgages, the
Landlord Consents, the Canadian Security Documents, the U.K. Security Documents,
the German Security  Documents and each other  agreement or writing  pursuant to
which ACC or any Subsidiary thereof pledges or grants a security interest in the
Collateral  or such Person  guaranties  the payment  and/or  performance  of the
Obligations or any portion thereof.

         "Solvent" means, as to ACC and its Subsidiaries taken on a Consolidated
basis on a particular  date,  that such Persons (a) have capital  sufficient  to
carry on their business and  transactions  and all business and  transactions in
which they are about to engage and are able to pay their  debts as they  mature,
(b) own  property  having  a value at fair  valuation  greater  than the  amount
required to pay their probable liabilities (including contingencies), and (c) do
not believe

 
that they will incur debts or liabilities beyond their ability to pay such debts
or liabilities as they mature.

         "Sterling"  means,  at any time of  determination,  the  then  official
currency of the United Kingdom, subject to Section 4.7 hereof.

         "Sterling  Base  Rate"  shall  mean,  at any time,  that rate per annum
announced  by  Midland  Bank plc to be its  Sterling  base rate  (which  may not
necessarily be its lowest or best rate), as adjusted to conform to changes as of
the opening of  business  on the date of any such change in such rate,  plus the
sum of (a) the  Applicable  Margin with  respect to Base Rate Loans in effect at
such  time and (b) two  percent  (2%).  Each  Loan or  portion  thereof  bearing
interest based on the Sterling Base Rate shall be a "Sterling Base Rate Loan."

         "Sublimit"  means the  maximum  aggregate  principal  Dollar  Amount of
Extensions of Credit  available at any time to the applicable  Borrower or group
of  Borrowers  hereunder  as set forth on  Schedule  1.2.  If a Sublimit on such
Schedule  applies  to more  than one  Borrower,  such  Sublimit  shall be in the
aggregate  amount  available to all such Borrowers  taken  together,  and not an
amount available to each such Borrower individually.

         "Subordinated  Debt" means any Debt designated as Subordinated  Debt on
Schedule 6.1(t) hereof and any other Debt of ACC or any Subsidiary  subordinated
in right and time of payment to the Obligations on terms reasonably satisfactory
to the Required Lenders.

         "Subsidiary"  means as to any Person,  any corporation,  partnership or
other entity of which more than fifty percent (50%) of the  outstanding  capital
stock or other  ownership  interests  having  ordinary  voting  power to elect a
majority  of the  board of  directors  or other  managers  of such  corporation,
partnership or other entity is at the time, directly or indirectly,  owned by or
the management is otherwise  controlled by such Person (irrespective of whether,
at the time,  capital  stock of any other  class or classes of such  corporation
shall  have or  might  have  voting  power by  reason  of the  happening  of any
contingency).   Unless  otherwise  qualified,   references  to  "Subsidiary"  or
"Subsidiaries" herein shall refer to those of ACC.

         "Supermajority  Lenders"  means,  at any date,  the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the Revolving Credit Loans and L/C
Obligations, or if no Revolving Credit Loans or L/C Obligations are outstanding,
any  combination  of Lenders  whose  Commitment  Percentages  aggregate at least
sixty-six and two-thirds percent (66 2/3%).

         "Swingline  Commitment"  means the lesser of (a) Three Million  Dollars
($3,000,000) and (b) the Aggregate Commitment.

         "Swingline  Lender"  means  First Union in its  capacity as  swingline
lender hereunder.

         "Swingline  Loan" means any swingline loan made by the Swingline Lender
to a Borrower  pursuant to Section 2.2, and all such Loans  collectively  as the
context requires.

 
         "Swingline  Note"  means  the  separate  Second  Amended  and  Restated
Swingline  Note  made by the  Domestic  Borrowers  payable  to the  order of the
Swingline  Lender,  substantially  in the form of  Exhibit  A-5  hereto  and any
amendments  and  modifications   thereto,  any  substitutes  therefor,  and  any
replacements, restatements, renewals or extension thereof, in whole or in part.

         "Swingline  Termination  Date"  means the  earlier  to occur of (a) the
resignation of First Union as  Administrative  Agent in accordance  with Section
13.9 and (b) the Revolving Credit Termination Date.

         "Taxes" shall have the meaning assigned thereto in Section 4.12(a).

         "Termination  Event"  means:  (a) a  "Reportable  Event"  described  in
Section 4043 of ERISA (other than a Reportable  Event as to which the  provision
of 30 days notice has been waived by the PBGC under applicable regulations);  or
(b) the  withdrawal of ACC or any ERISA  Affiliate  from a Pension Plan during a
plan  year in  which it was a  "substantial  employer"  as  defined  in  Section
4001(a)(2) of ERISA;  or (c) the  termination of a Pension Plan, the filing of a
notice of intent to terminate a Pension Plan or the  treatment of a Pension Plan
amendment as a distress  termination  under Section 4041(c) of ERISA; or (d) the
institution of proceedings  to terminate,  or the  appointment of a trustee with
respect to, any Pension  Plan by the PBGC;  or (e) any other event or  condition
which  would  constitute   grounds  under  Section  4042(a)  of  ERISA  for  the
termination of, or the appointment of a trustee to administer, any Pension Plan;
or (f) the partial or complete  withdrawal of ACC or any ERISA  Affiliate from a
Multiemployer  Plan; or (g) the  imposition of a Lien pursuant to Section 412 of
the Code or Section 302 of ERISA; or (h) any event or condition which results in
the  reorganization or insolvency of a Multiemployer Plan under Sections 4241 or
4245 of ERISA; or (i) any event or condition which results in the termination of
a Multiemployer  Plan under Section 4041A of ERISA or the institution by PBGC of
proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.

         "Total Debt" means,  with  respect to ACC and its  Subsidiaries  at any
date  of  determination  and  without  duplication,  all  Debt  of ACC  and  its
Subsidiaries on a Consolidated basis.

         "Trademark  Assignment" means the Second Amended and Restated Trademark
Assignment of even date executed by ACC in favor of the Administrative Agent for
the  benefit  of itself and the  Lenders,  as  amended,  restated  or  otherwise
modified.

         "UCC"  means the Uniform  Commercial  Code as in effect in the State of
North Carolina.

         "U.K.  Borrowers"  means  the  collective  reference  to all  Borrowers
organized  under the laws of the  United  Kingdom or any  political  subdivision
thereof.

         "U.K.  Guaranty  Agreement" means the U.K. Guaranty Agreement set forth
on Schedule 1.5.

         "U.K.  Security  Documents"  means the collective reference to the U.K.
Guaranty  Agreement,  the other documents set forth on Schedule 1.5, and any 
other agreement or writing

 
pursuant  to which a U.K.  Borrower  or U.K.  Subsidiary,  pledges  or  grants a
security  interest in the Collateral or any such Person  guarantees or otherwise
secures the payment  and/or  performance  of any  obligation of a U.K.  Borrower
under  any  Loan  Document,  in each  case as  amended,  restated  or  otherwise
modified.

         "U.K.  Subsidiary"  means a Subsidiary  organized under the laws of the
United Kingdom or any political subdivision thereof.

         "United States" means the United States of America.

         "U.S. Wats Acquisition"  means the acquisition by ACC or a Wholly-Owned
Subsidiary  thereof  of U.S.  Wats,  Inc.  via a tax-free  exchange  of stock as
described  in,  and as  approved  by the  lenders  under the First  Amended  and
Restated  Credit  Agreement  pursuant  to, the letter  dated  October  27,  1997
executed by ACC and the lenders  under the First  Amended  and  Restated  Credit
Agreement, and hereby approved by the Lenders hereunder.

         "Uniform   Customs"   means  the  Uniform   Customs  and  Practice  for
Documentary   Credits   (1993   Revision),International   Chamber  of   Commerce
Publication No. 500, as amended, restated or otherwise modified.

         "Versatel  Acquisition"  means the acquisition by ACC or a Wholly-Owned
Subsidiary  thereof of a majority of the capital stock of VersaTel Telecom B.V.,
a  description  of which has been  provided to the Lenders  prior to the Closing
Date.

        "Wholly-Owned" means, with respect to a Subsidiary,  a Subsidiary all of
the shares of capital stock or other ownership  interests of which are, directly
or indirectly, owned or controlled by ACC and/or one or more of its Wholly-Owned
Subsidiaries.

         SECTION  1.2.   General.   All  terms  of  an  accounting   nature  not
specifically  defined  herein shall have the meaning  assigned  thereto by GAAP.
Unless  otherwise  specified,  a reference  in this  Agreement  to a  particular
section,  subsection,  Schedule  or  Exhibit  is a  reference  to that  section,
subsection,  Schedule or Exhibit of this Agreement. Wherever from the context it
is appropriate,  each term stated in either the singular or plural shall include
the  singular  and plural,  and pronouns  stated in the  masculine,  feminine or
neuter  gender shall  include the  masculine,  the feminine and the neuter.  Any
reference  herein to "Charlotte  time" shall refer to the applicable time of day
in Charlotte, North Carolina.

         SECTION 1.3.  Other Definitions and Provisions.

         (a) Use of Capitalized  Terms.  Unless otherwise  defined therein,  all
capitalized terms defined in this Agreement shall have the defined meanings when
used  in  this  Agreement,  the  Notes  and  the  other  Loan  Documents  or any
certificate,  report  or  other  document  made or  delivered  pursuant  to this
Agreement.

 
         (b)  Miscellaneous.  The words  "hereof",  "herein" and "hereunder" and
words  of  similar  import  when  used in this  Agreement  shall  refer  to this
Agreement as a whole and not to any particular provision of this Agreement.


                                   ARTICLE II

                                 CREDIT FACILITY

         SECTION  2.1.  Revolving  Credit  Loans.   Subject  to  the  terms  and
conditions of this  Agreement,  each Lender  severally  agrees to make Revolving
Credit  Loans in a Permitted  Currency to the  applicable  Borrower or Borrowers
from time to time from the Closing Date through the Revolving Credit Termination
Date as requested by such Borrower or Borrowers in accordance  with the terms of
Sections  2.1 and 2.3;  provided,  that,  based  upon the  Dollar  Amount of all
Extensions of Credit, (a) the maximum amount of Revolving Credit Loans available
to each  Borrower  or  Borrowers  at any time  hereunder  shall not  exceed  the
Sublimit applicable to such Borrower or Borrowers, (b) the aggregate outstanding
principal amount of all outstanding  Revolving Credit Loans (after giving effect
to any amount requested) shall not exceed the Aggregate  Commitment less the sum
of the aggregate outstanding principal amount of all outstanding Swingline Loans
and the L/C Obligations and (c) the aggregate  outstanding  principal  amount of
Revolving  Credit Loans from any Lender to the  Borrowers  shall not at any time
exceed such Lender's Commitment. Each Revolving Credit Loan by a Lender shall be
in a  principal  amount  equal to such  Lender's  Commitment  Percentage  of the
aggregate  outstanding  principal  amount of Revolving Credit Loans requested on
such  occasion.  Revolving  Credit Loans to be made in an  Alternative  Currency
shall be funded in an amount equal to the  Alternative  Currency  Amount of such
Loan.  Revolving Credit Loans to the Domestic  Borrowers shall be denominated in
Dollars,  Revolving  Credit Loans to the U.K.  Borrowers shall be denominated in
Sterling,  Revolving Credit Loans to the Canadian Borrowers shall be denominated
in Canadian  Dollars and Revolving Credit Loans to the German Borrowers shall be
denominated in Deutschemarks.  Subject to the terms and conditions  hereof,  the
Borrowers may borrow,  repay and reborrow Revolving Credit Loans hereunder until
the Revolving Credit Termination Date.

         SECTION 2.2.  Swingline Loans.

         (a)  Availability.   Subject  to  the  terms  and  conditions  of  this
Agreement,  the Swingline  Lender agrees to make Swingline Loans to the Domestic
Borrowers  from  time to time  from  the  Closing  Date  through  the  Swingline
Termination Date; provided, that (i) all Swingline Loans shall be denominated in
Dollars and (ii) the  aggregate  outstanding  principal  amount of all Swingline
Loans (after giving effect to any amount requested), shall not exceed the lesser
of (A) the  Aggregate  Commitment  less  the  sum of the  Dollar  Amount  of the
aggregate outstanding principal amount of all Revolving Credit Loans and the L/C
Obligations and (B) the Swingline Commitment.

 
         (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.  (Charlotte  time) at least three (3) Business  Days before
each  LIBOR  Rate  Loan to be  denominated  in an  Alternative  Currency  of its
intention to borrow, specifying (A) the date of such borrowing, which shall be a
Business  Day,  (B)  whether  such Loan is to be a  Revolving  Credit  Loan or a
Swingline Loan, (C) if such Loan is to be a Revolving Credit Loan,  whether such
Loan shall be denominated in Dollars or an Alternative Currency,  (D) the amount
of such borrowing,  which shall be with respect to LIBOR Rate Loans  denominated
in Dollars in an aggregate principal amount of $3,000,000 or a whole multiple of
$1,000,000 in excess  thereof (and with respect to LIBOR Rate Loans  denominated
in an  Alternative  Currency,  the  Dollar  Amount in each case  thereof),  with
respect to Base Rate Loans in an aggregate  principal  amount of $1,500,000 or a
whole  multiple of $500,000 in excess  thereof,  and with  respect to  Swingline
Loans in an aggregate  principal amount of $100,000 or a whole multiple thereof,
(E) if  denominated  in Dollars,  whether the  Revolving  Credit Loans are to be
LIBOR  Rate  Loans or Base Rate  Loans and (F) in the case of a LIBOR Rate Loan,
the duration of the Interest Period applicable  thereto.  Notices received after
11:00 a.m.  (Charlotte  time) shall be deemed received on the next Business Day.
The  Administrative  Agent shall promptly  notify (and in any event provide same
day  notice  to) the  Lenders  of each  Notice of  Borrowing  with  respect to a
Revolving Credit Loan.

         (b) Disbursement of Revolving  Credit Loans  Denominated in Dollars and
Swingline  Loans.  Not later  than 2:00 p.m.  (Charlotte  time) on the  proposed
borrowing date for any Loan  denominated  in Dollars,  (i) each Lender will make
available  to the  Administrative  Agent,  for  the  account  of the  applicable
Borrower or Borrowers,  at the office of the Administrative  Agent in Dollars in
funds  immediately   available  to  the  Administrative   Agent,  such  Lender's
Commitment  Percentage of the requested  borrowing to be made on such  borrowing
date and (ii) the  Swingline  Lender will make  available to the  Administrative
Agent,  for the  account of the  Borrower,  at the office of the  Administrative
Agent in funds immediately  available to the Administrative Agent, the Swingline
Loans to be made to any  Borrower  or  Borrowers  on such  borrowing  date.  The
Borrowers hereby irrevocably  authorize the Administrative Agent to disburse the
proceeds  of each  borrowing  requested  pursuant  to  this  Section  2.3(b)  in
immediately  available funds by crediting or wiring such proceeds to the deposit
account of the  applicable  Borrower or Borrowers  identified in the most recent
Notice of Account  Designation  substantially in the form of Exhibit F hereto (a
"Notice of Account  Designation")  delivered by the Borrowers to the Agent or as
may  be  otherwise   agreed  upon  by  such   Borrower  or  Borrowers   and  the
Administrative  Agent  from time to time.  Subject to Section  4.6  hereof,  the
Administrative  Agent  shall not be  obligated  to  disburse  the portion of the
proceeds of any Loan  requested  pursuant to this Section 2.3 to the extent that
any

 
Lender  has not  made  available  to the  Administrative  Agent  its  Commitment
Percentage  of such Loan.  Revolving  Credit Loans to be made for the purpose of
refunding  Swingline  Loans  shall be made by the Lenders as provided in Section
2.2(b) hereof.

         (c)   Disbursement  of  Revolving   Credit  Loans   Denominated  in  an
Alternative Currency.  Not later than 11:00 a.m. (the time of the Administrative
Agent's  Correspondent) on the proposed  borrowing date for any Revolving Credit
Loan denominated in an Alternative Currency,  each Lender will make available to
the  Administrative   Agent  at  the  office  of  the   Administrative   Agent's
Correspondent  in  the  requested  Alternative  Currency  in  funds  immediately
available to the Administrative  Agent, such Lender's  Commitment  Percentage of
the requested  borrowing to be denominated  in such  Alternative  Currency.  The
Borrowers hereby irrevocably  authorize the Administrative Agent to disburse the
proceeds  of each  borrowing  requested  pursuant  to  this  Section  2.3(c)  in
immediately  available  funds by crediting or wiring such proceeds to an account
of the  applicable  Borrower  identified  in the most  recent  Notice of Account
Designation  delivered  by the  Borrowers  to the  Agent or as may be  otherwise
agreed upon by such Borrower or Borrowers and the Administrative Agent from time
to time.

         (d) Availability.  The  Administrative  Agent shall not be obligated to
disburse the proceeds of any Revolving  Credit Loan  requested  pursuant to this
Section 2.3 until each Lender shall have made  available  to the  Administrative
Agent its Commitment Percentage of such Loan.

         SECTION 2.4.   Repayment of Extensions of Credit.

         (a) Repayment. (i) The applicable Borrower or Borrowers shall repay the
aggregate  outstanding  principal  amount of all  Revolving  Credit Loans on the
Revolving Credit Termination Date in the applicable  Permitted Currency,  if not
sooner  repaid,  and (ii) the  Domestic  Borrowers  shall  repay  the  aggregate
outstanding  principal  amount of all Swingline Loans in accordance with Section
2.2(b),  together,  in each such case,  with all  accrued  but  unpaid  interest
thereon.

         (b)  Mandatory Repayment of Excess Extensions of Credit.

                  (i) Aggregate  Commitments.  If at any time (as  determined by
the  Administrative  Agent under  Section  2.4(b)(v)),  and for any reason,  the
aggregate  outstanding  principal  Dollar Amount of all  Revolving  Credit Loans
exceeds the  Aggregate  Commitment  less the sum of the Dollar Amount of the L/C
Obligations  and the  aggregate  outstanding  principal  amount of the Swingline
Loans,  the  applicable  Borrower or Borrowers  shall (A) if (and to the extent)
necessary to eliminate  such excess,  immediately  repay  outstanding  Revolving
Credit  Loans that are Base Rate  Loans,  if any,  by the Dollar  Amount of such
excess  (and/or  reduce any pending  request for a Base Rate Loan on such day by
the Dollar Amount of such excess),  and (B) if (and to the extent)  necessary to
eliminate  such excess,  immediately  repay LIBOR Rate Loans (and/or  reduce any
pending  requests for a borrowing or  continuation  or  conversion of such Loans
submitted  in respect  of such  Loans on such day) by the Dollar  Amount of such
excess.

                  (ii) Excess Swingline Loans. If at any time and for any reason
the aggregate  outstanding  principal  amount of all Swingline Loans exceeds the
lesser of (A) the Aggregate

 
Commitment less the sum of the aggregate  outstanding principal Dollar Amount of
all Revolving  Credit Loans and Dollar Amount of the L/C Obligations and (B) the
Swingline  Commitment,  such excess shall be immediately repaid upon notice from
the Administrative  Agent by the Domestic Borrowers to the Administrative  Agent
for the account of the Swingline Lender.

                  (iii)  Excess  L/C  Obligations.  If at any  time  and for any
reason the aggregate  outstanding principal Dollar Amount of all L/C Obligations
exceeds  the  lesser  of  (A)  the  Aggregate   Commitment  less  the  aggregate
outstanding  principal Dollar Amount of all Revolving Credit Loans and Swingline
Loans and (B) the L/C  Commitment,  the Dollar  Amount of such  excess  shall be
immediately  paid upon notice from the  Administrative  Agent by the  applicable
Borrower  or  Borrowers  by means of a payment  of cash  collateral  into a cash
collateral  account opened by such Borrower or Borrowers with the Administrative
Agent for the benefit of the Lenders in accordance with Section 12.2(b).

                  (iv)  Sublimits.   If  at  any  time  (as  determined  by  the
Administrative  Agent  under  Section  2.4(b)(v)),   and  for  any  reason,  the
Extensions  of  Credit  to  any  Borrower  or  Borrowers  exceeds  the  Sublimit
applicable to such Borrower or Borrowers,  such Borrower or Borrowers  shall (A)
immediately  repay Base Rate Loans  outstanding  to such  Borrower or  Borrowers
(and/or reduce on such day any pending request for a Base Rate Loan submitted by
such Borrower or Borrowers) by the amount of such excess,  (B) immediately repay
LIBOR  Rate Loans  (and/or  reduce  any  pending  requests  for a  borrowing  or
continuation  or conversion  submitted in respect of such Loans on such day), by
the  Dollar  Amount  of  any  remaining  excess,  and  (C)  if  necessary,  cash
collateralize  any L/C Obligations  outstanding to such Borrower or Borrowers in
accordance with paragraph (iii) of this Section 2.4(b).

                  (v) Compliance and Payments.  Each Borrower's  compliance with
this  Section  2.4(b)  shall be tested  from time to time by the  Administrative
Agent at its sole  discretion,  but in any event on each day an interest payment
is due under Section 4.1(e).  All payments pursuant to this Section 2.4(b) shall
be accompanied by any amount required to be repaid under Section 4.10.

         (c)  Other Mandatory Prepayments.

                  (i)  Offering  Proceeds.  If on any such date of  receipt  the
Leverage  Ratio is less  than or equal  to 3.00 to 1.00,  the Net Cash  Proceeds
received  by any  Borrower  or  Subsidiary  from any  offering of debt or equity
securities  shall be used within three (3) Business  Days of receipt  thereof to
prepay all  Extensions  of Credit in the order of priority  specified in Section
2.6(d) (and any such repayment  shall not result in a reduction to the Aggregate
Commitment).

                  (ii)  Commitment  Reductions.  The Borrowers  shall prepay the
Extensions of Credit in accordance  with Section  2.6(d) in connection  with any
permanent reduction in the Aggregate Commitment.

         (d) Optional Repayments.  Any Borrower may at any time and from time to
time repay the Revolving Credit Loans made thereto, in whole or in part, upon at
least three (3) Business Days' irrevocable  notice to the  Administrative  Agent
with respect to LIBOR Rate Loans and one

 
(1) Business Day irrevocable  notice with respect to Base Rate Loans (other than
Swingline  Loans)  in the form  attached  hereto  as  Exhibit  C (a  "Notice  of
Prepayment"),  specifying  the date and  amount of  repayment  and  whether  the
repayment  is of LIBOR Rate Loans or Base Rate Loans or a  combination  thereof,
and, if of a combination  thereof, the amount allocable to each. Upon receipt of
such notice with respect to any Revolving Credit Loan, the Administrative  Agent
shall  promptly  notify each  Lender.  If any such  notice is given,  the amount
specified  in such notice shall be due and payable on the date set forth in such
notice. Any applicable  Borrower may at any time and from time to time repay the
Swingline  Loans  made  thereto,  in whole or in part,  upon same  Business  Day
irrevocable notice to the Administrative  Agent (subject to Section 2.2(b)(ii)).
Partial  repayments  shall be in an aggregate  amount of  $3,000,000  or a whole
multiple of  $1,000,000  in excess  thereof with respect to LIBOR Rate Loans (or
with respect to Loans  denominated in an Alternative  Currency,  the Alternative
Currency Amount thereof), a whole multiple of $100,000 with respect to Swingline
Loans and  $1,500,000  or a whole  multiple of $500,000 in excess  thereof  with
respect to other Base Rate Loans.  Each such  repayment  shall be accompanied by
any amount required to be paid pursuant to Section 4.10 hereof.

         (e) Limitation on Repayment of LIBOR Rate Loans.  No Borrower may repay
any  LIBOR  Rate  Loan  (including,  without  limitation,  any  LIBOR  Rate Loan
denominated in an Alternative  Currency)  hereunder on any day other than on the
last day of the Interest  Period  applicable  thereto  unless such  repayment is
accompanied by any amount required to be paid pursuant to Section 4.10.

         SECTION 2.5.  Notes.

         (a) Revolving  Credit Notes.  Each Lender's  Revolving Credit Loans and
the obligation of each Borrower to repay the Revolving Credit Loans made thereto
shall be evidenced by the Note executed by such Borrower payable to the order of
such Lender. Each Note shall be dated the date hereof and shall bear interest on
the unpaid principal amount thereof at the applicable interest rate specified in
Section 4.1.

         (b)  Swingline  Note.  The Swingline  Loans and the  obligation of each
Borrower to repay such Swingline  Loans shall be evidenced by the Swingline Note
executed by the Domestic Borrowers payable to the order of the Swingline Lender.
The Swingline Note shall be dated the date hereof and shall bear interest on the
unpaid  principal  amount thereof at the  applicable  interest rate specified in
Section 4.1.

         SECTION 2.6.  Permanent Reductions of the Aggregate Commitment.

         (a) Voluntary Reduction. The Borrowers shall have the right at any time
and from time to time, upon at least five (5) Business Days prior written notice
to the Administrative  Agent, to permanently  reduce, in whole at any time or in
part from time to time, without premium or penalty,  the Aggregate Commitment in
an aggregate  principal amount not less than $2,500,000 or any whole multiple of
$1,000,000 in excess thereof.

 
         (b) Quarterly  Reduction.  The Aggregate  Commitment and the Sublimits,
respectively, shall be permanently reduced according to the following schedule:

                                                               Percentage
         Date                                                  Reduction

          Mar. 31, 2000                                        8.00%
          June 30, 2000                                        8.00%
          Sep. 30, 2000                                        8.00%
          Dec. 31, 2000                                        8.00%
          Mar. 31, 2001                                        8.00%
          June 30, 2001                                        8.00%
          Sep. 30, 2001                                        8.00%
          Dec. 31, 2001                                        8.00%
          Mar. 31, 2002                                        9.00%
          June 30, 2002                                        9.00%
          Sep. 30, 2002                                        9.00%
          Dec. 19, 2002                                        9.00%

         (c) Other  Permanent  Reductions.  The  Aggregate  Commitment  shall be
permanently reduced as follows by an amount equal to:

                  (i) Offering  Proceeds.  If after prepayment of all Extensions
of Credit with Net Cash Proceeds from any offering by any Borrower or Subsidiary
of debt or equity securities  pursuant to Section 2.4(c)(i),  the Leverage Ratio
exceeds 3.00 to 1.00, an amount equal to the portion of such  proceeds  required
to be applied to  outstanding  Obligations in order to reduce the Leverage Ratio
on such prepayment date to 3.00 to 1.00.

                  (ii) Sale of Assets.  The Net Cash  Proceeds  received  by any
Borrower or Subsidiary in  connection  with any asset sale  described in Section
10.6(e),  within three (3) Business Days of receipt thereof;  provided,  that if
any Authorized Officer of ACC delivers a certificate to the Administrative Agent
prior to such date  that  such Net Cash  Proceeds  are to be  reinvested  by the
Borrower or such  Subsidiary  in the  business  thereof  within 180 days of such
asset sale and such Net Cash Proceeds are so reinvested,  such Net Cash Proceeds
need not be used to permanently reduce the Aggregate Commitment.

                  (iii) Sale of Interest in  Subsidiary.  The Net Cash  Proceeds
received by any Borrower in connection with the sale of an ownership interest in
any Material Subsidiary, within three (3) Business Days of receipt thereof.

                  (iv) Insurance  Proceeds.  Any insurance  proceeds received by
any Borrower or Subsidiary in excess of $500,000 in the aggregate,  within three
(3) Business Days of receipt thereof;  provided,  that if any Authorized Officer
of ACC delivers a  certificate  to the  Administrative  Agent prior to such date
that insurance proceeds are to be reinvested in

 
replacement  Capital  Assets  within 180 days of their receipt and such proceeds
are so  reinvested,  such  proceeds need not be used to  permanently  reduce the
Aggregate Commitment.

         (d) Additional Payments. Each permanent reduction permitted or required
pursuant to this Section 2.6 shall be accompanied by a payment of principal (and
with respect to L/C  Obligations,  furnishing  of cash  collateral in accordance
with  Section  12.2(b))  sufficient  to reduce the  Extensions  of Credit of the
Lenders after such  reduction to the  Sublimits  and Aggregate  Commitment as so
reduced. At any time after the Aggregate Commitment has been permanently reduced
pursuant to this Section 2.6 by an aggregate amount in excess of $8,000,000, the
amount of each  additional  partial  permanent  reduction under this Section 2.6
shall be applied  (i) pro rata to reduce  each  Sublimit  rounded to the nearest
$1,000,000 and (ii) to reduce the remaining mandatory reduction amounts required
under  Section  2.6(b) on a pro rata  basis.  All  prepayments  required by this
Section  2.6(d) shall be applied  first to the aggregate  outstanding  principal
amount of Swingline Loans, second to the aggregate  outstanding principal amount
of Revolving  Credit Loans, and third,  with respect to any L/C Obligations,  by
furnishing  cash collateral in accordance  with Section  12.2(b).  Any permanent
reduction of the Aggregate Commitment to zero shall be accompanied by payment of
all  outstanding  Obligations  and  termination  of the  Commitments  and Credit
Facility. If the reduction of the Aggregate Commitment requires the repayment of
any LIBOR Rate Loan,  such reduction shall be accompanied by any amount required
to be paid pursuant to Section 4.10.

         SECTION  2.7.  Termination  of Credit  Facility.  The  Credit  Facility
(subject to Section 2.2(a) with respect to Swingline  Loans) shall  terminate on
the  earliest of (a)  December  19,  2002,  (b) the date of  termination  by the
Borrowers  pursuant  to Section  2.6(a) and (c) the date of  termination  by the
Administrative Agent on behalf of the Lenders pursuant to Section 12.2(a).

         SECTION 2.8. Use of Proceeds.  The Borrowers  shall use the proceeds of
the Extensions of Credit (a) to finance  investments,  acquisitions  and Capital
Expenditures  permitted  by the terms  hereof and (b) for  working  capital  and
general corporate  requirements of the Borrowers,  and including payment of fees
and expenses incurred in connection with the transactions contemplated hereby.

         SECTION 2.9.  Nature of Obligations;  Security.  The obligations of the
Domestic  Borrowers  under  the Note or Notes  executed  thereby  and the  other
Obligations of such Borrowers  (other than the  obligations of ACC as Guarantor)
shall be joint and several among such  Borrowers.  The  obligations  of the U.K.
Borrowers under the Note or Notes executed thereby and the other  Obligations of
such Borrowers hereunder shall be joint and several among such Borrowers, but in
relation  to the  Domestic  Borrowers,  the German  Borrowers  and the  Canadian
Borrowers,   shall  be  several  and  not  joint  and  several;  provided,  that
notwithstanding the foregoing,  the Obligations of United Telecom Ltd. shall not
extend to the  Obligations  of the other U.K.  Borrowers to the extent that such
joint and  several  liability  would cause  United  Telecom  Ltd. to  contravene
Section  151 of the  Companies  Act of 1985.  The  Obligations  of the  Canadian
Borrowers in relation to the Domestic  Borrowers,  the German  Borrowers and the
U.K.  Borrowers  shall be several and not joint and several.  The Obligations of
the  Canadian  Borrowers  among  themselves  shall be joint and  several  to the
fullest extent permitted by Canadian Law, as set forth in the applicable Joinder

 
Agreement or Joinder Agreements joining such Canadian Subsidiary or Subsidiaries
to this Agreement as Canadian Borrowers. The Obligations of the German Borrowers
in relation to the  Domestic  Borrowers,  the U.K.  Borrowers  and the  Canadian
Borrowers,  shall be several and not joint and several.  The  Obligations of the
German  Borrowers  among  themselves  shall be joint and  several to the fullest
extent permitted by German Law, as set forth in the applicable Joinder Agreement
or Joinder  Agreements  joining such German  Subsidiary or  Subsidiaries to this
Agreement as German Borrowers. The Obligations of each Borrower shall be secured
in accordance with the terms of the applicable Security Documents.


                                   ARTICLE III

                            LETTER OF CREDIT FACILITY

         SECTION  3.1.  L/C  Commitment.  Subject  to the terms  and  conditions
hereof,  the Issuing Lender,  in reliance on the agreements of the other Lenders
set forth in Section  3.4(a),  agrees to issue  letters of credit  ("Letters  of
Credit")  denominated  in Dollars  for the  account of the  Domestic  Borrowers,
denominated  in  Canadian  Dollars for the  account of the  Canadian  Borrowers,
denominated in Sterling for the account of the U.K.  Borrowers,  and denominated
in Deutschemarks  for the account of the German  Borrowers,  in each case on any
Business  Day from the Closing  Date  through but not  including  the  Revolving
Credit Termination Date in such form as may be approved from time to time by the
Issuing  Lender;  provided,  that the Issuing Lender shall have no obligation to
issue any Letter of Credit if, after  giving  effect to such  issuance,  (a) the
Dollar Amount of the L/C Obligations  would exceed the L/C  Commitment,  (b) the
Available  Commitment of any Lender would be less than zero or (c) the aggregate
principal  Dollar Amount of Extensions of Credit to the  applicable  Borrower or
Borrowers would exceed the Sublimit thereof.  Each Letter of Credit shall (i) be
denominated  in a Permitted  Currency  in a minimum of $100,000  (other than the
Existing  Letters of  Credit)  or the  applicable  Alternative  Currency  Amount
thereof, (ii) be a standby letter of credit issued to support obligations of the
applicable  Borrower or  Borrowers,  contingent  or  otherwise,  incurred in the
ordinary course of business,  (iii) expire on a date satisfactory to the Issuing
Lender, which date shall be no later than one year after the date of issuance or
the Revolving Credit Termination Date, whichever is earlier, and (iv) be subject
to the Uniform Customs and, to the extent not inconsistent  therewith,  the laws
of the State of North  Carolina.  The  Issuing  Lender  shall not at any time be
obligated  to issue any  Letter  of  Credit  hereunder  if such  issuance  would
conflict with, or cause the Issuing Lender or any L/C  Participant to exceed any
limits  imposed  by,  any  Applicable  Law.  References  herein to  "issue"  and
derivations  thereof  with  respect  to Letters  of Credit  shall  also  include
extensions  or  modifications  of any  existing  Letters of  Credit,  unless the
context  otherwise  requires.  Each Existing Letter of Credit shall be deemed to
continue as a Letter of Credit hereunder.

         SECTION 3.2.  Procedure for Issuance of Letters of Credit. Any Borrower
or  Borrowers  may from time to time  request  that the Issuing  Lender  issue a
Letter of Credit  by  delivering  to the  Issuing  Lender at the  Administrative
Agent's Office an Application  therefor,  completed to the  satisfaction  of the
Issuing  Lender,  and such other  certificates,  documents  and other papers and
information as the Issuing Lender  may request. Upon receipt of any Application,

 
the  Issuing  Lender  shall  process  such  Application  and  the  certificates,
documents  and  other  papers  and  information  delivered  to it in  connection
therewith in accordance  with its  customary  procedures  and shall,  subject to
Section 3.1 and Article V hereof,  promptly issue the Letter of Credit requested
thereby  (but in no event  shall the  Issuing  Lender be  required  to issue any
Letter of Credit  earlier  than three  Business  Days  after its  receipt of the
Application therefor and all such other certificates, documents and other papers
and  information  relating  thereto) by issuing  the  original of such Letter of
Credit to the  beneficiary  thereof or as otherwise may be agreed by the Issuing
Lender and the  applicable  Borrower  or  Borrowers.  The Issuing  Lender  shall
furnish to the applicable  Borrower or Borrowers a copy of such Letter of Credit
and  furnish  to each  Lender a copy of such  Letter of Credit and the amount of
each Lender's  participation  therein  pursuant to Section 3.4(a),  all promptly
following the issuance of such Letter of Credit.

         SECTION 3.3.  Fees and Other Charges.

         (a)  The   applicable   Borrower   or   Borrowers   shall  pay  to  the
Administrative  Agent,  for  the  account  of the  Issuing  Lender  and  the L/C
Participants, a letter of credit fee with respect to each Letter of Credit in an
amount equal to the product of (i) the  Applicable  Margin with respect to LIBOR
Rate Loans (on a per annum basis) and (ii) an amount equal to the daily  average
Dollar  Amount  available  to be drawn  under such  Letter of Credit  during the
period for which such fee is  payable.  Such fee shall be payable  quarterly  in
arrears on the last Business Day of each  calendar  quarter and on the Revolving
Credit Termination Date.

         (b)  The   applicable   Borrower   or   Borrowers   shall  pay  to  the
Administrative  Agent,  for the account of the Issuing Lender, a facing fee with
respect to each Letter of Credit in an amount equal to the product of (i) 0.125%
(on a per annum  basis) and (ii) the face amount of such Letter of Credit.  Such
fee shall be  payable  quarterly  in arrears  on the last  Business  Day of each
calendar quarter and on the Termination Date.

         (c) The  applicable  Borrower or Borrowers  shall pay or reimburse  the
Issuing Lender for such normal and customary  costs and expenses as are incurred
or charged by the Issuing Lender in issuing,  effecting payment under,  amending
or otherwise administering any Letter of Credit.

         SECTION 3.4.  L/C Participations.

         (a) The Issuing Lender irrevocably agrees to grant and hereby grants to
each L/C  Participant,  and,  to induce the Issuing  Lender to issue  Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby  accepts  and  purchases  from the Issuing  Lender,  on the terms and
conditions  hereinafter  stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's  Commitment  Percentage in
the Issuing  Lender's  obligations and rights under each Letter of Credit issued
hereunder  and the amount of each draft paid by the Issuing  Lender  thereunder.
Each L/C Participant  unconditionally  and  irrevocably  agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit for which the Issuing
Lender is not  reimbursed in full by the Borrowers in accordance  with the terms
of this  Agreement,  such L/C  Participant  shall pay to the Issuing Lender upon
demand, with respect

 
to Letters of Credit denominated in Dollars,  and within three (3) Business Days
after demand, with respect to Letters of Credit denominated in Canadian Dollars,
Sterling or Deutschemarks, at the Issuing Lender's address for notices specified
herein an amount equal to such L/C  Participant's  Commitment  Percentage of the
amount of such draft,  or any part thereof,  which is not so reimbursed and such
payments shall thereafter be reflected as Extensions of Credit of the Lenders on
the books and records of the Administrative Agent.

         (b) Upon  becoming  aware of any amount  required to be paid by any L/C
Participant to the Issuing  Lender  pursuant to Section 3.4(a) in respect of any
unreimbursed  portion of any payment made by the Issuing Lender under any Letter
of Credit,  the Issuing  Lender shall notify each L/C  Participant of the Dollar
Amount  thereof and due date of such required  payment and such L/C  Participant
shall pay to the Issuing  Lender the Dollar Amount  specified on the  applicable
due date.  If any such amount is paid to the Issuing  Lender after the date such
payment is due, such L/C Participant  shall pay to the Issuing Lender on demand,
in addition to such amount, the product of (i) such amount, times (ii) the daily
average Federal Funds Rate as determined by the Administrative  Agent during the
period from and including the date such payment is due to the date on which such
payment is immediately  available to the Issuing Lender,  times (iii) a fraction
the  numerator of which is the number of days that elapse during such period and
the  denominator  of which is 360. A  certificate  of the  Issuing  Lender  with
respect to any  amounts  owing under this  Section  shall be  conclusive  in the
absence of manifest error.  With respect to payment to the Issuing Lender of the
unreimbursed  amounts  described in this Section 3.4(b), if the L/C Participants
receive  notice that any such  payment is due (A) prior to 1:00 p.m.  (Charlotte
time) on any Business  Day, such payment shall be due that Business Day, and (B)
after 1:00 p.m.  (Charlotte time) on any Business Day, such payment shall be due
on the following Business Day.

         (c)  Whenever,  at any time after the Issuing  Lender has made  payment
under  any  Letter of  Credit  and has  received  from any L/C  Participant  its
Commitment  Percentage of such payment in accordance  with this Section 3.4, the
Issuing Lender  receives any payment  related to such Letter of Credit  (whether
directly from the Borrowers or otherwise), or any payment of interest on account
thereof, the Issuing Lender will distribute to such L/C Participant its pro rata
share thereof; provided, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender,  such L/C
Participant  shall return to the Issuing Lender the portion  thereof  previously
distributed by the Issuing Lender to it.

         SECTION 3.5.  Reimbursement  Obligation of the Borrower. The applicable
Borrower or  Borrowers  agree to  reimburse  the Issuing  Lender on each date on
which the Issuing  Lender  notifies  such  Borrower or Borrowers of the date and
amount of a draft  paid  under any  Letter of Credit  for the amount of (a) such
draft so paid and (b) any  taxes,  fees,  charges  or  other  costs or  expenses
incurred  by the  Issuing  Lender in  connection  with such  payment.  Each such
payment shall be made to the Issuing Lender at its address for notices specified
herein in the applicable Permitted Currency and in immediately  available funds.
Interest  shall  be  payable  on any and all  amounts  remaining  unpaid  by the
Borrowers  under this  Article  III from the date such  amounts  become  payable
(whether at stated maturity, by acceleration or otherwise) until payment in full
at the rate which would be payable on any outstanding Base Rate Loans which were
then overdue.  If the Borrowers  fail to timely  reimburse the Issuing Lender on
the date the Borrowers receive the

 
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  Section  4.9,  Loans
denominated  in Canadian  Dollars shall bear interest at the Canadian Base Rate,
Loans  denominated in Sterling shall bear interest at the Sterling Base Rate and
Loans denominated in Deutschemarks  shall bear interest at the German Base Rate.
However,  the LIBOR Rate with respect to Loans  denominated in Dollars shall not
be available until three (3) Business Days after the Closing Date. Any Swingline
Loan  shall bear  interest  at the Base Rate plus the  Applicable  Margin as set
forth  below.  The  applicable  Borrower or  Borrowers  shall select the rate of
interest and Interest Period, if any, applicable to any Revolving Credit Loan at
the time a Notice of Borrowing is given pursuant to Section 2.3 or at the time a
Notice of Conversion/Continuation is given pursuant to Section 4.2. Each Loan or
portion  thereof  bearing  interest based on the Base Rate shall be a "Base Rate
Loan", and each Loan or portion thereof bearing interest based on the LIBOR Rate
shall be a "LIBOR Rate Loan".  Any Loan or any portion thereof to be denominated
in  Dollars  as to which the  applicable  Borrower  or  Borrowers  have not duly
specified an interest rate as provided herein shall be deemed a Base Rate Loan.

         (b) Interest  Periods.  In  connection  with each LIBOR Rate Loan,  the
applicable  Borrower or Borrowers,  by giving  notice at the times  described in
Section 4.1(a),  shall elect an interest period (each, an "Interest  Period") to
be applicable to such Loan, which Interest Period shall be a period of one, two,
three, or six months; provided that:

                  (i) the Interest  Period shall commence on the date of advance
of or  conversion  to any  LIBOR  Rate  Loan  and,  in the  case of  immediately
successive  Interest Periods,  each successive Interest Period shall commence on
the date on which the next preceding Interest Period expires;

                  (ii) if any Interest  Period would  otherwise  expire on a day
that is not a  Business  Day,  such  Interest  Period  shall  expire on the next
succeeding  Business Day; provided,  that if any Interest Period would otherwise
expire on a day that is not a Business Day but is a day of the month after which
no further Business Day occurs in such month,  such Interest Period shall expire
on the next preceding Business Day;

                  (iii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at

 
the end of such  Interest  Period)  shall  end on the last  Business  Day of the
calendar month at the end of such Interest Period;

                  (iv) no Interest  Period  shall  extend  beyond the  Revolving
Credit Termination Date and no Interest Period shall be selected by any Borrower
which,  in connection  with  mandatory  reductions  of the Aggregate  Commitment
pursuant to Section  2.6,  would cause the early  termination  of such  Interest
Period; and

                  (v) with respect to  Revolving  Credit  Loans  denominated  in
Dollars,  there shall be no more than seven (7) Interest Periods  outstanding at
any  time  and  with  respect  to  Revolving  Credit  Loans  denominated  in  an
Alternative Currency, there shall be no more than three (3) Interest Periods for
each such Alternative Currency.

         (c) Applicable  Margin.  The Applicable  Margin provided for in Section
4.1(a)  with  respect to the Loans (the  "Applicable  Margin")  shall (i) on the
Closing  Date  equal  the  percentages  set forth in the  certificate  delivered
pursuant to Section  5.2(e)(ii) and (ii) for each fiscal  quarter  thereafter be
determined  by  reference  to the  Leverage  Ratio  as of the end of the  fiscal
quarter  immediately   preceding  the  delivery  of  the  applicable   Officer's
Compliance Certificate as follows:


                                                      Applicable Margin
         Leverage Ratio                     Base Rate +     LIBOR Rate +

         Greater than 3.0                       0.25%            1.75%
           to 1.0.

         Greater than 2.5 to 1.0                -0-              1.50%
         but less than or equal to
         3.0 to 1.0.

         Greater than 2.0 to 1.0 but            -0-              1.25%
         less than or equal to 2.5 to 1.0

         Less than or equal to                  -0-              1.00%
                  2.0 to 1.0

Adjustments,   if  any,  in  the   Applicable   Margin  shall  be  made  by  the
Administrative  Agent on the tenth  (10th)  Business  Day after  receipt  by the
Administrative   Agent  of  quarterly  financial  statements  for  ACC  and  its
Subsidiaries and the accompanying Officer's Compliance Certificate setting forth
the  Leverage  Ratio of ACC and its  Subsidiaries  as of the most recent  fiscal
quarter  end.  Subject to Section  4.1(d),  in the event the  Borrowers  fail to
deliver such financial  statements and  certificate  within the time required by
Section 7.2(c) hereof,  the  Applicable  Margin shall be the highest  Applicable
Margin  set forth  above  until ten (10)  Business  Days  after  receipt of such
financial statements and certificate by the Administrative Agent.

 
         (d) Default Rate.  Upon the occurrence and during the continuance of an
Event of Default,  (i) the Borrowers  shall no longer have the option to request
LIBOR  Rate  Loans  or Loans in an  Alternative  Currency  and at the end of the
applicable  Interest Period all outstanding  Loans denominated in an Alternative
Currency  shall be repaid in full and all Loans  denominated  in  Dollars  shall
convert to Base Rate  Loans,  (ii) at the  option of the  Managing  Agents,  all
outstanding LIBOR Rate Loans shall bear interest at a rate per annum two percent
(2%) in excess of the rate then  applicable to LIBOR Rate Loans until the end of
the applicable  Interest  Period,  and thereafter  shall bear interest at a rate
equal to two  percent  (2%) in excess of the rate then  applicable  to Base Rate
Loans and (iii) at the option of the Managing Agents,  all outstanding Base Rate
Loans  shall bear  interest  at a rate per annum  equal to two  percent  (2%) in
excess of the rate then  applicable to Base Rate Loans.  Interest shall continue
to accrue on the Notes  after the  filing  by or  against  any  Borrower  of any
petition  seeking any relief in bankruptcy or under any act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign.

         (e) Interest Payment and  Computation.  Interest on each Base Rate Loan
shall be payable in arrears on the last  Business Day of each  calendar  quarter
commencing  December  31,  1997 and  interest  on each  LIBOR Rate Loan shall be
payable on the last day of each Interest Period applicable thereto,  and if such
Interest  Period  extends over three (3) months,  at the end of each three month
interval during such Interest Period.  All interest rates,  fees and commissions
provided  hereunder shall be computed on the basis of a 365/366-day year, except
that (i) interest with respect to each LIBOR Rate Loan  denominated  in Dollars,
Canadian  Dollars or  Deutschemarks  shall be computed on the basis of a 360-day
year and assessed for the actual  number of days  elapsed,  (ii)  interest  with
respect to each LIBOR Rate Loan denominated in Sterling shall be computed on the
basis of a 365-day year and  assessed for the actual  number of days elapsed and
(iii) interest with respect to Canadian Base Rate Loans shall be computed on the
basis of a 365-day year.

         (f) Maximum  Rate.  In no  contingency  or event  whatsoever  shall the
aggregate  of all amounts  deemed  interest  hereunder or under any of the Notes
charged or collected  pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible  under any Applicable Law which
a  court  of  competent  jurisdiction  shall,  in a  final  determination,  deem
applicable  hereto.  In the event that such a court  determines that the Lenders
have charged or received interest  hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate  permitted by Applicable  Law and the Lenders  shall at the  Administrative
Agent's  option  promptly  refund to the  applicable  Borrower or Borrowers  any
interest received by Lenders in excess of the maximum lawful rate or shall apply
such excess to the principal balance of the Obligations. It is the intent hereof
that the  Borrowers  not pay or contract to pay, and that no Agent or any Lender
receive or contract to receive, directly or indirectly in any manner whatsoever,
interest in excess of that which may be paid by the Borrowers  under  Applicable
Law.

         SECTION  4.2.  Notice  and  Manner of  Conversion  or  Continuation  of
Revolving  Credit  Loans.  Provided  that no Default  or  Event of  Default  has
occurred  and is then  continuing,  the  Borrowers  shall have the option to (a)
convert at any time all or any portion of its  outstanding  Base Rate Loans that
are Revolving Credit Loans in a principal amount equal to $3,000,000 or any

 
whole multiple of $1,000,000 in excess thereof into one or more LIBOR Rate Loans
denominated in Dollars, (b) upon the expiration of any Interest Period,  convert
all or any part of its outstanding  LIBOR Rate Loans denominated in Dollars in a
principal  amount equal to $1,500,000 or a whole  multiple of $500,000 in excess
thereof  into Base Rate Loans that are  Revolving  Credit  Loans or (c) upon the
expiration of any Interest  Period,  continue any LIBOR Rate Loan in a principal
amount of $3,000,000 or any whole  multiple of $1,000,000 in excess  thereof (or
with respect to LIBOR Rate Loans  denominated  in an Alternative  Currency,  the
Alternative  Currency  Amount  in  each  case  thereof)  as a  LIBOR  Rate  Loan
denominated in the same  Permitted  Currency.  Whenever the Borrowers  desire to
convert  or  continue  Loans as  provided  above,  the  applicable  Borrower  or
Borrowers shall give the  Administrative  Agent irrevocable prior written notice
in the form  attached as Exhibit D (a "Notice of  Conversion/Continuation")  not
later than 11:00 a.m. (Charlotte time) three (3) Business Days before the day on
which a proposed  conversion  or  continuation  of such Loan is to be  effective
specifying  (i) the Loans to be  converted or  continued,  and, in the case of a
LIBOR Rate Loan to be converted or continued,  the  Permitted  Currency in which
such Loan is denominated and the last day of the Interest Period therefor,  (ii)
the effective date of such conversion or continuation (which shall be a Business
Day),  (iii) the principal amount of such Loans to be converted or continued and
(iv) the Interest  Period to be applicable to such converted or continued  LIBOR
Rate Loan. The  Administrative  Agent shall promptly  notify the Lenders of such
Notice of Conversion/Continuation.  If the Canadian Borrowers, U.K. Borrowers or
German  Borrowers  fail to notify the  Administrative  Agent as provided in this
Section  4.2 of the  continuation  of any  LIBOR  Rate Loan  denominated  in the
corresponding  Alternative  Currency at the end of the  Interest  Period of such
LIBOR Rate Loan, such Loan upon the expiration of the applicable Interest Period
shall be  continued  as a LIBOR  Rate  Loan,  denominated  in the  corresponding
Alternative Currency, with a one month Interest Period.

         SECTION 4.3.Fees.

         (a)  Commitment  Fee.  The  Borrowers  shall pay to the  Administrative
Agent, for the account of the Lenders,  a  non-refundable  commitment fee on the
average daily amount of the Aggregate Commitment less the aggregate  outstanding
principal  Dollar  Amount of all  Revolving  Credit Loans (and,  with respect to
First Union, all Swingline Loans) and the aggregate outstanding Dollar Amount of
all L/C Obligations at a rate per annum  determined by reference to the Leverage
Ratio as of the end of the fiscal quarter immediately  preceding the delivery of
the applicable Officer's Compliance Certificate as follows:


            Leverage Ratio                              Commitment Fee

            Greater than 2.00 to 1.00                   0.375%

            Less than or equal to
            2.00 to 1.0                                 0.250%


The  commitment fee shall be payable in arrears on the last Business Day of each
calendar quarter during the term of this Agreement  commencing December 31, 1997
and on the Revolving Credit

 
Termination  Date.  Such  commitment fee shall be  distributed  promptly by the
Administrative  Agent  to  each  Lender  pro  rata  according  to the  aggregate
principal Dollar Amount of Extensions of Credit held by such Lender.

         (b)   Administrative   Agent's  Fees.   In  order  to  compensate   the
Administrative Agent for its obligations  hereunder,  the Borrowers agree to pay
to the Administrative Agent for its own account the administrative fee set forth
in the fee letter  executed by ACC dated  November  5, 1997,  which fee shall be
payable in advance on the Closing Date and on each anniversary of such date.

         SECTION 4.4. Manner of Payment.

         (a) Loans Denominated in Dollars.  Each payment  (including  repayments
described  in Article  II) by any  Borrower  on account of the  principal  of or
interest on the Loans denominated in Dollars or of any fee,  commission or other
amounts  (including the Reimbursement  Obligation)  payable to the Lenders under
this Agreement or any Note (except as set forth in Section 4.4(b)) shall be made
in Dollars not later than 1:00 p.m.  (Charlotte  time) on the date specified for
payment under this Agreement to the Administrative  Agent for the account of the
Lenders in accordance with Section 4.4(c) at the Administrative  Agent's Office,
in  immediately  available  funds,  and  shall  be  made  without  any  set-off,
counterclaim or deduction  whatsoever.  Any payment received after such time but
before 2:00 p.m.  (Charlotte time) on such day shall be deemed a payment on such
date for the  purposes  of Section  12.1,  but for all other  purposes  shall be
deemed  to have been  made on the next  succeeding  Business  Day.  Any  payment
received after 2:00 p.m.  (Charlotte  time) shall be deemed to have been made on
the next succeeding Business Day for all purposes.

         (b)  Loans   Denominated  in  Alternative   Currencies.   Each  payment
(including repayments described in Article II) by any Borrower on account of the
principal of or interest on the Loans  denominated in any  Alternative  Currency
shall be made in such  Alternative  Currency not later than 11:00 a.m. (the time
of the Administrative  Agent's  Correspondent) on the date specified for payment
under  this   Agreement  to  the   Administrative   Agent's   account  with  the
Administrative   Agent's  Correspondent  for  the  account  of  the  Lenders  in
accordance with Section 4.4(c) in immediately available funds, and shall be made
without any set-off,  counterclaim or deduction whatsoever. Any payment received
after such time but before  12:00 noon (the time of the  Administrative  Agent's
Correspondent)  on such day  shall  be  deemed a  payment  on such  date for the
purposes of Section  12.1,  but for all other  purposes  shall be deemed to have
been made on the next succeeding  Business Day. Any payment received after 12:00
noon (the time of the Administrative  Agent's  Correspondent) shall be deemed to
have been made on the next succeeding Business Day for all purposes.

         (c) Pro Rata  Treatment.  Upon receipt by the  Administrative  Agent of
each such payment,  the Administrative  Agent shall distribute to each Lender at
its address for notices set forth  herein its pro rata share of such  payment in
accordance with such Lender's Commitment Percentage and shall wire advice of the
amount of such credit to each Lender.  Each payment to the Administrative  Agent
of the Swingline  Lender's or the Issuing Lender's or L/C Participants'  fees or
commissions  shall be made in like manner,  but for the account of the Swingline
Lender,  the Issuing  Lender or the L/C  Participants,  as the case may be. Each
payment to any Agent of such

 
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. Mandatory Redenomination of Alternative Currency Loans. If
any  Alternative  Currency  becomes  unavailable  to any  Lender  for any reason
(including,  without limitation, any conversion,  discontinuation or replacement
of such currency  arising out of or in connection with any event associated with
economic and monetary union in the European Community),  and in each case at the
option of the Administrative Agent in its sole discretion, all outstanding Loans
in such Alternative  Currency shall be redenominated  and converted into Dollars
in an amount equal to the Dollar  Amount of such Loan,  and the Lenders shall no
longer be obligated to provide  Loans in the  affected  Alternative  Currency or
Currencies, all subject to the provisions of Sections 2.4(b) and 4.10.

         SECTION  4.8.  Regulatory  Limitation.  In the  event,  as a result  of
increases in the value of Alternative  Currencies  against the Dollar or for any
other  reason,  the  obligation  of any of the Lenders to make Loans or issue or
participate  in Letters of Credit  (taking into account the Dollar Amount of the
Obligations  and all  other  indebtedness  required  to be  aggregated  under 12
U.S.C.A.  84, as amended, the regulations  promulgated  thereunder and any other
Applicable Law) is determined by such Lender to exceed its then applicable legal
lending limit under 12 U.S.C.A. 84, as amended, and the regulations  promulgated
thereunder,  or any other Applicable Law, the amount of additional Extensions of
Credit  such  Lender  shall be  obligated  to make or issue  or  participate  in
hereunder  shall  immediately be reduced to the maximum amount which such Lender
may legally  advance (as  determined by such Lender),  the obligation of each of
the remaining Lenders hereunder shall be proportionately reduced, based on their
applicable Commitment Percentages,  and, to the extent necessary under such laws
and  regulations  (as  determined  by each of the  Lenders,  with respect to the
applicability  of such laws and  regulations  to itself),  the  Borrowers  shall
reduce,  or cause to be reduced,  complying to the extent  practicable  with the
remaining provisions hereof, the Obligations  outstanding hereunder by an amount
sufficient to comply with such maximum amounts.

         SECTION 4.9.  Changed Circumstances.

         (a) Circumstances Affecting LIBOR Rate Availability. If with respect to
any Interest Period the Administrative  Agent or any Lender (after  consultation
with  the   Administrative   Agent)  shall  determine  that  (i)  by  reason  of
circumstances  affecting the foreign exchange and interbank  markets  generally,
deposits in eurodollars or an Alternative Currency in the applicable amounts are

 
not being quoted via Telerate Page 3750 or offered to the  Administrative  Agent
or such  Lender  for such  Interest  Period  or (ii) a  fundamental  change  has
occurred  in the foreign  exchange  or  interbank  markets  with  respect to any
Alternative  Currency  (including,  without  limitation,  changes in national or
international  financial,  political or economic conditions or currency exchange
rates or exchange controls),  then the Administrative Agent shall forthwith give
notice  thereof to the Borrowers.  Thereafter,  until the  Administrative  Agent
notifies the Borrowers that such  circumstances  no longer exist, the obligation
of the  Lenders to make  LIBOR Rate  Loans,  and the right of the  Borrowers  to
convert  any  Loan to or  continue  any  Loan as a LIBOR  Rate  Loan,  shall  be
suspended,  and the  applicable  Borrower or  Borrowers  shall repay in full (or
cause to be repaid in full) the then  outstanding  principal amount of each such
LIBOR Rate Loan,  together with accrued interest thereon, on the last day of the
then current  Interest Period  applicable to such LIBOR Rate Loan or convert the
then  outstanding  principal  amount of each such LIBOR Rate Loan denominated in
Dollars to a Base Rate Loan,  each such LIBOR Rate Loan  denominated in Sterling
to a Sterling  Base Rate Loan,  and each such  LIBOR  Rate Loan  denominated  in
Canadian  Dollars  to a Canadian  Base Rate Loan,  and each such LIBOR Rate Loan
denominated in  Deutschemarks  to a German Base Rate Loan, as of the last day of
such Interest Period.

         (b) Laws Affecting LIBOR Rate Availability.  If, after the date hereof,
the  introduction  of, or any change in, any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority,  central
bank or comparable  agency  charged with the  interpretation  or  administration
thereof,  or  compliance  by any  Lender  (or any of  their  respective  Lending
Offices) with any request or directive  (whether or not having the force of law)
of any such Authority, central bank or comparable agency, shall make it unlawful
or  impossible  for any of the  Lenders  (or  any of  their  respective  Lending
Offices) to honor its  obligations  hereunder to make or maintain any LIBOR Rate
Loan, such Lender shall promptly give notice thereof to the Administrative Agent
and the Administrative Agent shall promptly give notice to the Borrowers and the
other Lenders. Thereafter, until the Administrative Agent notifies the Borrowers
that such  circumstances no longer exist (which  notification  shall be given as
soon as practicable,  but in any event not later than thirty (30) days after the
Administrative  Agent obtains actual knowledge that such circumstances no longer
exist),  (i) the  obligations  of the  Lenders  to make LIBOR Rate Loans and the
right of the  Borrowers to convert any Loan or continue any Loan as a LIBOR Rate
Loan shall be suspended and  thereafter  the Borrowers may select only Base Rate
Loans,  Sterling Base Rate Loans,  Canadian Base Rate Loans, or German Base Rate
Loans hereunder, as applicable,  and (ii) if any of the Lenders may not lawfully
continue to maintain a LIBOR Rate Loan to the end of the then  current  Interest
Period  applicable  thereto as a LIBOR Rate Loan, the applicable LIBOR Rate Loan
shall  immediately  be converted to a Base Rate Loan,  Sterling  Base Rate Loan,
Canadian  Base Rate  Loan or  German  Base Rate  Loan,  as  applicable,  for the
remainder of such Interest Period.

         (c) Increased Costs. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the  interpretation  or  administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration  thereof,  or compliance by any of the
Lenders  (or any of  their  respective  Lending  Offices)  with any  request  or
directive  (whether or not having the force of law) of such  Authority,  central
bank or comparable agency:

 
                  (i)  shall  subject  any  of the  Lenders  (or  any  of  their
respective Lending Offices) to any tax, duty or other charge with respect to any
LIBOR Rate Loan or any Note, Letter of Credit or Application or shall change the
basis of taxation of payments to any of the Lenders (or any of their  respective
Lending  Offices) of the  principal of or interest on any LIBOR Rate Loan or any
Note,  Letter of Credit or  Application  or any  other  amounts  due under  this
Agreement  in  respect  thereof  (except  for  changes in the rate of tax on the
overall  net  income of any of the  Lenders or any of their  respective  Lending
Offices  imposed by the  jurisdiction in which such Lender is organized or is or
should be qualified to do business or such Lending Office is located); or

                  (ii)  shall  impose,  modify or deem  applicable  any  reserve
(including,  without  limitation,  any imposed by the Board of  Governors of the
Federal  Reserve  System),  special  deposit,  insurance  or  capital or similar
requirement  against  assets of,  deposits with or for the account of, or credit
extended by any of the Lenders (or any of their  respective  Lending Offices) or
shall impose on any of the Lenders (or any of their respective  Lending Offices)
or the foreign exchange and interbank markets any other condition  affecting any
LIBOR Rate Loan or any Note;

and the result of any of the  foregoing  is to increase  the costs to any of the
Lenders  of  maintaining  any LIBOR Rate Loan or  issuing  or  participating  in
Letters  of  Credit or to reduce  the  yield or  amount of any sum  received  or
receivable  by any of the  Lenders  under this  Agreement  or under the Notes in
respect  of a LIBOR  Rate Loan or Letter  of  Credit or  Application,  then such
Lender shall promptly notify the  Administrative  Agent, and the  Administrative
Agent shall promptly  notify the Borrowers of such fact and demand  compensation
therefor and,  within fifteen (15) days after such notice by the  Administrative
Agent,  the  applicable  Borrower  or  Borrowers  shall pay to such  Lender such
additional  amount or amounts as will compensate such Lender or Lenders for such
increased cost or reduction.  The Administrative  Agent will promptly notify the
Borrowers of any event of which it has knowledge  which will entitle such Lender
to   compensation   pursuant  to  this  Section  4.9(c);   provided,   that  the
Administrative  Agent shall incur no liability  whatsoever to the Lenders or the
Borrowers in the event it fails to do so. A  certificate  of the  Administrative
Agent setting forth the basis for determining such additional  amount or amounts
necessary to compensate such Lender or Lenders shall be conclusively presumed to
be correct save for manifest error.

         (d)  Conversion  to Common  Currency.  Notwithstanding  paragraphs  (a)
through (c) of this Section 4.9, if it becomes impossible or impractical for the
Lenders  to  honor  their  obligation  to  make  LIBOR  Rate  Loans  due  to any
conversion,  discontinuation or replacement of any Alternative  Currency arising
out of or in  connection  with any event  associated  with economic and monetary
union in the European  Community  and resulting in  redenomination  of all Loans
denominated in such Alternative Currency to Dollars pursuant to Section 4.7, and
at the option of the Administrative Agent in its sole discretion, the obligation
of the Lenders to make LIBOR Rate Loans shall be terminated and all  outstanding
LIBOR  Rate  Loans  shall  be  converted  to Base  Rate  Loans,  subject  to the
provisions of Section 4.10.

 
         SECTION 4.10.  Indemnity.  The applicable  Borrower or Borrowers hereby
indemnify  each of the Lenders  against any loss or expense  (including  without
limitation any foreign  exchange  costs) which may arise or be  attributable  to
each  Lender's  obtaining,  liquidating  or  employing  deposits  or other funds
acquired  to effect,  fund or  maintain  the Loans (a) as a  consequence  of any
failure by any such  Borrower or  Borrowers  to make any payment when due of any
amount due  hereunder  in  connection  with a LIBOR  Rate  Loan,  (b) due to any
failure of any such Borrower or Borrowers to borrow on a date specified therefor
in a Notice of  Borrowing or Notice of  Continuation/Conversion  with respect to
any LIBOR Rate Loan or (c) due to any payment,  prepayment  or conversion of any
LIBOR  Rate  Loan on a date  other  than  the last  day of the  Interest  Period
therefor.  Each  Lender's  calculations  of any such  loss or  expense  shall be
furnished to the Borrowers and shall be conclusive, absent manifest error.

         SECTION 4.11. Capital Requirements.  If either (a) the introduction of,
or any  change  in,  or in the  interpretation  of,  any  Applicable  Law or (b)
compliance  with any  guideline or request  from any central bank or  comparable
agency or other Governmental Authority (whether or not having the force of law),
has or would have the effect of  reducing  the rate of return on the capital of,
or has affected or would affect the amount of capital  required to be maintained
by, any Lender or any corporation  controlling  such Lender as a consequence of,
or with reference to the Commitments and other  commitments of this type,  below
the rate which the Lender or such other  corporation could have achieved but for
such  introduction,  change or  compliance,  then within five (5) Business  Days
after written demand by any such Lender,  the Borrowers shall pay to such Lender
from time to time as specified by such Lender additional  amounts  sufficient to
compensate such Lender or other corporation for such reduction. A certificate as
to such amounts submitted to the Borrowers and the Administrative  Agent by such
Lender,  shall,  in the absence of manifest error, be presumed to be correct and
binding for all purposes.

         SECTION  4.12.  Taxes.

         (a)  Payments  Free and Clear.  Any and all  payments by the  Borrowers
hereunder  or under the Notes or the  Letters  of Credit  shall be made free and
clear of and without deduction for any and all present or future taxes,  levies,
imposts,  deductions,  charges or withholding,  and all liabilities with respect
thereto  (including,  without  limitation,  all  claims,  penalties,  costs  and
expenses  resulting  from  any  failure  to  withhold  or pay,  or any  delay in
withholding or paying, any of the foregoing amounts) excluding,  (i) in the case
of each  Lender  and each  Agent,  income  and  franchise  taxes  imposed by the
jurisdiction  under the laws of which such  Lender or Agent (as the case may be)
is  organized  or is or should be  qualified  to do  business  or any  political
subdivision of such jurisdiction or country which includes such jurisdiction (it
being  expressly  acknowledged  by the Borrowers that each Agent and each Lender
are not  qualified,  nor should they be qualified,  for purposes of this Section
4.12(a) or for any other Section of this Agreement,  to do business in Canada or
any political  subdivision thereof) and (ii) in the case of each Lender,  income
and franchise taxes imposed by the  jurisdiction of such Lender's Lending Office
or any political subdivision of such jurisdiction or country which includes such
jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter  referred to as "Taxes").  If any
Borrower  shall be required  by law to deduct or  withhold  any Taxes from or in
respect of any sum  payable  hereunder  or under any Note or Letter of Credit to
any Lender or

 
any Agent,  (A) the sum payable  shall be  increased as may be necessary so that
after making all required  deductions or withholdings  (including  deductions or
withholdings applicable to additional sums payable under this Section 4.12) such
Lender or Agent (as the case may be) receives an amount equal to the amount such
party would have received had no such deductions or withholdings  been made, (B)
such Borrower  shall make such  deductions or  withholdings  , (C) such Borrower
shall pay the full amount deducted or withheld to the relevant taxing  authority
or other  authority in  accordance  with  applicable  law, and (D) such Borrower
shall  deliver  to the  Administrative  Agent  evidence  of such  payment to the
relevant  taxing  authority or other authority in the manner provided in Section
4.12(d).  If, for any reason, any Borrower or Borrowers do not pay or remit such
Taxes or do not for any reason pay any additional  sums payable to any Lender or
any Agent under this  Section  4.12,  the interest  payable by such  Borrower or
Borrowers  under this Agreement will be increased to the rate or rates necessary
to yield and remit to such Lender or Agent the principal  sum advanced  together
with interest at the applicable  rate or rates specified in this Agreement after
provision  for payment of such Taxes.  The Borrowers  shall,  from time to time,
execute  and  deliver  any and all  further  documents  as may be  necessary  or
advisable to give full force and effect to such increase in the rate or rates of
interest.

         (b) Stamp and Other Taxes.  In addition,  the  Borrowers  shall pay any
present or future stamp,  registration,  recordation or documentary taxes or any
other similar fees or charges or excise or property taxes,  levies of the United
States or any state or political  subdivision  thereof or any applicable foreign
jurisdiction  which arise from any payment made hereunder or from the execution,
delivery or registration  of, or otherwise with respect to, this Agreement,  the
Loans, the Letters of Credit, the other Loan Documents, or the perfection of any
rights or  security  interest  in respect  thereto  (hereinafter  referred to as
"Other Taxes").

         (c) Indemnity. The Borrowers shall indemnify each Lender and each Agent
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes and Other Taxes imposed by any  jurisdiction on amounts payable under this
Section  4.12)  paid by such  Lender  or  Agent  (as  the  case  may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect  thereto,  whether or not such Taxes or Other  Taxes were  correctly  or
legally  asserted.  Such  indemnification  shall be made within thirty (30) days
from the date such  Lender or Agent  (as the case may be) makes  written  demand
therefor.

         (d) Evidence of Payment.  Within thirty (30) days after the date of any
payment of Taxes or Other Taxes,  the  affected  Borrower  shall  furnish to the
Administrative  Agent, at its address  referred to in Section 14.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Administrative Agent.

         (e) Survival.  Without prejudice to the survival of any other agreement
of the Borrowers  hereunder,  the  agreements  and  obligations of the Borrowers
contained  in  this  Section  4.12  shall  survive  the  payment  in full of the
Obligations and the termination of the Commitments.

 
                                    ARTICLE V

                  CLOSING; CONDITIONS OF CLOSING AND BORROWING


         SECTION 5.1.  Closing.  The closing  shall take place at the offices of
Kennedy Covington Lobdell & Hickman, L.L.P., 100 North Tryon Street, Suite 4200,
Charlotte, North Carolina 28202 at 10:00 a.m. on December 19th, 1997, or on such
other date as the parties hereto shall mutually agree.

         SECTION 5.2.  Conditions to Closing and Initial  Extensions of Credit .
The  obligation  of the Lenders to close this  Agreement and to make the initial
Loan or issue the  initial  Letter of Credit is subject to the  satisfaction  of
each of the following conditions:

         (a) Executed Loan Documents.  The following Loan Documents, in form and
substance satisfactory to the Managing Agents and each Lender:

                  (i)      this Agreement;

                  (ii)     the Revolving Credit Notes;

                  (iii)    the Swingline Note;

                  (iv)     the Security Agreement;

                  (v)      the Trademark Assignment;

                  (vi)     the Pledge Agreements;

                  (vii)    the Mortgages;

                  (viii)   the Canadian Security Documents;

                  (ix)     the U.K. Security Documents;

                  (x)      the German  Security  Documents  (subject  to Section
                           8.15 with  respect to the German  Pledge  Agreement);
                           and

                  (xi)     the Intercompany Subordination Agreement;

shall have been duly authorized,  executed and delivered by the parties thereto,
shall be in full force and effect and no default shall exist thereunder, and the
Borrowers   shall  have   delivered   original   counterparts   thereof  to  the
Administrative Agent. Upon receipt of the Notes payable thereto, each

 
Lender will return to the Agent for return to the Borrowers and cancellation its
original  promissory  notes provided  pursuant to the First Amended and Restated
Credit Agreement.

         (b)  Closing Certificates; etc.

                  (i)   Compliance    Certificate   of   the   Borrowers.    The
Administrative  Agent shall have received a certificate from the chief financial
officer or treasurer of ACC, in form and substance  reasonably  satisfactory  to
the Administrative  Agent, to the effect that all representations and warranties
of the Borrowers  contained in this  Agreement and the other Loan  Documents are
true, correct and complete in all material respects;  that the Borrowers are not
in violation of any of the covenants  contained in this  Agreement and the other
Loan Documents;  that, after giving effect to the  transactions  contemplated by
this  Agreement,  no Default or Event of Default has occurred and is continuing;
that the Borrowers have satisfied each of the closing conditions to be satisfied
thereby;  and that the Borrowers  have filed all material tax returns and owe no
material delinquent taxes.

                  (ii)   Certificate   of  Secretary  of  each   Borrower.   The
Administrative  Agent shall have  received a  certificate  of the  secretary  or
assistant  secretary  (or director  with  respect to ACC U.K.) of each  Borrower
certifying, as applicable,  that attached thereto is a true and complete copy of
the articles of  incorporation  or other charter  documents of such Borrower and
all  amendments  thereto,  certified  as of a  recent  date  by the  appropriate
Governmental  Authority in its  jurisdiction  of  incorporation;  that  attached
thereto is a true and complete  copy of the bylaws of such Borrower as in effect
on the date of such certification;  that attached thereto is a true and complete
copy of  resolutions  duly adopted by the Board of  Directors of such  Borrower,
authorizing the borrowings  contemplated  hereunder and the execution,  delivery
and  performance of this Agreement and the other Loan Documents to which it is a
party; and as to the incumbency and genuineness of the signature of each officer
of such Borrower executing Loan Documents to which such Person is a party.

                  (iii) Certificates of Good Standing.  The Administrative Agent
shall  have  received  long-form  certificates  as of a recent  date of the good
standing of each Borrower under the laws of their  respective  jurisdictions  of
organization and such other jurisdictions requested by the Managing Agents.

                  (iv) Opinions of Counsel.  The Administrative Agent shall have
received  favorable  opinions of United  States,  Canadian,  United  Kingdom and
German  counsel to the  Borrowers  addressed to the Managing  Agents and Lenders
with  respect  to such  Persons,  the  Loan  Documents  and  regulatory  matters
(including without limitation  Communications  Licenses and PUC  Authorizations)
reasonably  satisfactory  in form  and  substance  to the  Managing  Agents  and
Lenders.

         (c)  Collateral.

                  (i) Filings and Recordings.  All filings that are necessary to
perfect the Liens of the Administrative  Agent and the Lenders in the Collateral
described in the Security Documents

 
shall have been filed in all appropriate  locations and the Administrative Agent
shall have received evidence  satisfactory to the Administrative Agent that such
security interests  constitute valid and perfected first priority Liens therein,
subject to Liens permitted by Section 10.3.

                  (ii)  Pledged  Stock.  The  Administrative  Agent  shall  have
received  original  stock  certificates  evidencing  the capital  stock  pledged
pursuant to the Pledge  Agreements,  any Canadian  Security  Document,  any U.K.
Security Document and (to the extent  applicable) any German Security  Document,
together with an appropriate  undated stock power for each  certificate  (to the
extent  applicable)  duly  executed  in blank by the  registered  owner  thereof
(except that such stock  certificates  of United Telecom Ltd. shall be delivered
to the Administrative  Agent as soon as possible (and in any event no later than
7 days) after their registration in favor of ACC U.K., and,  notwithstanding the
foregoing,  the  Administrative  Agent shall have received a Stock Transfer Form
for such certificate duly executed in blank and acceptable to the Administrative
Agent in lieu thereof prior to the Closing Date).

                  (iii)  Lien  Searches.  The  Administrative  Agent  shall have
received the results of any Lien search requested by the Administrative Agent of
filings made against such Borrowers under the Uniform Commercial Code,  personal
property  security  legislation or legislation as to registration of security on
movable  property as in effect in any  jurisdiction in which any of their assets
are located,  indicating among other things that their assets are free and clear
of any Lien except for the Liens permitted by Section 10.3.

                  (iv) Mortgage Documents.  The Administrative  Agent shall have
received such mortgagee  title and hazard  insurance  policies,  title searches,
property surveys,  appraisals and environmental assessments with respect to each
property  covered by a Mortgage as it shall  reasonably  request in writing from
the applicable Borrower.

                  (v) Insurance.  The  Administrative  Agent shall have received
certificates of insurance and copies  (certified by the applicable  Borrower) of
insurance  policies in the form  required  under  Section  8.3 and the  Security
Documents  and otherwise in form and substance  reasonably  satisfactory  to the
Managing Agents.

         (d)  Consents; No Adverse Change.

                  (i)  Governmental  and Third Party  Approvals.  All  necessary
approvals,  authorizations and consents,  if any are required, of any Person and
of all Governmental  Authorities and courts having  jurisdiction with respect to
the execution and delivery of this Agreement and the other Loan Documents  shall
have been obtained and copies thereof delivered to the Administrative Agent.

                  (ii) Permits and Licenses. All permits and licenses, including
permits and licenses  required under Applicable  Laws,  necessary to the current
conduct of  business by the  Borrowers  and their  Subsidiaries  shall have been
obtained.

 
                  (iii)   No   Injunction,    Etc.   No   action,    proceeding,
investigation,  regulation or legislation shall have been instituted, threatened
or proposed before any Governmental Authority to enjoin,  restrain, or prohibit,
or to obtain substantial damages in respect of, or which is related to or arises
out of this  Agreement or the other Loan  Documents or the  consummation  of the
transactions  contemplated  hereby or thereby, or which, in the Managing Agents'
reasonable discretion,  would make it inadvisable to consummate the transactions
contemplated by this Agreement and such other Loan Documents.

                  (iv) No Material Adverse Change. There shall not have occurred
any  material  adverse  change  in  the  condition   (financial  or  otherwise),
operations,  properties,  business  or  prospects  of the  Borrowers  and  their
Subsidiaries,  or any  event or  condition  that has had or could be  reasonably
expected to have a Material Adverse Effect.

                  (v) No Event of Default.  No Default or Event of Default shall
have occurred and be continuing.

         (e)  Financial Matters.

                  (i)  Financial  Statements.  The  Managing  Agents  shall have
received the most recent audited  Consolidated  financial  statements of ACC and
its Subsidiaries.

                  (ii) Financial Condition Certificate. ACC shall have delivered
to the  Administrative  Agent a  certificate,  in form and substance  reasonably
satisfactory to such Agent,  and certified as accurate in all material  respects
by the chief financial officer or treasurer of ACC, that (A) attached thereto is
a pro forma  balance  sheet of ACC and its  Subsidiaries  setting forth on a pro
forma  basis  the  financial   condition  of  ACC  and  its  Subsidiaries  on  a
Consolidated  basis as of that date,  reflecting on a pro forma basis the effect
of the  transactions  contemplated  herein,  including  all  material  fees  and
expenses in connection therewith, and evidencing compliance on a pro forma basis
with the covenants contained in Article IX hereof, (B) the financial projections
previously delivered to the Managing Agents represent the good faith opinions of
the  Borrowers  and  senior  management  thereof  as to  the  projected  results
contained  therein,  and (C) attached thereto is a calculation of the Applicable
Margin in accordance with Section 4.1(c) as of September 30, 1997.

                  (iii)  Payment at  Closing.  (A) There shall have been paid by
the  Borrowers  to the  Administrative  Agent for the account of the Lenders the
amendment fee and incremental  commitment fee payable pursuant to the fee letter
referred  to in Section  4.3(b) and (B) the  Agents and the  Lenders  shall have
received  any  other  accrued  and  unpaid  fees or  commissions  due  hereunder
(including,  without  limitation,  legal  fees and  expenses),  and to any other
Person  such amount as may be due thereto in  connection  with the  transactions
contemplated  hereby,  including all taxes, fees and other charges in connection
with the execution,  delivery,  recording, filing and registration of any of the
Loan Documents. The Administrative Agent shall have received duly authorized and
executed copies of the fee letter referred to in Section 4.3(b).

 
         (f)  Miscellaneous.

                  (i) Notice of Borrowing.  The Administrative  Agent shall have
received a Notice of Borrowing  from the  Borrowers in  accordance  with Section
2.3(a), and a Notice of Account  Designation  specifying the account or accounts
to which  the  proceeds  of any Loans  made  after  the  Closing  Date are to be
disbursed.

                  (ii) Proceedings and Documents. All opinions, certificates and
other  instruments  and all  proceedings  in  connection  with the  transactions
contemplated  by this  Agreement  shall be reasonably  satisfactory  in form and
substance to the Lenders.  The Lenders shall have  received  copies of all other
instruments and other evidence as the Lender may reasonably request, in form and
substance  reasonably   satisfactory  to  the  Lenders,   with  respect  to  the
transactions  contemplated  by this  Agreement  and the taking of all actions in
connection therewith.

                  (iii) Due Diligence and Other  Documents.  The Borrowers shall
have delivered to the  Administrative  Agent such other documents,  certificates
and  opinions as the  Managing  Agents  reasonably  request,  including  without
limitation  copies of each document  evidencing  or governing  the  Subordinated
Debt, certified by a secretary or assistant secretary of the applicable Borrower
as a true and correct copy thereof.

                  (iv) Delivery of U.S. Tax Forms.  Each Lender  organized under
the laws of a  jurisdiction  other than the United  States or any state  thereof
shall  deliver to the  Administrative  Agent on the Closing  Date (A) two United
States  Internal  Revenue  Service Forms 4224 or Forms 1001,  as applicable  (or
successor  forms),  properly  completed  and  certifying  in each case that such
Lender is entitled to a complete  exemption from withholding or deduction for or
on  account of any United  States  federal  income  taxes,  and (B) an  Internal
Revenue  Service Form W-8 or W-9 or successor  applicable  form, as the case may
be, to establish an exemption from United States backup withholding taxes. (Each
such Lender further agrees to deliver to the Administrative Agent a Form 1001 or
4224  and  Form  W-8  or  W-9,  or  applicable  successor  forms  or  manner  of
certification,  as the case may be,  on or  before  the date  that any such form
expires or becomes  obsolete or after the  occurrence  of any event  requiring a
change in the most  recent  form  previously  delivered  by it to the  Borrower,
unless  in any such case an event  has  occurred  prior to the date on which any
such delivery would otherwise be required which renders such forms  inapplicable
or the exemption to which such forms relate unavailable and such Lender notifies
the Borrower and the Agent that it is not entitled to receive  payments  without
deduction or withholding of United States federal income taxes).

                  (v) Delivery of U.K. Tax Forms.  Each Lender  organized  under
the  laws of the  United  States  or any  state  thereof  shall  deliver  to the
Administrative  Agent on the Closing Date (A) two United  Kingdom Inland Revenue
Forms FD13 (or  successor  forms),  one with  respect  to ACC U.K.  and one with
respect to United  Telecom Ltd.,  properly  completed and (B) any other U.K. tax
forms reasonably requested by the Adminstrative Agent.

 
                  (vi) United  Telecom  Charter  Amendment.  The  constitutional
documents of United Telecom Ltd. shall have been amended in a manner  reasonably
satisfactory  to the  Administrative  Agent  such  that any  restriction  on the
transfer  of its  shares  to the  Administrative  Agent in  connection  with its
exercise of remedies hereunder is removed.

                  (vii)  Refinancing.  On the Closing  Date  hereunder,  (i) all
loans under the First Amended and Restated Credit Agreement  ("Existing  Loans")
made by any lender who is not a Lender hereunder shall be repaid in full and the
commitments  and other  obligations  and (except as  expressly  set forth in the
First Amended and Restated Credit  Agreement) the rights of such lender shall be
terminated,  (ii) all outstanding Existing Loans shall be Revolving Credit Loans
hereunder (secured by the Security  Documents) and the Borrowers shall make such
repayments,  and the Administrative Agent shall make such transfers of funds, as
are necessary in order that the outstanding balance of such Loans, together with
any Loans funded on the Closing  Date,  reflect the  Commitments  of the Lenders
hereunder,  (iii) all  Letters  of Credit  issued  under the First  Amended  and
Restated Credit  Agreement shall be Letters of Credit  hereunder and each Lender
shall be deemed to have purchased a  participation  therein  pursuant to Section
3.4 in accordance  with its  Commitment  Percentage,  (iv) there shall have been
paid in cash in full all accrued but unpaid  interest due on the Existing  Loans
to but  excluding  the Closing  Date,  (v) there shall have been paid in cash in
full all  accrued but unpaid fees under the First  Amended and  Restated  Credit
Agreement due to but excluding the Closing Date and all other amounts, costs and
expenses then owing to any of the lenders  thereunder and/or any Agent, as agent
under the First  Amended  and  Restated  Credit  Agreement,  in each case to the
satisfaction of such Agent or lender,  as the case may be, regardless of whether
or not such amounts would  otherwise be due and payable at such time pursuant to
the  terms of the First  Amended  and  Restated  Credit  Agreement  and (vi) all
outstanding  promissory  notes issued by the  Borrowers to the lenders under the
First Amended and Restated Credit  Agreement  shall be promptly  returned to the
Administrative Agent who shall forward such notes to the Borrower.

                  (viii) TCG  Amendment.  An amendment to the Agreement and Plan
of Merger by and among  Teleport  Communications  Group,  Inc.,  TCG Merger Co.,
Inc., and ACC, dated as of November 26, 1997, in form and substance satisfactory
to the  Administrative  Agent and permitting the execution of all Loan Documents
by all Borrowers party thereto.

         SECTION 5.3. Conditions to All Extensions of Credit. The obligations of
the  Lenders  to make any Loan  (subject  to  Section  2.2(b)  with  respect  to
Swingline  Loans) or issue or participate in any Letter of Credit are subject to
the satisfaction of the following conditions precedent on the relevant borrowing
or issue date, as applicable:

         (a) Continuation of Representations and Warranties. The representations
and  warranties  contained  in Article VI shall be true and correct on and as of
such  borrowing  or  issuance  date with the same effect as if made on and as of
such date.

         (b) No  Existing  Default.  No Default  or Event of Default  shall have
occurred and be continuing  hereunder on (i) the borrowing  date with respect to
such Loan or after giving

 
effect to the  Revolving  Credit Loans to be made on such date or (ii) the issue
date with  respect  to such  Letter of  Credit  or after  giving  effect to such
Letters of Credit on such date.


                                   ARTICLE VI

                   REPRESENTATIONS AND WARRANTIES OF BORROWERS

         SECTION 6.1.  Representations  and Warranties.  To induce the Agents to
enter  into  this  Agreement  and the  Lenders  to make  the  Loans  or issue or
participate in the Letters of Credit, the Borrowers hereby represent and warrant
to the Agents and Lenders that:

         (a)  Organization;   Power;   Qualification.   Each  of  ACC  and  its
Subsidiaries is duly organized,  validly existing and in good standing under the
laws of the jurisdiction of its  incorporation  or formation,  has the power and
authority  to own its  properties  and to carry  on its  business  as now  being
conducted  and  is  duly  qualified  and  authorized  to  do  business  in  each
jurisdiction  where its business requires such  qualification and authorization,
except in those  jurisdictions  in which the  failure  to so  qualify  could not
reasonably be expected to have a Material Adverse Effect.  The  jurisdictions in
which ACC and its  Subsidiaries are organized and qualified to do business as of
the Closing Date are described on Schedule 6.1(a).

         (b) Ownership.  Each Material Subsidiary and other Subsidiary as of the
Closing Date of ACC is listed on Schedule 6.1(b) and each Material Subsidiary as
of the Closing Date is so designated on such  Schedule.  As of the Closing Date,
the capitalization of ACC and its Subsidiaries consists of the number of shares,
authorized,  issued and outstanding, of such classes and series, with or without
par value,  described on Schedule 6.1(b).  All outstanding shares have been duly
authorized  and  validly  issued  and are  fully  paid  and  nonassessable.  The
shareholders  of the  Subsidiaries of ACC and the number of shares owned by each
as of the Closing Date are described on Schedule 6.1(b). As of the Closing Date,
there  are no  outstanding  stock  purchase  warrants,  subscriptions,  options,
securities,  instruments or other rights of any type or nature whatsoever, which
are convertible  into,  exchangeable for or otherwise  provide for or permit the
issuance of capital  stock of ACC or its  Subsidiaries,  except as  described on
Schedule 6.1(b).

         (c) Authorization of Agreement,  Loan Documents and Borrowing.  Each of
ACC and its  Subsidiaries  has the right,  power and authority and has taken all
necessary  corporate and other action to authorize the  execution,  delivery and
performance  of this  Agreement and each of the other Loan Documents to which it
is a party in accordance with their respective terms. This Agreement and each of
the other Loan  Documents  have been duly  executed  and  delivered  by the duly
authorized  officers of ACC and each of its Subsidiaries  party thereto and each
such document  constitutes the legal, valid and binding obligation of ACC or its
Subsidiary  party thereto,  enforceable in accordance with its terms,  except as
such  enforcement  may be limited  by  bankruptcy,  insolvency,  reorganization,
moratorium or similar state,  provincial or federal debtor relief laws from time
to time in effect which affect the  enforcement of creditors'  rights in general
and the availability of equitable remedies.

 
         (d)  Compliance of Agreement,  Loan  Documents and Borrowing with Laws,
Etc. The execution,  delivery and performance by ACC and its Subsidiaries of the
Loan  Documents to which each such Person is a party,  in accordance  with their
respective  terms, the borrowings  hereunder and the  transactions  contemplated
hereby do not and will not,  by the  passage  of time,  the  giving of notice or
otherwise,  (i)  except as set forth on  Schedule  6.1(d)  hereto,  require  any
Governmental  Approval as of the Closing Date,  (ii) violate any  Applicable Law
relating to ACC or any of its  Subsidiaries,  except to the extent that any such
violation  could not reasonably be expected to have a Material  Adverse  Effect,
(iii)  conflict  with,  result in a breach of or  constitute a default under the
articles of incorporation,  bylaws or other  organizational  documents of ACC or
any of its Subsidiaries or any material indenture, agreement or other instrument
to which such Person is a party or by which any of its  properties  may be bound
or any  Governmental  Approval  relating  to such  Person  or (iv)  result in or
require  the  creation  or  imposition  of any Lien upon or with  respect to any
material  property  now owned or  hereafter  acquired by such Person  other than
Liens arising under the Loan Documents.

         (e) Compliance with Law;  Governmental  Approvals.  Each of ACC and its
Subsidiaries  (i)  has  all  material  Governmental  Approvals  required  by any
Applicable Law for it to conduct its business.  Each such Governmental  Approval
is in full force and effect, is final and not subject to review on appeal and is
not the  subject of any  pending  or, to the best of its  knowledge,  threatened
attack by direct or collateral  proceeding  and (ii) is in compliance  with each
material  Governmental Approval applicable to it and in material compliance with
all other Applicable Laws relating to it or any of its respective properties.

         (f) Tax Returns and Payments. Each of ACC and its Subsidiaries has duly
filed or caused to be filed all federal, state, provincial,  local and other tax
returns  required by Applicable Law to be filed,  and has paid, or made adequate
provision for the payment of, all federal,  state,  provincial,  local and other
taxes,  assessments and governmental charges or levies upon it and its property,
income,  profits and assets which are due and payable,  except where the payment
of such tax is being  disputed  in good faith and  adequate  reserves  have been
established in accordance with GAAP. No Governmental  Authority has asserted any
Lien or other  claim  against  ACC or any  Subsidiary  thereof  with  respect to
material  unpaid taxes which has not been discharged or resolved or is not being
contested in good faith. The charges,  accruals and reserves on the books of ACC
and any of its Subsidiaries in respect of federal, state, provincial,  local and
other taxes for all Fiscal Years and portions thereof are in the judgment of ACC
adequate,  and  ACC  does  not  anticipate  any  additional  material  taxes  or
assessments for any of such years.

         (g) Environmental  Matters. (i) To the best knowledge of the Borrowers,
the  properties  of ACC  and its  Subsidiaries  do not  contain,  and  have  not
previously contained, any Hazardous Materials in amounts or concentrations which
(A) constitute or constituted a material violation of, or (B) could give rise to
material liability under, applicable Environmental Laws;

                  (ii)  Such   properties  and  all   operations   conducted  in
connection  therewith  are in  material  compliance,  and have been in  material
compliance, with all applicable Environmental Laws, and to the best knowledge of
the Borrowers,  there is no  contamination  at or under such  properties or such
operations in violation of applicable Environmental Laws or which could

 
materially interfere with the continued operation of such properties or, if such
properties  are owned by any such Person,  materially  impair the fair  saleable
value thereof;

                  (iii) Neither ACC nor any Subsidiary  thereof has received any
notice of material violation,  alleged violation,  non-compliance,  liability or
potential   liability  regarding   environmental   matters  or  compliance  with
Environmental  Laws with  regard to any of their  properties  or the  operations
conducted in connection  therewith,  nor does ACC or any Subsidiary thereof have
knowledge or reason to believe that any such notice will be received or is being
threatened;

                  (iv) Hazardous Materials have not been transported or disposed
of from the  properties  of ACC and its  Subsidiaries  in violation  of, or in a
manner or to a location  which  could  give rise to  material  liability  under,
Environmental  Laws,  nor to the  best  knowledge  of the  Borrowers,  have  any
Hazardous  Materials been  generated,  treated,  stored or disposed of at, on or
under any of such properties in material violation of, or in a manner that could
give rise to material liability under, any applicable Environmental Laws;

                  (v) No judicial  proceedings or governmental or administrative
action is pending, or to the best knowledge of the Borrowers,  threatened, under
any Environmental Law to which ACC or any Subsidiary thereof is or will be named
as a party with respect to such properties or operations conducted in connection
therewith,  nor are there any consent decrees or other decrees,  consent orders,
administrative  orders or other  orders,  or other  administrative  or  judicial
requirements  outstanding  under  any  Environmental  Law with  respect  to such
properties or such operations; and

                  (vi) There has been no release,  or to the best  knowledge  of
the  Borrowers,  threat  of  release,  of  Hazardous  Materials  at or from such
properties, in violation of or in amounts or in a manner that could give rise to
material liability under Environmental Laws.

         (h)  Employee Benefit Plans and Canadian Plans.

                  (i)  Neither  ACC  nor  any  ERISA   Affiliate   maintains  or
contributes  to,  or has any  obligation  under,  any  Employee  Benefit  Plans,
Canadian Plans or German Plans other than those identified on Schedule 6.1(h);

                  (ii) ACC and each ERISA  Affiliate are in material  compliance
with all  applicable  provisions  of ERISA  and the  regulations  and  published
interpretations thereunder with respect to all Employee Benefit Plans except for
any required  amendments for which the remedial  amendment  period as defined in
Section 401(b) of the Code has not yet expired.  Each Employee Benefit Plan that
is intended to be qualified under Section 401(a) of the Code has been determined
by the Internal  Revenue  Service to be so qualified,  and each trust related to
such plan has been  determined to be exempt under Section 501(a) of the Code. No
liability  has  been  incurred  by ACC  or any  ERISA  Affiliate  which  remains
unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan
or any Multiemployer Plan;

 
                  (iii)  No  Pension  Plan  has  been  terminated,  nor  has any
accumulated  funding  deficiency  (as  defined in Section  412 of the Code) been
incurred  (without  regard to any waiver granted under Section 412 of the Code),
nor has any funding  waiver from the Internal  Revenue  Service been received or
requested with respect to any Pension Plan,  nor has ACC or any ERISA  Affiliate
failed to make any contributions or to pay any amounts due and owing as required
by Section  412 of the Code,  Section  302 of ERISA or the terms of any  Pension
Plan prior to the due dates of such contributions  under Section 412 of the Code
or Section 302 of ERISA,  nor has there been any event  requiring any disclosure
under  Section  4041(c)(3)(C)  or 4063(a) of ERISA with  respect to any  Pension
Plan;

                  (iv) Neither ACC nor any ERISA Affiliate has: (A) engaged in a
nonexempt  prohibited  transaction  described  in  Section  406 of the  ERISA or
Section 4975 of the Code;  (B) incurred any  liability to the PBGC which remains
outstanding other than the payment of premiums and there are no premium payments
which are due and unpaid; (C) failed to make a required  contribution or payment
to a Multiemployer  Plan; or (D) failed to make a required  installment or other
required payment under Section 412 of the Code;

                  (v) No  Termination  Event or Canadian  Termination  Event has
occurred or is reasonably expected to occur;

                  (vi)   No   material   proceeding,   claim,   lawsuit   and/or
investigation  is existing  or, to the best  knowledge of ACC after due inquiry,
threatened  concerning  or involving any (A) employee  welfare  benefit plan (as
defined in Section 3(1) of ERISA) currently  maintained or contributed to by ACC
or any ERISA Affiliate,  (B) Pension Plan, (C) Multiemployer  Plan, (D) Canadian
Plan or (E) German Plan;

                  (vii) ACC and its Subsidiaries are in material compliance with
all  Canadian  Law  relating  to  employee  benefit  plans,  pension  plans  and
retirement  savings plans and no liability has been incurred in respect  thereof
that remains unsatisfied; and

                  (viii) No Canadian Plan or German Plan has been terminated nor
is there any funding deficiency in respect thereof that has not been remedied or
any contributions or premiums thereto that have not been paid.

         (i) Margin  Stock.  Neither ACC nor any  Subsidiary  thereof is engaged
principally or as one of its activities in the business of extending  credit for
the purpose of  "purchasing" or "carrying" any "margin stock" (as each such term
is  defined  or used in  Regulations  G and U of the Board of  Governors  of the
Federal Reserve System).  No part of the proceeds of any of the Loans or Letters
of  Credit  will be used for  purchasing  or  carrying  margin  stock or for any
purpose which violates,  or which would be inconsistent  with, the provisions of
Regulation G, T, U or X of such Board of Governors.

         (j) Government Regulation. Neither ACC nor any Subsidiary thereof is an
"investment  company" or a company  "controlled" by an "investment  company" (as
each such term is  defined or used in the  Investment  Company  Act of 1940,  as
amended) and neither ACC nor any

 
Subsidiary  thereof is, or after giving  effect to any  Extension of Credit will
be, a "Holding  Company" or a "Subsidiary  Company" of a "Holding Company" or an
"Affiliate" of a "Holding Company" within the respective meanings of each of the
quoted terms of the Public Utility  Holding  Company Act of 1935 as amended,  or
any other  Applicable  Law  which  materially  limits  its  ability  to incur or
consummate the transactions contemplated hereby.

         (k)  Patents,   Copyrights  and   Trademarks.   Each  of  ACC  and  its
Subsidiaries owns or possesses all patent,  copyright and trademark rights which
are  required  to conduct  its  business,  without  infringing  upon any validly
asserted  rights of others,  except where the failure to so own or possess could
not  reasonably  be expected  to have a Material  Adverse  Effect.  No event has
occurred which  permits,  or after notice or lapse of time or both would permit,
the  revocation or  termination  of any such rights.  Neither ACC nor any of its
Subsidiaries  have  been  threatened  with  any  litigation  regarding  patents,
copyrights  or  trademarks  that  would  present a  material  impediment  to the
business of any such Person.

         (l)  Material  Contracts.  Schedule  6.1(l)  sets forth a complete  and
accurate list of all Material Contracts of ACC and its Subsidiaries in effect as
of the Closing Date not listed on any other Schedule  hereto;  other than as set
forth in Schedule 6.1(l),  each of ACC and any Subsidiary  thereof party thereto
has performed all of its obligations  under such Material  Contracts and, to the
best knowledge of the Borrowers,  each other party thereto is in compliance with
each such  Material  Contract,  and each such  Material  Contract  is, and after
giving effect to the consummation of the  transactions  contemplated by the Loan
Documents  will be,  in full  force  and  effect  in  accordance  with the terms
thereof.  ACC and its Subsidiaries have delivered to the Administrative  Agent a
true and  complete  copy of each  Material  Contract  required  to be  listed on
Schedule 6.1(l).

         (m) Employee Relations.  None of ACC and its Subsidiaries is, except as
set forth on Schedule 6.1(m),  party to any collective  bargaining agreement nor
has any labor union been  recognized as the  representative  of the employees of
any such Person.  ACC knows of no pending,  threatened or contemplated  strikes,
work  stoppage or other  collective  labor  disputes  involving its employees or
those of its Subsidiaries.

         (n) Burdensome Provisions.  Neither ACC nor any Subsidiary thereof is a
party to any indenture,  agreement, lease or other instrument, or subject to any
corporate or partnership  restriction,  Governmental  Approval or Applicable Law
which  is so  unusual  or  burdensome  as in the  foreseeable  future  could  be
reasonably  expected to have a Material Adverse Effect. ACC and its Subsidiaries
do not  presently  anticipate  that  future  expenditures  needed  to  meet  the
provisions of any  statutes,  orders,  rules or  regulations  of a  Governmental
Authority will be so burdensome as to have a Material Adverse Effect.

 
         (o) Financial  Statements.  The (i) Consolidated  balance sheets of ACC
and its  Subsidiaries  as of December 31, 1996,  and the related  statements  of
income and  retained  earnings and cash flows for the Fiscal Year then ended and
(ii)  unaudited  Consolidated  balance sheet of ACC and its  Subsidiaries  as of
September 30, 1997 and related unaudited  interim  statements of income and cash
flows, copies of which have been furnished to the Administrative  Agent and each
Lender, are complete and correct and fairly present the assets,  liabilities and
financial  position  of ACC and its  Subsidiaries,  as at  such  dates,  and the
results of the operations and changes of financial position for the periods then
ended. All such financial statements,  including the related schedules and notes
thereto,  have been prepared in accordance  with GAAP. ACC and its  Subsidiaries
have no  material  Debt,  obligation  or  other  unusual  forward  or  long-term
commitment  which is not disclosed in the foregoing  financial  statements or in
the notes thereto.

         (p) No Material Adverse Effect. Since December 31, 1996, there has been
no event or condition  that has had or is  reasonably  likely to have a Material
Adverse Effect.

         (q)  Solvency.  As of the Closing Date and after giving  effect to each
Extension of Credit made hereunder,  ACC and its  Subsidiaries  taken as a whole
will be Solvent.

         (r) Titles to  Properties.  Each of ACC and its  Subsidiaries  has such
title to the real property owned or leased by it as is necessary or desirable to
the conduct of its business and good and marketable title to all of its personal
property sufficient to carry on its business as presently conducted, except such
property as has been disposed of by ACC or its  Subsidiaries  subsequent to such
date which  dispositions  have been in the  ordinary  course of  business  or as
otherwise expressly permitted  hereunder.  Schedule 6.1(r) hereto sets forth the
address of all real property owned or leased by a Borrower and its  Subsidiaries
(and if leased, the record owner thereof).

         (s) Liens.  None of the  properties and assets of ACC or any Subsidiary
thereof is subject to any Lien, except in each case Liens permitted  pursuant to
Section 10.3. No financing  statement or application for registration  under the
Uniform  Commercial Code of any state or personal property security  legislation
or legislation as to registration  of security on movable  property of any other
jurisdiction  which  names  ACC  or any  Subsidiary  thereof  or  any  of  their
respective  trade names or divisions as debtor or grantor and which has not been
terminated,  has been filed in any state or other  jurisdiction  and neither ACC
nor  any  Subsidiary  thereof  has  signed  any  such  financing   statement  or
application for registration or any security  agreement  authorizing any secured
party  thereunder  to file any  such  financing  statement  or  application  for
registration, except to perfect those Liens permitted by Section 10.3 hereof.

         (t) Debt and Contingent Obligations.  Schedule 6.1(t) is a complete and
correct  listing  of  all  Debt  and  Contingent  Obligations  of  ACC  and  its
Subsidiaries in excess of $500,000.  ACC and its Subsidiaries have performed and
are in  material  compliance  with all of the terms of such Debt and  Contingent
Obligations and all instruments and agreements relating thereto,  and no default
or event of default, or event or condition which with notice or lapse of time or
both would  constitute  such a default or event of default on the part of ACC or
its Subsidiaries exists with respect to any such Debt or Contingent Obligation.

 
         (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) Year 2000  Compatibility.  The  Borrowers  have  taken  all  action
necessary to assure that the computer based systems of the Borrowers are able to
operate and  effectively  process data  including  dates on and after January 1,
2000. At the request of the  Administrative  Agent,  the Borrowers shall provide
assurance  reasonably  acceptable to the Administrative Agent and the Lenders of
the Borrowers' Year 2000 compatibility.

         (z) Accuracy and Completeness of Information.  All written information,
reports  and  other  papers  and data  produced  by or on  behalf  of ACC or any
Subsidiary  thereof and furnished to the Lenders were, at the time the same were
so  furnished,  complete  and  correct in all  material  respects.  No  document
furnished or written  statement  made to the Agents or the Lenders by ACC or any
Subsidiary thereof in connection with the negotiation,  preparation or execution
of this  Agreement  or any of the Loan  Documents  contains or will  contain any
untrue  statement  of a  fact  material  to the  creditworthiness  of ACC or its
Subsidiaries  or omits or will omit to state a material fact  necessary in order
to make the statements contained therein not misleading. ACC is not aware of any
facts  which it has not  disclosed  in writing  to the Agents  having a Material
Adverse Effect, or insofar as ACC can now foresee,  could reasonably be expected
to have a Material Adverse Effect.

 
         SECTION  6.2.  Survival of  Representations  and  Warranties,  Etc. All
representations   and   warranties   set  forth  in  this  Article  VI  and  all
representations and warranties contained in any certificate,  or any of the Loan
Documents (including but not limited to any such representation or warranty made
in or in connection with any amendment thereto) shall constitute representations
and warranties made under this  Agreement.  All  representations  and warranties
made  under this  Agreement  shall be made or deemed to be made at and as of the
Closing  Date,  shall  survive the  Closing  Date and shall not be waived by the
execution and delivery of this Agreement, any investigation made by or on behalf
of the Lenders or any borrowing hereunder.


                                   ARTICLE VII

                        FINANCIAL INFORMATION AND NOTICES

         Until all the Obligations  have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner set forth
in Section 14.11 hereof,  the Borrowers will furnish or cause to be furnished to
the Administrative Agent and to the Lenders at their respective addresses as set
forth on Schedule  1.1(b),  or such other  office as may be  designated  by such
Agent and Lenders from time to time:

         SECTION 7.1.  Financial Statements and Projections.

         (a) Quarterly Financial  Statements.  As soon as practicable and in any
event  within  forty-five  (45) days after the end of each  fiscal  quarter,  an
unaudited   Consolidated  and  consolidating   balance  sheet  of  ACC  and  its
Subsidiaries  as of the close of such fiscal quarter and unaudited  Consolidated
and consolidating statements of income,  shareholders' equity and cash flows for
the fiscal  quarter  then ended and that  portion of the Fiscal Year then ended,
including the notes thereto (except with respect to  consolidating  statements),
all in reasonable  detail  setting forth in comparative  form the  corresponding
figures for the  preceding  Fiscal Year and prepared by ACC in  accordance  with
GAAP (except with respect to consolidating cash flows which shall be prepared in
a form  consistent  with past  practices),  and certified by the chief financial
officer  of  ACC to  present  fairly  in all  material  respects  the  financial
condition  of ACC and its  Subsidiaries  as of their  respective  dates  and the
results of operations of ACC and its  Subsidiaries  for the  respective  periods
then ended, subject to normal year end adjustments.

         (b) Annual  Financial  Statements.  As soon as  practicable  and in any
event  within one  hundred  and twenty  (120) days after the end of each  Fiscal
Year, an unaudited  consolidating  balance sheet and income statement of ACC and
its  Subsidiaries  and an  audited  Consolidated  balance  sheet  of ACC and its
Subsidiaries  as of the  close  of such  Fiscal  Year and  audited  Consolidated
statements  of income,  shareholders'  equity and cash flows for the Fiscal Year
then ended,  including the notes thereto, all in reasonable detail setting forth
in comparative form the corresponding  figures for the preceding Fiscal Year and
audited  by an  independent  certified  public  accounting  firm  of  nationally
recognized standing in accordance with GAAP, and accompanied by a report thereon
by such certified public accountants that is not qualified with respect to scope

 
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.

 
                                  ARTICLE VIII

                              AFFIRMATIVE COVENANTS

         Until all of the  Obligations  have been paid and satisfied in full and
the  Commitments  terminated,  unless  consent  has been  obtained in the manner
provided for in Section  14.11,  each Borrower  will, and will cause each of its
Subsidiaries to:

         SECTION 8.1.  Preservation of Corporate  Existence and Related Matters.
Except as  permitted  by  Section  10.5 or as a result of any  Change in Control
which has been  approved  pursuant to Section  14.11,  preserve and maintain its
separate corporate existence and all rights, franchises, licenses and privileges
necessary to the conduct of its business;  and qualify and remain qualified as a
foreign corporation and authorized to do business in each jurisdiction where its
business requires such qualification and authorization.

         SECTION  8.2.  Maintenance  of  Property.   Protect  and  preserve  all
properties  useful  in  and  material  to  its  business,   including   material
copyrights,  patents, trade names and trademarks; maintain in good working order
and condition all buildings  (reasonable wear and tear excepted),  equipment and
other tangible real and personal  property;  and from time to time make or cause
to be made all renewals,  replacements and additions to such property  necessary
in the reasonable judgement of the Borrowers for the conduct of its business, so
that the  business  carried  on in  connection  therewith  may be  properly  and
advantageously conducted at all times.

         SECTION 8.3.  Insurance.  In addition to the  requirements set forth in
the Security Documents,  maintain insurance with financially sound and reputable
insurance  companies  against such risks and in such amounts as are  customarily
maintained by similar  businesses and as may be required by Applicable  Law, and
on the Closing  Date and from time to time deliver to the  Administrative  Agent
upon its request a detailed  list of the insurance  then in effect,  stating the
names of the insurance  companies,  the amounts and rates of the insurance,  the
dates of the expiration thereof and the properties and risks covered thereby.

         SECTION  8.4.  Accounting  Methods and  Financial  Records.  Maintain a
system of accounting,  and keep such books, records and accounts (which shall be
true and  complete  in all  material  respects)  as may be required or as may be
necessary to permit the  preparation of financial  statements in accordance with
GAAP (or generally  accepted  accounting  principles as in effect in Canada, the
United Kingdom and the Federal  Republic of Germany with respect to the Canadian
Borrowers,  the U.K.  Borrowers and the German  Borrowers,  respectively) and in
compliance  with  the   regulations  of  any   Governmental   Authority   having
jurisdiction over it or any of its properties.

         SECTION 8.5.  Payment and Performance of  Obligations.  Pay and perform
all  Obligations  under this  Agreement and the other Loan  Documents and pay or
perform (a) all taxes,  assessments and other  governmental  charges that may be
levied  or  assessed  upon  it or  any  of  its  property,  and  (b)  all  other
indebtedness,  obligations  and  liabilities in accordance  with customary trade
practices;  provided, that ACC or such Subsidiary may contest any item described
in clauses

 
(a) and (b) hereof in good faith so long as  adequate  reserves  are  maintained
with respect thereto in accordance with GAAP.

         SECTION 8.6. Compliance With Laws and Approvals.  Observe and remain in
material  compliance  with all  Applicable  Laws and  maintain in full force and
effect all material Governmental Approvals, in each case applicable or necessary
to the conduct of its business.

         SECTION 8.7.  Environmental  Laws. In addition to and without  limiting
the generality of Section 8.6, (a) comply in all material respects with, and use
its best efforts to ensure such compliance by all of its tenants and subtenants,
if any, with, all applicable  Environmental  Laws and obtain and comply with and
maintain,  and use its  best  efforts  to  ensure  that all of its  tenants  and
subtenants obtain and comply with and maintain, any and all licenses, approvals,
notifications,  registrations  or permits  required by applicable  Environmental
Laws;  (b)  conduct and  complete  all  investigations,  studies,  sampling  and
testing,   and  all  remedial,   removal  and  other  actions   required   under
Environmental  Laws,  and timely comply with all lawful orders and directives of
any  Governmental  Authority  regarding  Environmental  Laws;  and  (c)  defend,
indemnify  and hold  harmless the Agents and the Lenders,  and their  respective
parents,  Subsidiaries,  Affiliates,  employees, agents, officers and directors,
from  and  against  any  claims,   demands,   penalties,   fines,   liabilities,
settlements,  damages,  costs and  expenses of whatever  kind or nature known or
unknown, contingent or otherwise,  arising out of, or in any way relating to the
violation  of,  noncompliance  with or liability  under any  Environmental  Laws
applicable  to the  operations  of  ACC  or  such  Subsidiary,  or  any  orders,
requirements or demands of Governmental Authorities related thereto,  including,
without limitation,  reasonable attorney's and consultant's fees,  investigation
and laboratory fees, response costs, court costs and litigation expenses, except
to the  extent  that any of the  foregoing  arise  out of or relate to the gross
negligence or willful misconduct of the party seeking indemnification therefor.

         SECTION  8.8.  Employee  Benefit,   Pension  and  Retirement  Laws.  If
applicable  thereto,  in addition  to and without  limiting  the  generality  of
Section 8.6, make timely payment of  contributions  required to meet the minimum
funding  standards set forth in ERISA with respect to any Employee Benefit Plan;
not take any  action  or fail to take  action  the  result  of which  could be a
liability  to the  PBGC  or to a  Multiemployer  Plan;  not  participate  in any
prohibited transaction that could result in any civil penalty under ERISA or tax
under the Code;  furnish to the  Administrative  Agent  upon the  Administrative
Agent's request such additional  information  about any Employee Benefit Plan as
may be  reasonably  requested  by the  Administrative  Agent;  and operate  each
Employee  Benefit  Plan in such a manner  that will not incur any tax  liability
under Section 4980B of the Code or any liability to any qualified beneficiary as
defined in  Section  4980B of the Code and not  operate  or fail to operate  any
Canadian Plan or German Plan of ACC or any Subsidiary thereof in full conformity
and  compliance  with  all  federal  and  provincial  laws and  regulations  and
contracts relating to any Canadian Plan or German Plan and, in particular but by
way of illustration only, make timely payments of all contributions  required to
meet the minimum funding  standards  prescribed by such laws and regulations and
contracts and furnish to the Administrative Agent upon such Agent's request such
additional  information  about  any  Canadian  Plan  or  German  Plan  as may be
reasonably requested by the Administrative Agent.

 
         SECTION  8.9.  Compliance  With  Agreements.  Comply  in  all  material
respects with each term,  condition and provision of all leases,  agreements and
other instruments entered into in the conduct of its business including, without
limitation,  any Material  Contract;  provided,  that ACC or such Subsidiary may
contest any such lease,  agreement or other  instrument in good faith so long as
adequate reserves are maintained in accordance with GAAP.

         SECTION  8.10.  Conduct  of  Business.  Engage  only in  businesses  in
substantially  the same fields as the  businesses  conducted on the Closing Date
and, to the extent permitted by Section 10.4(c), in lines of business reasonably
related thereto.

         SECTION 8.11. Visits and Inspections.  Upon reasonable notice therefrom
and during normal business hours,  permit  representatives  of any of the Agents
and Lenders,  from time to time, to visit and inspect its  properties;  inspect,
audit and make extracts from its books,  records and files,  including,  but not
limited to, management letters prepared by independent accountants;  and discuss
with its principal  officers,  and its  independent  accountants,  its business,
assets,  liabilities,  financial  condition,  results of operations and business
prospects.

         SECTION 8.12. Material Subsidiaries;  Additional  Collateral.  (a) Upon
the creation of any Material Subsidiary permitted by this Agreement, cause to be
executed and delivered to the Administrative  Agent: (i) a Joinder Agreement and
the documents referred to therein;  provided,  that such Joinder Agreement shall
not be required with respect to any Material  Subsidiary  created as a result of
the Versatel Acquisition,  (ii) if such Subsidiary is a Domestic Subsidiary, (A)
the supplement substantially in the form attached to the Security Agreement, (B)
the  supplement  substantially  in the form  attached to the  applicable  Pledge
Agreement,  or if the owner of such  Subsidiary  is not ACC or ACC  National,  a
pledge agreement  substantially  in the form of a Pledge  Agreement  executed by
such owner with such modifications  thereto as requested by the Required Lenders
and (C) a Mortgage and landlord  consent with respect to any real property owned
or leased by such  Subsidiary if reasonably  requested by the Required  Lenders,
(iii) if such Subsidiary is a Canadian  Subsidiary,  such joinder  agreements as
reasonably  requested  by the  Required  Lenders in order  that such  Subsidiary
become  a party  to the  Canadian  Security  Documents  and/or  such  additional
Canadian  Security  Documents as reasonably  requested by the Required  Lenders,
(iv) if  such  Subsidiary  is a U.K.  Subsidiary,  such  joinder  agreements  as
reasonably  requested  by the  Required  Lenders in order  that such  Subsidiary
become  a party to the U.K.  Security  Documents  and/or  such  additional  U.K.
Security Documents as reasonably  requested by the Required Lenders, (v) if such
Subsidiary  is a  German  Subsidiary,  such  joinder  agreements  as  reasonably
requested by the Required  Lenders in order that such Subsidiary  become a party
to  the  German  Security  Documents  and/or  such  additional  German  Security
Documents  as  reasonably  requested by the  Required  Lenders,  (vi) such other
documents reasonably requested by the Required Lenders consistent with the terms
of this  Agreement  which provide that such  Subsidiary  (if so required by this
Section 8.10) shall become a Borrower  bound by all of the terms,  covenants and
agreements  contained  in the  Loan  Documents  and  that  the  assets  of  such
Subsidiary shall become  Collateral for the  Obligations,  (vii) with respect to
the  Material  Subsidiary  created  as a  result  of the  Versatel  Acquisition,
documents   satisfactory  to  the  Administrative  Agent  and  Required  Lenders
evidencing the valid pledge as collateral of 66.66% of the capital stock of such
Material  Subsidiary  and (viii) such other  documents as the  Required  Lenders
shall reasonably

 
request,  including  without  limitation,   officers'  certificates,   financial
statements,   opinions  of  counsel,   board  resolutions,   charter  documents,
certificates  of existence  and  authority to do business and any other  closing
certificates and documents described in Section 5.2.

         (b) ACC shall, and cause its Material Subsidiaries to, promptly deliver
from time to time such additional Security Documents to the Administrative Agent
upon the request of the Required  Lenders with respect to any assets of any such
Person not subject to an existing Lien in favor of the Administrative  Agent for
the  benefit  of the  Lenders  (including,  without  limitation,  Mortgages  and
landlord  consents  with  respect to each leased  premises at which any Material
switching equipment is located).

         SECTION  8.13.  Hedging  Agreement.  (a) Maintain at all times  Hedging
Agreements  with respect to interest  rate exposure  under the Credit  Agreement
with durations of at least two years and an aggregate  notional principal amount
thereunder  equal to at least fifty  percent  (50%) of the  aggregate  principal
Dollar Amount of the  Extensions  of Credit at interest  rates not to exceed two
percent  (2%) over the three month LIBOR Rate at the time of  execution  of such
Hedging  Agreements  with  respect to each  applicable  Permitted  Currency  and
otherwise in form and substance reasonably  satisfactory to the Managing Agents;
provided, that at any time the Leverage Ratio is less than 2.50 to 1.00, no such
Hedging  Agreements  shall be required  and (b)  maintain  at all times  Hedging
Agreements  with  respect  to  currency  risk in form and  substance  reasonably
satisfactory to the Managing Agents.

         SECTION 8.14.  Further  Assurances.  Make, execute and deliver all such
additional  and further  acts,  things,  deeds and  instruments  as any Agent or
Lender may  reasonably  require to  document  and  consummate  the  transactions
contemplated  hereby and to vest  completely  in and  insure  each Agent and the
Lenders their respective rights under this Agreement,  the Notes, the Letters of
Credit and the other Loan Documents.

         SECTION 8.15.  Post-Closing Matters
 .
         (a)  Within  thirty  (30) days after the date  hereof,  provide a fully
executed and duly notarized German Pledge Agreement.

         (b) Within one hundred  twenty (120) days after the date  hereof,  with
respect  to  Vista  International  Communications,  Inc.,  (i)  provide  to  the
Administrative  Agent  satisfactory  evidence  that such Person has received all
Governmental  Approvals  required to become a Borrower hereunder and (ii) comply
with Section 8.12 hereof with respect to such Person.

         (c)  Within  thirty  (30) days after the date  hereof,  provide a fully
executed  and duly  executed  Landlord  Agreement  with  respect to ACC Canada's
leasehold property in Quebec.


                                   ARTICLE IX

                               FINANCIAL COVENANTS

 
         Until all of the  Obligations  have been paid and satisfied in full and
the Commitments  terminated,  unless consent has been obtained in the manner set
forth in Section 14.11 hereof,  ACC and its Subsidiaries on a Consolidated basis
will not:

         SECTION  9.1.Maximum  Leverage Ratio. As of any date of  determination,
permit the ratio (the "Leverage Ratio") of (a) Total Debt as of such date to (b)
Operating  Cash Flow for the  period  of four (4)  consecutive  fiscal  quarters
ending on or immediately prior to such date, to exceed the  corresponding  ratio
set forth below:

                  Period                             Ratio

                  Closing Date 6/30/98               3.50 to 1.00
                  7/1/98 - 12/31/98                  3.00 to 1.00
                  1/1/99 - 12/31/99                  2.50 to 1.00
                  1/1/00 and thereafter              2.00 to 1.00

         SECTION 9.2.  Minimum Pro Forma Debt Service  Coverage Ratio. As of any
date of  determination,  permit  the  ratio of (a)  Operating  Cash Flow for the
period of four (4) consecutive fiscal quarters ending on or immediately prior to
such date to (b) Pro  Forma  Debt  Service  on such date to be less than 2.50 to
1.00.

         SECTION  9.3.  Fixed  Charge   Coverage   Ratio.  As  of  any  date  of
determination,  permit  the ratio of (a)  Operating  Cash Flow for the period of
four (4) consecutive fiscal quarters ending on or immediately prior to such date
to (b) Fixed  Charges  for the period of four (4)  consecutive  fiscal  quarters
ending on or immediately prior to such date, during any given period, to be less
than the corresponding ratio set forth below:

                   Period                            Ratio

                  1/1/99 - 12/31/99                  1.00 to 1.00
                  1/1/00 and thereafter              1.15 to 1.00

         SECTION  9.4.  Capital  Expenditures.  During  Fiscal  Year 1998,  make
Capital Expenditures in excess of $70,000,000.

 
         SECTION 9.5.  Minimum Net Worth.  Permit  Consolidated Net Worth at any
time  to be  less  than  (a)  $115,000,000  plus  (b)  fifty  percent  (50%)  of
Consolidated  Net Income of ACC and its  Subsidiaries  as of each fiscal quarter
end occurring  after the Closing Date plus (c) one hundred percent (100%) of the
aggregate  Net Cash  Proceeds of any offering of capital  stock of ACC or any of
its  Wholly-Owned  Subsidiaries  received  thereby after the Closing  Date.  For
purposes of this Section 9.5, the minimum required  Consolidated Net Worth shall
not be reduced if  Consolidated  Net Income as of any fiscal quarter end is less
than zero.


                                    ARTICLE X

                               NEGATIVE COVENANTS

         Until all of the  Obligations  have been paid and satisfied in full and
the Commitments  terminated,  unless consent has been obtained in the manner set
forth in Section 14.11 hereof, each Borrower will not and will not permit any of
its Subsidiaries to:

         SECTION 10.1.  Limitations on Debt. Create,  incur, assume or suffer to
exist any Debt except:

         (a)  the Obligations;

         (b)  Subordinated  Debt, the Net Cash Proceeds of which are utilized to
repay the Obligations  and, with respect to any such Net Cash Proceeds  utilized
to reduce the Leverage Ratio to 3.00 to 1.00,  permanently  reduce the Aggregate
Commitment  by the  amount  of  such  Net  Cash  Proceeds  pursuant  to  Section
2.6(c)(i);

         (c) Debt existing on the Closing Date and not otherwise permitted under
this  Section  10.1,  as set  forth  on  Schedule  6.1(t)  and the  renewal  and
refinancing (but not the increase) thereof;

         (d) Debt  consisting  of  Contingent  Obligations  permitted by Section
10.2;

         (e)  Debt of ACC and  its  Subsidiaries  incurred  in  connection  with
Capitalized Leases;

         (f)  purchase money Debt of ACC and its Subsidiaries; and

         (g)  unsecured Debt of ACC and its Subsidiaries;

provided,  that the aggregate  amount of the Debt permitted  pursuant to clauses
(e),  (f) and (g) plus the  aggregate  amount  of Debt  constituting  Contingent
Obligations  permitted  by Sections  10.2(b),  (d) and (f) shall not at any time
exceed $40,000,000.

         SECTION 10.2.  Limitations on Contingent  Obligations.  Create,  incur,
assume or  suffer to exist any  Contingent  Obligations  except  (a)  Contingent
Obligations in favor of the  Administrative  Agent for the benefit of the Agents
and the Lenders, (b) Contingent Obligations

 
incurred as a general or joint venture partner in connection with any investment
in a  partnership  or joint  venture  permitted  pursuant to Section  10.4,  (c)
Contingent  Obligations in respect of Network  Agreements and Network Facilities
incurred in the  ordinary  course of business,  (d)  Contingent  Obligations  to
secure  payment or  performance of customer  service  contracts  incurred in the
ordinary  course  of  business,  (e)  Contingent  Obligations  with  respect  to
obligations under Hedging Agreements  permitted pursuant to Section 10.13(b) and
(f)  Contingent  Obligations  not  covered by clauses  (a)  through  (e) of this
Section;  provided,  that the  aggregate  outstanding  principal  amount  of all
Contingent  Obligations  permitted  by  Sections  10.2(b),  (d) and (f) plus the
aggregate  outstanding  principal  amount  of  all  Debt,  without  duplication,
outstanding  under  clauses  (e),  (f) and (g) of Section  10.1 shall not exceed
$40,000,000.

         SECTION 10.3.  Limitations on Liens. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties (including
without limitation shares of capital stock or other ownership  interests),  real
or personal, whether now owned or hereafter acquired, except:

         (a) Liens for  taxes,  assessments  and other  governmental  charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or
Environmental  Laws)  not yet due or as to w hich the  period  of grace  (not to
exceed thirty (30) days),  if any,  related thereto has not expired or which are
being  contested  in good  faith  and by  appropriate  proceedings  if  adequate
reserves are maintained to the extent required by GAAP;

         (b) the  claims  of  materialmen,  mechanics,  carriers,  warehousemen,
processors or landlords for labor,  materials,  supplies or rentals  incurred in
the ordinary course of business,  (i) which are not overdue for a period of more
than  thirty  (30) days or (ii) which are being  contested  in good faith and by
appropriate proceedings;

         (c) Liens consisting of deposits or pledges made in the ordinary course
of business in  connection  with,  or to secure  payment of,  obligations  under
workers'   compensation,   unemployment  insurance  or  similar  legislation  or
obligations (not to exceed $2,000,000) under customer service contracts;

         (d)  Liens   constituting   encumbrances   in  the   nature  of  zoning
restrictions,  easements and rights or restrictions of record on the use of real
property, which in the aggregate are not substantial in amount and which do not,
in any case,  materially  detract from the value of such  property or impair the
use thereof in the ordinary conduct of business;

         (e) Liens of the Administrative Agent for the benefit of the Agents and
the Lenders;

         (f) Liens not otherwise permitted by this Section 10.3 and in existence
on the Closing Date and described on Schedule 10.3;

         (g) Liens  evidencing  the  interest  of lessors  with  respect to Debt
permitted under Section 10.1(e); and

 
         (h)  Liens securing Debt permitted under Section 10.1(f); provided that
(i)  such  Liens  shall  be  created   substantially   simultaneously  with  the
acquisition  of the related  Capital  Asset,  (ii) such Liens do not at any time
encumber  any property  other than the property  financed by such Debt and (iii)
the  aggregate  outstanding  principal  amount of Debt  secured by any such Lien
shall at no time exceed 100% of the original  purchase price of such property at
the time it was acquired.

         SECTION  10.4.   Limitations  on  Loans,   Advances,   Investments  and
Acquisitions.  Purchase,  own,  invest  in or  otherwise  acquire,  directly  or
indirectly,  any capital  stock,  interests in any  partnership or joint venture
(including without limitation the creation or capitalization of any Subsidiary),
evidence  of  Debt or  other  obligation  or  security,  substantially  all or a
material  portion  of the  business  or assets of any other  Person or any other
investment  or interest  whatsoever  in any other  Person;  or make or permit to
exist,  directly or indirectly,  any loans, advances or extensions of credit to,
or any  investment  in cash or by delivery of property in, any Person;  or enter
into,  directly  or  indirectly,  any  commitment  or option in  respect  of the
foregoing except:

         (a) (i) loans or  advances  by any  Subsidiary  of a  Borrower  to such
Borrower,  (ii) advances from ACC to any  Wholly-Owned  Subsidiary or Controlled
Venture  in an  aggregate  principal  amount not to exceed  $500,000,  (iii) (A)
intercompany loans by ACC to ACC Canada in an aggregate  principal amount not to
exceed  $70,000,000,  (B) intercompany  loans by ACC to ACC U.K. in an aggregate
principal  amount  not  to  exceed   $50,000,000,   (C)  intercompany  loans  or
investments  in the form of capital  contributions  by ACC or by a  Wholly-Owned
Subsidiary thereof to ACC Germany in an aggregate principal amount not to exceed
$10,000,000 and (D) intercompany loans by ACC to the Material Subsidiary created
as a result of the Versatel  Acquisition in an aggregate principal amount not to
exceed  $15,000,000;  provided,  that  (x)  such  intercompany  loans  shall  be
evidenced by promissory  notes in form and  substance  acceptable to the Lenders
(each, an "Intercompany  Note"), which notes shall be pledged to the Lenders and
shall be  subordinated  to the  Credit  Facility  pursuant  to the  Intercompany
Subordination Agreement and (y) the Intercompany Note evidencing loans permitted
pursuant to Section  10.4(a)(iii)(D) above shall be secured by substantially all
of the  assets  of such  Material  Subsidiary  pursuant  to  security  documents
reasonably  satisfactory to the Administrative Agent and the rights and remedies
of ACC thereunder shall be pledged to the  Administrative  Agent pursuant to the
Security  Agreement and (iii) other existing loans,  advances and investments in
existence on the Closing Date and  described on Schedule  10.4;  provided,  that
notwithstanding  the above,  no further  loans or advances  shall be made by any
Borrower to Vista International Communications,  Inc., until such time as it has
been joined as a Borrower pursuant to Section 8.15.

         (b) investments by any Domestic Borrower or Domestic  Subsidiary in (i)
marketable direct obligations issued or unconditionally guaranteed by the United
States of America or any agency  thereof  maturing  within one (1) year from the
date of acquisition  thereof,  (ii)  commercial  paper maturing no more than 120
days from the date of creation  thereof and currently  having the highest rating
obtainable  from either  Standard & Poor's Ratings  Services,  a division of The
McGraw-Hill   Companies,   Inc.  or  Moody's  Investors  Service,   Inc.,  (iii)
certificates of deposit maturing no more than 120 days from the date of creation
thereof  issued by commercial  banks  incorporated  under the laws of the United
States of America,  each having combined capital,  surplus and undivided profits
of not less than $500,000,000 and having a rating of "A" or better by

 
a nationally  recognized  rating  agency;  provided,  that the aggregate  amount
invested in such certificates of deposit shall not at any time exceed $5,000,000
for any one such  certificate of deposit and  $10,000,000 for any one such bank,
or (iv) time  deposits  maturing  no more than 30 days from the date of creation
thereof with commercial banks or savings banks or savings and loan  associations
each having  membership  either in the  Federal  Deposit  Insurance  Corporation
("FDIC")  or the  deposits  of which are  insured by the FDIC and in amounts not
exceeding the maximum  amounts of insurance  thereunder,  and investments by any
Canadian  Borrower  or  Canadian  Subsidiary,  by any U.K.  Borrower or any U.K.
Subsidiary or by any German Borrower or German  Subsidiary in any  corresponding
government  securities  or  cash  equivalents  reasonably  satisfactory  to  the
Required Lenders;

         (c) investments by ACC or any Subsidiary in the form of acquisitions of
all or substantially  all of the business or a line of business  (whether by the
acquisition of capital stock,  assets or any  combination  thereof) of any other
Person,  including any investment  constituting a Controlled  Venture;  provided
that,  (i) the Person to be  acquired or invested in shall be a provider of long
distance telephone service or other business reasonably related to the provision
of long distance telephone or telecommunications  service; (ii) a Borrower shall
be the surviving entity and all necessary  documents required to be executed and
filed to evidence  that any and all assets  required  hereunder to be pledged as
Collateral  for the  Obligations  shall have been  executed and filed;  (iii) at
least fifteen (15) Business Days prior to the consummation of such  acquisition,
an  authorized  officer  of ACC  shall  deliver  to the  Administrative  Agent a
certificate (except with respect to the U.S. Wats Acquisition)  demonstrating to
the  satisfaction  of the  Managing  Agents  that no Default or Event of Default
exists  or  shall  be  created  by  the  consummation  of  such  acquisition  or
investment;  (iv) a description of the  acquisition  (except with respect to the
Versatel   Acquisition  and  the  U.S.  Wats   Acquisition)  and  the  governing
documentation (except with respect to the U.S. Wats Acquisition) shall have been
delivered to the Administrative  Agent at least fifteen (15) Business Days prior
to the  consummation of the  acquisition;  (v) any Subsidiary  created  pursuant
hereto and  organized  under the laws of Canada shall be a direct  Subsidiary of
ACC Canada and (vi) if such acquisition or investment, if completed, would cause
the aggregate fair market value of the consideration of all such acquisitions or
investments completed during the period (commencing on the Closing Date) of four
consecutive   fiscal   quarters  ending   immediately   prior  to  the  date  of
determination  thereof to exceed  $30,000,000  (excluding  consideration for the
U.S. Wats Acquisition),  the Required Lenders shall have consented in writing to
such acquisition or investment prior to the Closing Date.

         (d)  investments  by ACC in any joint venture  (other than a Controlled
Venture)  not to exceed  $5,000,000  with respect to any such  individual  joint
venture and $15,000,000  with respect to all such joint ventures during the term
of the  Credit  Facility  without  the prior  written  consent  of the  Required
Lenders; and

         (e) loans to employees  in the  ordinary  course of business for travel
and other advanced expenses not to exceed $50,000 with respect to any individual
employee or $500,000 in the aggregate.

 
         SECTION  10.5.   Limitations   on  Mergers  and   Liquidation.   Merge,
consolidate,  amalgamate  or enter into any similar  combination  with any other
Person or liquidate,  wind-up or dissolve  itself (or suffer any  liquidation or
dissolution)  except  (a) any  Wholly-Owned  Subsidiary  of ACC  which  is not a
Borrower  may  be  liquidated,  wound-up  or  dissolved,  (b)  any  Wholly-Owned
Subsidiary of ACC may merge with ACC or any other Wholly-Owned Subsidiary of ACC
which is a Borrower,  as long as ACC or such  Borrower,  as  applicable,  is the
survivor of such merger and assumes all of the Obligations of the  non-surviving
entity,  (c)  any  Wholly-Owned  Subsidiary  may  merge  into  the  Person  such
Wholly-Owned  Subsidiary was formed to acquire in connection with an acquisition
permitted by Section 10.4(c) and (d) pursuant to any Change in Control which has
been approved pursuant to Section 14.11.

         SECTION  10.6.  Limitations  on Sale of Assets.  Convey,  sell,  lease,
assign, transfer or otherwise dispose of any of its property, business or assets
(including,  without  limitation,  the  sale of any  receivables  and  leasehold
interests and any sale-leaseback or similar  transaction),  whether now owned or
hereafter acquired except:

         (a)  the sale of inventory in the ordinary course of business;

         (b)  the  sale of  obsolete  assets no  longer  used or  usable  in the
business of ACC or any of its Subsidiaries;

         (c)  the  sale or  discount  without recourse  of  accounts  receivable
arising in the ordinary  course of business in connection with the compromise or
collection thereof;

         (d)  the  transfer  of  assets  to any  Borrower  or  any  Wholly-Owned
Subsidiary of ACC pursuant to Section 10.5(b); and

         (e)  the sale of assets which generated less than 10% of Operating Cash
Flow in the four quarters immediately  preceding such sale so long as no Default
or Event of Default is existing or would be created by such sale of assets.

         SECTION 10.7.  Limitations on Dividends and  Distributions.  Declare or
pay any dividends upon any of its capital  stock;  purchase,  redeem,  retire or
otherwise acquire,  directly or indirectly,  any shares of its capital stock, or
make any distribution of cash, property or assets among the holders of shares of
its  capital  stock,  in each case  without  the prior  written  consent  of the
Required  Lenders;  or make any material  change in its capital  structure  that
could  reasonably be expected to have a Material  Adverse Effect;  provided that
(a) any Borrower may pay dividends in shares of its own capital  stock,  (b) any
Subsidiary  of a  Borrower  may pay  dividends  or make other  distributions  in
respect of its capital stock to such Borrower,  (c) any Subsidiary of a Borrower
may make payments on any Debt or other  obligation  owed to such Borrower  which
Debt or other obligation and such payment are permitted  hereunder and any other
applicable  Loan  Document and (d) as long as no Default or Event of Default has
occurred and is  continuing or would be created  thereby,  ACC stock owned by an
officer or  employee of ACC may be  repurchased  in an  aggregate  amount not to
exceed $2,000,000 per calendar year.

 
         SECTION 10.8.  Limitations  on Exchange and Issuance of Capital  Stock.
Issue,  sell or otherwise  dispose of any class or series of capital stock that,
by its terms or by the terms of any  security  into which it is  convertible  or
exchangeable, is, or upon the happening of an event or passage of time would be,
(a)  convertible  or  exchangeable  into Debt or (b)  required to be redeemed or
repurchased, including at the option of the holder, in whole or in part, or has,
or upon the happening of an event or passage of time would have, a redemption or
similar  payment  due,  in any such  case  prior to ninety  (90) days  after the
Revolving Credit Termination Date.

         SECTION 10.9. Transactions with Affiliates. Directly or indirectly: (a)
make any loan or advance to, or purchase or assume any note or other  obligation
to or from, any of its officers, directors, shareholders or other Affiliates, or
to or from any member of the immediate family of any of its officers, directors,
shareholders  or other  Affiliates,  or subcontract any operations to any of its
Affiliates, or (b) enter into, or be a party to, any transaction with any of its
Affiliates,  except pursuant to the reasonable  requirements of its business and
upon fair and reasonable  terms that are fully disclosed to the Required Lenders
and are no less  favorable to it than would obtain in a comparable  arm's length
transaction with a Person not its Affiliate.

         SECTION 10.10. Certain Accounting Changes.  Change its Fiscal Year end,
or make any material change in its accounting  treatment and reporting practices
except as required by GAAP.

         SECTION 10.11.  Amendments;  Payments and  Prepayments of  Subordinated
Debt.  Amend or modify (or permit the  modification  or amendment of) any of the
terms or provisions  of any  Subordinated  Debt; or cancel or forgive,  make any
voluntary or optional  payment or prepayment  on, or redeem or acquire for value
(including without limitation by way of depositing with any trustee with respect
thereto money or  securities  before due for the purpose of paying when due) any
Subordinated Debt.

         SECTION 10.12.  Restrictive  Agreements.  (a) Enter into any Debt which
contains  any  negative  pledge  on  assets  or any  covenants  materially  more
restrictive  than the  provisions of Articles  VIII,  IX and X hereof,  or which
restricts,  limits or otherwise  encumbers its ability to incur Liens on or with
respect to any of its assets or  properties  other than the assets or properties
securing  such Debt,  or (b) enter into or permit to exist any  agreement  which
impairs or limits the ability of any  Subsidiary  of a Borrower to pay dividends
to such Borrower, unless the Required Lenders shall have previously consented in
writing to such agreement.

         SECTION 10.13.  Hedging  Agreements.  Enter into any Hedging Agreements
except: (a) Hedging Agreements  required by Section 8.13; (b) Hedging Agreements
executed by a Borrower  regarding  currency risk exposure in the ordinary course
of business with respect to  intercompany  loans and advances with durations not
to exceed  the  remaining  duration  of the Credit  Facility;  and (c) any other
Hedging  Agreement with a counterparty and upon terms and conditions  reasonably
satisfactory to the Managing Agents.

 
                                   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
obligation).

         SECTION 11.7. No Subrogation. Until all amounts owing to the Agents and
Lenders on account of the  Obligations  are paid in full and the Commitments are
terminated,  the Guarantor hereby waives any claims or other rights which it may
now or hereafter acquire against any such Borrower that arise from the existence
or performance of the Guarantor's  obligations  under this Guaranty,  including,
without  limitation,  any  right  of  subrogation,  reimbursement,  exoneration,
indemnification,  any  right  to  participate  in any  claim  or  remedy  of the
Administrative  Agent or the Lenders against any such Borrower or any Collateral
which the Administrative Agent or the Lenders now have or may hereafter acquire,
whether or not such claim,  remedy or right arises in equity or under  contract,
statute or common law, by any payment  made  hereunder or  otherwise,  including
without  limitation,  the  right to take or  receive  from  any  such  Borrower,
directly or indirectly,  in cash or other property or by set-off or in any other
manner,  payment or  security on account of such claim or other  rights.  If any
amount shall be paid to the Guarantor on account of such rights at any time when
all of the Obligations shall not have been paid in full, such amount

 
shall be held by the Guarantor in trust for the Administrative Agent, segregated
from other funds of the  Guarantor,  and shall,  forthwith  upon  receipt by the
Guarantor, be turned over to the Administrative Agent in the exact form received
by the Guarantor (duly indorsed by the Guarantor to the Administrative Agent, if
required) to be applied against the  Obligations,  whether matured or unmatured,
in such order as set forth herein.


                                   ARTICLE XII

                              DEFAULT AND REMEDIES

         SECTION 12.1. Events of Default. Each of the following shall constitute
an Event of Default,  whatever the reason for such event and whether it shall be
voluntary or  involuntary  or be effected by operation of law or pursuant to any
judgment  or  order  of any  court  or any  order,  rule  or  regulation  of any
Governmental Authority or otherwise:

         (a)  Default  in  Payment  of  Principal  of  Loans  and  Reimbursement
Obligations. Any Borrower shall default in any payment of principal of any Loan,
Note or Reimbursement Obligation when and as due (whether at maturity, by reason
of acceleration or otherwise);

         (b)  Other Payment  Default.  Any Borrower shall default in the payment
when and as due (whether at maturity, by reason of acceleration or otherwise) of
interest on any Loan,  Note or  Reimbursement  Obligation  or the payment of any
other  Obligation,  and such  default  shall  continue  unremedied  for five (5)
Business Days;

         (c) Misrepresentation. Any representation or warranty made or deemed to
be made by any Borrower or any of its  Subsidiaries  under this  Agreement,  any
Loan  Document or any  amendment  hereto or thereto,  shall at any time prove to
have been  incorrect or misleading  in any material  respect when made or deemed
made;

         (d) Default in  Performance  of Certain  Covenants.  Any Borrower shall
default in the performance or observance of any covenant or agreement  contained
in Sections 7.5(e), 8.12 or 8.15 or Articles IX or X of this Agreement;

         (e)  Default in  Performance of Other  Covenants  and  Conditions.  Any
Borrower or Subsidiary thereof shall default in the performance or observance of
any term,  covenant,  condition or agreement  contained in this Agreement (other
than as  specifically  provided for otherwise in this Section 12.1) or any other
Loan Document and such default  shall  continue for a period of thirty (30) days
after  written   notice   thereof  has  been  given  to  such  Borrower  by  the
Administrative Agent;

         (f)  Hedging  Agreement.  Any  termination  payment  shall  be due by a
Borrower under any Hedging Agreement and such amount is not paid within ten (10)
Business Days of the due date thereof;

 
         (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  or the
Alternative  Currency Amount thereof in any Fiscal Year shall be entered against
ACC or any of its  Subsidiaries  by any court and such  judgment  or order shall
continue, without discharge or stay, for a period of thirty (30) days;

         (o) Loss of License.  Any Communications  License, PUC Authorization of
ACC or any Subsidiary thereof shall expire,  terminate, be canceled or otherwise
lost or any application  therefor be rejected,  which event could  reasonably be
expected to have a Material Adverse Effect;

         SECTION  12.2.  Remedies.  Upon the  occurrence of an Event of Default,
with the consent of the Required Lenders,  the Administrative Agent may, or upon
the request of the Required Lenders,  the Administrative  Agent shall, by notice
to the Borrowers:

         (a) Acceleration;  Termination of Facilities.  Declare the principal of
and interest on the Loans,  the Notes and the  Reimbursement  Obligations at the
time  outstanding,  and all other  amounts owed to the Lenders and to the Agents
under this Agreement or any of the other Loan

 
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
         Administrative Agent        One First Union Center, TW-10
         or Managing Agent:          301 S. College Street
                                     Charlotte, North Carolina 28288-0608
                                     Attention: Syndication Agency Services
                                     Telephone No.: (704) 374-2698
                                     Telecopy No.: (704) 383-0288


         If to Fleet                 Fleet National Bank
         as Managing Agent           75 State Street  MABOF10C
         or Documentation            Boston, Massachusetts  02109
         Agent:                      Attention: Chris Swindell
                                     Telephone No.: (617) 346-5579
                                     Telecopy No.:  (617) 346-3777

         If to any Lender:           The Address set forth on Schedule 1.1

                                                             
         (c)  Administrative  Agent's Office.  The  Administrative  Agent hereby
designates its office located at the address set forth above,  or any subsequent
office which shall have been specified for such purpose by written notice to the
Borrowers and Lenders, as the Administrative  Agent's Office referred to herein,
to which payments due are to be made and at which Revolving Credit Loans will be
disbursed and Letters of Credit issued.

         SECTION  14.2.  Expenses.  (a) The  Borrowers  will pay all  reasonable
out-of-pocket  expenses  of (i) the  Managing  Agents  in  connection  with  the
preparation, execution and delivery of this Agreement and each of the other Loan
Documents,  whenever the same shall be executed  and  delivered,  including  all
out-of-pocket  syndication and due diligence expenses,  appraiser's fees, search
fees,  title insurance  premiums,  recording fees, taxes and reasonable fees and
disbursements of counsel,  including  foreign counsel,  for the Managing Agents;
(ii) the Managing  Agents in  connection  with the  preparation,  execution  and
delivery  of any  waiver,  amendment  or consent  by the  Agents or the  Lenders
relating  to  this  Agreement  or any  of the  other  Loan  Documents  including
reasonable fees and  disbursements of counsel,  including  foreign counsel,  for
such Agents, search fees,  appraiser's fees, recording fees and taxes imposed in
connection  therewith;   and  (iii)  the  Managing  Agents  in  connection  with
administering  and enforcing their respective  rights under the Credit Facility,
including   consulting   with  one  or  more  Persons,   including   appraisers,
accountants, engineers and attorneys, including foreign attorneys, concerning or
related to the nature, scope or value of any right or remedy of any Agent or any
of the Lenders hereunder or under any of the other Loan Documents, including any
review of factual matters in connection therewith,  which expenses shall include
the reasonable fees and disbursements of such Persons.

         (b) The Guarantor  agrees that it will  reimburse each Agent and Lender
for all expenses (including  reasonable attorneys fees and expenses) incurred by
each Agent or Lender in connection  with the  obligations of the Guarantor under
the Guaranty and any other Loan

 
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 (except  pursuant to
any  transaction  permitted  pursuant to Section 10.5 hereof or as a result of a
Change in Control which has been approved  pursuant to Section  14.11).  Nothing
set forth in the Guaranty shall impair, as between the Borrowers, the Agents and
the Lenders, the obligations of the Borrowers hereunder and under the other Loan
Documents.

         (b)  Assignment  by Lenders.  Each Lender may,  with the consent of the
Administrative  Agent  and  (unless  an Event of  Default  has  occurred  and is
continuing) the Borrowers,  which consents shall not be  unreasonably  withheld,
assign to one or more  Eligible  Assignees  all or a portion  of its  interests,
rights and obligations under this Agreement (including, without limitation,

 
all or a portion  of the  Extensions  of Credit at the time  owing to it and the
Notes held by it); provided that:

               (i)  each  such  assignment  shall  be of a  constant,  and not a
         varying,   percentage  of  all  the  assigning   Lender's   rights  and
         obligations under this Agreement;

              (ii) the  Commitment so assigned shall not be less than the lesser
         of (i)  $5,000,000 or (ii) an amount equal to the entire  Commitment of
         the assigning Lender at the time of such assignment;

             (iii) the parties to each such assignment shall execute and deliver
         to the  Administrative  Agent,  for its acceptance and recording in the
         Register,  an  Assignment  and  Acceptance  in the  form of  Exhibit  G
         attached  hereto (an "Assignment  and  Acceptance"),  together with any
         Note or Notes subject to such assignment;

              (iv)  such  assignment  shall  not,  without  the  consent  of the
         applicable  Borrower,  require  such  Borrower  to file a  registration
         statement with the  Securities  and Exchange  Commission or apply to or
         qualify the Revolving Credit Loans or the Notes under the blue sky laws
         of any state;

               (v) no consent of the Borrowers or the Administrative Agent shall
         be required if the assignee of such  assignment  is an Affiliate of the
         assigning Lender;

              (vi) the assigning Lender shall pay to the Administrative Agent an
         assignment  fee of  $2,500  upon the  execution  by such  Lender of the
         Assignment and  Acceptance;  provided that no such fee shall be payable
         upon any assignment by a Lender to an Affiliate thereof;

             (vii) the assignee of each such assignment  shall deliver tax forms
         in accordance with Sections 5.2(f)(iv) and (v), if applicable; and

            (viii)  the  assignee  of each such  assignment  shall  execute  and
         deliver  to  the  Administrative  Agent  any  such  supplements  to the
         Canadian or German Security  Documents  and/or  additional  Canadian or
         German Security Documents that may be reasonably required by such Agent
         in order that the assignee may become a secured party thereunder.

Upon such  execution,  delivery,  acceptance and  recording,  from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business  Days after the execution  thereof,  (A) the
assignee  thereunder shall be a party hereto and, to the extent provided in such
Assignment and  Acceptance,  have the rights and  obligations of a Lender hereby
and (B) the Lender  thereunder shall, to the extent provided in such assignment,
be released from its obligations under this Agreement.

 
         (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 agreement with only such Lender,  the Borrowers  shall be recognized as third
party beneficiaries thereof) to preserve the confidentiality of any confidential
information  relating  to the  Borrowers  received  from  such  Lender.  Without
limiting the  generality of the above,  the  Borrowers  agree and consent to the
Agents'  disclosure of information  relating to this  transaction to Gold Sheets
and other  similar bank trade  publications.  Such  disclosed  information  will
consist  of  deal  terms  and  other  information   customarily  found  in  such
publications.

         (h) Certain Pledges or  Assignments.  Nothing herein shall prohibit any
Lender  from  pledging or  assigning  any Note to any  Federal  Reserve  Bank in
accordance with Applicable Law.

         (i) Agent  Participation  to Affiliates.  Nothing herein shall prohibit
the  Administrative  Agent from selling a participation to any of its Affiliates
on terms acceptable to the Administrative Agent.

         SECTION 14.11.  Amendments, Waivers and Consents; Renewal.

         (a)  Except  as set  forth  below,  any term,  covenant,  agreement  or
condition of this Agreement or any of the other Loan Documents may be amended or
waived by the Lenders  (excluding any Hedging Agreement that is a Loan Document,
which may be amended in

 
accordance with its terms),  and any consent given by the Lenders,  if, but only
if,  such  amendment,  waiver or consent is in  writing  signed by the  Required
Lenders (or by the Administrative Agent with the written consent of the Required
Lenders)  and  delivered  to the  Administrative  Agent  and,  in the case of an
amendment,  signed by the  Borrowers;  provided,  that no  amendment,  waiver or
consent  shall (i) release any Borrower or the  Guarantor  from its  Obligations
hereunder,  (ii) increase the amount or extend the time of the obligation of the
Lenders to make Loans or issue or  participate  in Letters of Credit  (including
without  limitation  pursuant  to Section  2.7),  (iii)  extend  the  originally
scheduled time or times of payment of any fees due hereunder or the principal of
any Loan or Reimbursement Obligation or the time or times of payment of interest
on any Loan, Letter of Credit or Reimbursement Obligation,  (iv) reduce the rate
of interest or fees payable on any Loan or Reimbursement Obligation,  (v) permit
any  subordination  of the  principal  or interest on any Loan or  Reimbursement
Obligation,  (vi) extend the expiration  date of any Letter of Credit beyond the
Revolving  Credit  Termination  Date,  (vii) release any material portion of the
Collateral  or release any Security  Document  (other than the release of assets
specifically permitted to be sold or otherwise transferred pursuant to the terms
hereof and other  than as  specifically  permitted  by the  applicable  Security
Document)  (viii) amend the  definitions  of  Alternative  Currency or Permitted
Currency or (ix) amend the provisions of this Section 14.11 or the definition of
Required Lenders,  without the prior written consent of each Lender. Further, no
amendment, waiver or consent shall waive any Default or Event of Default arising
under Section 12.1(i) or otherwise modify such Section 12.1(i) without the prior
written consent of the Supermajority Lenders. In addition, no amendment,  waiver
or consent to the  provisions  of Article XIII shall be made without the written
consent of the affected Agents.

         SECTION 14.12.  Performance of Duties. The Borrowers' obligations under
this  Agreement  and  each of the  Loan  Documents  shall  be  performed  by the
applicable Borrower at its sole cost and expense.

         SECTION 14.13.  Indemnification.  The Borrowers agree to reimburse each
Agent  and  the  Lenders  for  all  reasonable  costs  and  expenses,  including
reasonable  counsel,   appraisal,   or  other  expert  or  consultant  fees  and
disbursements  incurred,  and to  indemnify  and hold each Agent and the Lenders
harmless  from and against all losses  suffered by such Agent and the Lenders in
connection  with (a) the  exercise  by the Agents or the Lenders of any right or
remedy granted to them under this Agreement or any of the other Loan  Documents,
(b) any claim, and the prosecution or defense thereof,  arising out of or in any
way connected with this Agreement or any of the other Loan Documents and (c) the
collection or enforcement of the Obligations or any of them; provided,  that the
indemnity  contained  herein  shall not apply to the  extent  that such  losses,
claims, damages,  liabilities or other expenses result from the gross negligence
or willful  misconduct of such  indemnified  person;  and further provided that,
promptly after the receipt by an indemnified  person of notice of any pending or
threatened  action  with  respect  to which  the  indemnified  person  may claim
indemnification under this Agreement (an "Action"), the indemnified person shall
provide  written  notice  thereof to ACC and ACC shall then be entitled,  at its
sole and reasonable  discretion,  to assume the defense of any such Action, with
counsel reasonably  satisfactory to the indemnified person. After written notice
to the indemnified person from ACC of its election to assume the defense of such
Action,  ACC  shall  not be  liable  to such  indemnified  person  for any legal
expenses or fees of other counsel or any other expense incurred

 
by such  indemnified  person in connection  with the defense  thereof after such
date, except as provided below. The indemnified  person shall cooperate with all
reasonable   requests  of  ACC   regarding  the  defense  of  any  such  Action.
Notwithstanding  ACC's  election to assume the  defense  thereof,  however,  the
indemnified  person  shall  have the right to  employ  separate  counsel  and to
participate in, but not control,  the defense of such action,  and ACC shall pay
the reasonable  fees and expenses of such separate  counsel  (provided that with
respect to any single  Action,  ACC shall not be  required  to bear the fees and
expenses of more than one such  counsel in any single  jurisdiction)  if (a) the
use of counsel chosen by ACC to represent the indemnified person would present a
conflict-of-interest  in the reasonable  determination of the indemnified person
or such counsel,  or (b) the  defendants in or target of any such Action include
both the  indemnified  person and ACC,  and the  indemnified  person  reasonably
concluded that there may be legal  defenses  available to it that differ from or
are in  addition  to those  available  to ACC.  ACC shall not be liable  for any
settlement of any action  effected by an indemnified  person without ACC's prior
written consent (which shall not be unreasonably withheld).

         SECTION 14.14. All Powers Coupled with Interest. All powers of attorney
and other  authorizations  granted to the  Lenders,  each Agent and any  Persons
designated by such Agent or Lenders pursuant to any provisions of this Agreement
or any of the other Loan Documents  shall be deemed coupled with an interest and
shall  be  irrevocable  so  long  as any of the  Obligations  remain  unpaid  or
unsatisfied or the Credit Facility has not been terminated.

         SECTION 14.15. Survival of Indemnities. Notwithstanding any termination
of this  Agreement,  the  indemnities  to which the Agents and the  Lenders  are
entitled  under the  provisions  of this Article XIV and any other  provision of
this  Agreement and the Loan  Documents  shall continue in full force and effect
and shall protect the Agents and the Lenders  against  events arising after such
termination as well as before.

         SECTION  14.16.  Titles and Captions.  Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.

         SECTION  14.17.  Severability  of  Provisions.  Any  provision  of this
Agreement or any other Loan Document which is prohibited or unenforceable in any
jurisdiction  shall, as to such jurisdiction,  be ineffective only to the extent
of such prohibition or  unenforceability  without  invalidating the remainder of
such  provision or the remaining  provisions  hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.

         SECTION  14.18.  Counterparts.  This  Agreement  may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed  shall be deemed to be an  original  and shall be
binding upon all parties,  their successors and assigns,  and all of which taken
together shall constitute one and the same agreement.

         SECTION 14.19. ACC as Agent for Other  Borrowers.  Each Borrower hereby
appoints and  authorizes  ACC (a) to provide the  Administrative  Agent with all
notices with respect to  Extensions  of Credit for the benefit of itself and any
other Borrower and to provide the

 
Administrative   Agent  with  and  receive   therefrom  all  other  notices  and
instructions  under  this  Agreement  and (b) to take  such  action on behalf of
itself and such other Borrowers as ACC deems appropriate to obtain Extensions of
Credit and to exercise such other powers as are  reasonably  incidental to carry
out the purposes of this Agreement  (including without limitation  acceptance of
service of process  for itself and each  other  Borrower  and  Subsidiary  under
Section  14.5).  This  appointment  shall be  irrevocable  and  coupled  with an
interest.

         SECTION 14.20. Term of Agreement. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all  Obligations
shall have been  indefeasibly  and  irrevocably  paid and  satisfied in full. No
termination  of this  Agreement  shall affect the rights and  obligations of the
parties hereto arising prior to such termination.

         SECTION 14.21. Inconsistencies with Other Documents; Independent Effect
of Covenants.

         (a) In the event  there is a conflict  or  inconsistency  between  this
Agreement,  the Notes or the other Loan  Documents,  the terms of this Agreement
shall  control;  provided,  that any provision of the Security  Documents  which
imposes  additional  burdens  on any  Borrower  or its  Subsidiaries  or further
restricts  the rights of any Borrower or its  Subsidiaries  or gives the Lenders
additional  rights  shall not be deemed to be in conflict or  inconsistent  with
this Agreement and shall be given full force and effect.

         (b) The Borrowers  expressly  acknowledge  and agree that each covenant
contained in Articles  VIII, IX or X hereof shall be given  independent  effect.
Accordingly,  the  Borrowers  shall not engage in any  transaction  or other act
otherwise  permitted under any covenant  contained in Articles VIII, IX or X if,
before or after giving effect to such  transaction or act, the Borrower shall or
would be in breach of any other covenant contained in Articles VIII, IX or X.

                           [Signature pages to follow]

 
         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed  by their duly  authorized  officers,  all as of the day and year first
written above.


[CORPORATE SEAL]                    ACC  CORP.


                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


[CORPORATE SEAL]                    ACC  LONG  DISTANCE  CORP.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


 [CORPORATE SEAL]                   ACC NATIONAL TELECOM CORP.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


[CORPORATE SEAL]                    ACC LONG DISTANCE OF MASSACHUSETTS CORP.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


[CORPORATE SEAL]                    ACC GLOBAL CORP.


                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

 
[CORPORATE SEAL]                    ACC RADIO CORP.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

[CORPORATE SEAL]                    ACC NATIONAL LONG DISTANCE CORP.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


 [CORPORATE SEAL]                   ACC SERVICE CORP.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


[CORPORATE SEAL]                    ACC CREDIT CORP.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


 [CORPORATE SEAL]                   ACC TELENTERPRISES  LTD.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

 
[CORPORATE SEAL]                    ACC LONG DISTANCE U.K., LTD.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


[CORPORATE SEAL]                    UNITED TELECOM LTD.

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________


[CORPORATE SEAL]                    ACC TELEKOMMUNIKATION GMBH

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

 
                                    FIRST UNION NATIONAL BANK, as 
                                    Administrative  Agent,  Managing Agent, 
                                    Swingline Lender, Issuing Lender and Lender

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

 
                                    FLEET NATIONAL BANK, as Managing  Agent,  
                                    Documentation  Agent and Lender

                                    By:_________________________________________
                                        Name____________________________________
                                        Title:__________________________________

 
                                    CORESTATES BANK NA

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

 
                                    STATE STREET BANK AND TRUST COMPANY

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

 
                                    BANK OF MONTREAL

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

 
                                    BANK OF SCOTLAND

                                    By:_________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

 
                      Schedule 1.1: Lenders and Commitments

                                                                Commitment
       Lender                                 Commitment        Percentage

First Union National Bank                     $37,500,000       25.0000000000%
One First Union Center, TW-10
301 S. College Street
Charlotte, North Carolina 28288-0608
Attention:  Syndication Agency
Services
Telephone No.:  (704) 383-0281
Telecopy No.:   (704) 383-0288

Fleet National Bank
One Federal Street
3rd Floor, MA-OF-D03D                         $37,500,000       25.0000000000%
Boston, Massachusetts 02110
Attention: Christopher A. Swindell
Telephone No.: (617) 346-5579
Telecopy No.:  (617) 346-4345

Bank of Montreal
430 Park Avenue                               $24,000,000       16.0000000000%
15th Floor
New York, New York  10022
Attention:  Media/Communications
Telephone No.:  (212) 605-1477
Telecopy No.:   (212) 605-1621

State Street Bank and Trust Company
225 Franklin Street, Floor 2                  $20,000,000       13.3333333333%
Boston, Massachusetts  02110
Attention:  James C. Gregg
Telephone No.:  (617) 664-3857
Telecopy No.:   (617) 664-3708

 
Bank of Scotland                              $24,000,000       16.0000000000%
565 Fifth Avenue
New York, New York  10017
Attention:  Annie Chin Tat
Telephone No.:  (212) 450-0871
Telecopy No.:   (212) 557-9460

CoreStates Bank, N.A.                         $7,000,000         4.6666666667%
1339 Chestnut
FC 1-8-11-28
Philadelphia, PA  19101
Attention:  Ed Kittrell
Telephone No.:  (215) 786-4368
Telecopy No.:    (215) 786-7721

 
                            Schedule 1.2 : Sublimits



Borrower                                                    Sublimit*


ACC Canada and any Additional Borrower                      $30,000,000
who is a CanadianBorrower

ACC U.K. and any Additional Borrower                        $50,000,000
which is a U.K.Borrower

ACC Germany and any Additional                              $20,000,000
Borrower which is a German Borrower

ACC and any Additional Borrower                             $150,000,000 less 
who is a Domestic Borrower                                  outstandings to all 
                                                            other Borrowers






*The Sublimits may be revised upon the prior written consent of the Required 
Lenders.

EX-10.27

 
                                                                   EXHIBIT-10.27


                  SECOND AMENDED AND RESTATED PLEDGE AGREEMENT

         THIS  SECOND  AMENDED  AND  RESTATED  PLEDGE   AGREEMENT  (the  "Pledge
Agreement"),  dated as of  December  19,  1997 is made by ACC CORP.,  a Delaware
corporation (the  "Pledgor"),  in favor of FIRST UNION NATIONAL BANK, a national
banking association (the  "Administrative  Agent"), as Administrative  Agent for
the ratable benefit of itself and the financial  institutions (the "Lenders") as
are,  or may from time to time  become,  parties  to the  Credit  Agreement  (as
defined below).


                              STATEMENT OF PURPOSE

         The Pledgor has previously executed and delivered to the Administrative
Agent a Pledge  Agreement  dated as of July 21, 1995,  as amended by the Amended
and Restated  Pledge  Agreement dated as of January 14, 1997 (the "First Amended
and Restated Pledge Agreement").

         Pursuant to the Second Amended and Restated Credit Agreement,  dated as
of even date herewith (as amended,  restated or otherwise modified,  the "Credit
Agreement"),  between the Pledgor  and  certain  Subsidiaries  of the Pledgor as
Borrowers  thereunder  (collectively,  the  "Borrowers"),  the  Lenders  and the
Administrative  Agent,  the Lenders  will  provide  Extensions  of Credit to the
Borrowers as more specifically described in the Credit Agreement.

         The Pledgor is the legal and beneficial  owner of the shares of Pledged
Stock (as  hereinafter  defined)  issued by the  Domestic  Subsidiaries  and the
Foreign   Subsidiaries,   as  specified  on  Schedule  1  attached   hereto  and
incorporated herein by reference (collectively, the "Issuers").

         In  connection  with  the  transactions   contemplated  by  the  Credit
Agreement and as a condition precedent thereto,  the Lenders have requested that
the Pledgor amend and restate the First Amended and Restated  Pledge  Agreement,
and the  Pledgor  has  agreed  to do so  pursuant  to the  terms of this  Pledge
Agreement.

         NOW,  THEREFORE,  in  consideration  of the  premises and to induce the
Administrative  Agent and the  Lenders  to enter into and make  available  Loans
pursuant  to  the  Credit   Agreement,   the  Pledgor  hereby  agrees  with  the
Administrative Agent for the ratable benefit of itself and Lenders as follows:

         1. Defined Terms.  Unless  otherwise  defined  herein,  terms which are
defined in the Credit  Agreement and used herein are so used as so defined,  and
the following terms shall have the following meanings:

                  "Code" means the Uniform  Commercial Code from time to time in
         effect in the State of North Carolina.

 
                  "Collateral" means the Pledged Stock and all Proceeds.

                  "Foreign   Subsidiaries"   means  the  collective   reference 
          to  all Subsidiaries that are not Domestic Subsidiaries.

                  "Pledge  Agreement"  means this Second  Amended  and  Restated
         Pledge Agreement, as further amended, restated or otherwise modified.

                  "Pledged  Stock"  means the  shares of  capital  stock of each
         Issuer   listed  on  Schedule  1  hereto,   together   with  all  stock
         certificates,  options or rights of any nature  whatsoever  that may be
         issued or  granted by such  Issuer to the  Pledgor  while  this  Pledge
         Agreement is in effect.

                  "Proceeds"  means all  "proceeds"  as such term is  defined in
         Section  9-306(1)  of the Code on the date  hereof  and,  in any event,
         shall include,  without limitation,  all dividends or other income from
         the Pledged  Stock,  collections  thereon,  proceeds of sale thereof or
         distributions with respect thereto.

                  "Secured  Obligations" means the Obligations of the Pledgor as
         defined in the Credit  Agreement  and any renewals or extensions of any
         of such Obligations.

         2. Pledge and Grant of Security Interests.  The Pledgor hereby delivers
to the Administrative  Agent, for the ratable benefit of itself and the Lenders,
all of the Pledged Stock and hereby grants to the Administrative  Agent, for the
ratable benefit of itself and the Lenders, a first priority security interest in
such Pledged  Stock and all other  Collateral,  as  collateral  security for the
prompt and  complete  payment and  performance  when due  (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations.

         3. Stock Powers.  Concurrently with the delivery to the  Administrative
Agent of each certificate  representing one or more shares of Pledged Stock, the
Pledgor  shall deliver an undated stock power  covering such  certificate,  duly
executed in blank by the Pledgor with, if the Administrative  Agent so requests,
signature guaranteed.

         4.  Representations and Warranties.  To induce the Administrative Agent
and the  Lenders to execute the Credit  Agreement,  provide  any  Extensions  of
Credit  and  accept  the  security   contemplated  hereby,  the  Pledgor  hereby
represents and warrants that:

                  (a) the Pledgor has the corporate  power,  authority and legal
         right to execute and deliver,  to perform its obligations under, and to
         grant the Lien on the Collateral pursuant to, this Pledge Agreement and
         has taken all necessary  corporate  action to authorize its  execution,
         delivery and  performance  of, and grant of the Lien on the  Collateral
         pursuant to, this Pledge Agreement;

 
                  (b) this  Pledge  Agreement  constitutes  a legal,  valid  and
         binding  obligation of the Pledgor  enforceable  against the Pledgor in
         accordance with its terms,  except as enforceability  may be limited by
         bankruptcy,  insolvency,  reorganization,  moratorium  or similar  laws
         affecting the  enforcement  of creditors'  rights  generally and by the
         availability of equitable remedies;

                  (c) the  execution,  delivery and  performance  of this Pledge
         Agreement  will not  violate any  provision  of any  Applicable  Law or
         contractual  obligation  of the  Pledgor  and  will not  result  in the
         creation or imposition of any Lien on any of the properties or revenues
         of  the  Pledgor   pursuant  to  any   Applicable  Law  or  contractual
         obligation, except as contemplated hereby;

                  (d) except as contemplated in Section 11 hereof, no consent or
         authorization  of,  filing with,  or other act by or in respect of, any
         arbitrator or Governmental Authority and no consent of any other Person
         (including,  without  limitation,  any  stockholder  or creditor of the
         Pledgor or any Issuer),  is required in connection  with the execution,
         delivery,  performance,  validity or enforceability against the Pledgor
         of this Pledge Agreement;

                  (e) no  litigation,  investigation  or proceeding of or before
         any  arbitrator  or  Governmental  Authority  is  pending  or,  to  the
         knowledge  of the  Pledgor,  threatened  by or against  the  Pledgor or
         against any of its  properties  or revenues with respect to this Pledge
         Agreement or any of the transactions contemplated hereby;

                  (f)  the  shares  of  Pledged   Stock  listed  on  Schedule  1
         constitute all the issued and outstanding  shares of all classes of the
         capital  stock  of each of the  Domestic  Subsidiaries  and  constitute
         66.66% of all the  issued  and  outstanding  shares of all  classes  of
         capital stock of all Foreign Subsidiaries owned by the Pledgor;

                  (g) all the  shares of the  Pledged  Stock  have been duly and
         validly issued and are fully paid and nonassessable;

                  (h) the Pledgor is the record and beneficial owner of, and has
         good and  marketable  title to, the Pledged Stock listed on Schedule 1,
         free of any and all Liens or  options  in favor of, or claims  of,  any
         other Person, except the Lien created by this Pledge Agreement; and

                  (i) upon  delivery  to the  Administrative  Agent of the stock
         certificates evidencing the Pledged Stock, the Lien granted pursuant to
         this Pledge Agreement will constitute a valid, perfected first priority
         Lien on the Pledged Stock and the Proceeds related thereto, enforceable
         as such against all creditors of the Pledgor and any Persons purporting
         to purchase any of the Pledged Stock from the Pledgor.

 
         5.  Certain  Covenants.  The  Pledgor  covenants  and  agrees  with the
Administrative  Agent for the ratable  benefit of itself and the  Lenders  that,
from and after the date of this Pledge  Agreement until the Secured  Obligations
are paid in full and the Commitments are terminated:

                  (a) If the Pledgor shall,  as a result of its ownership of the
         Pledged  Stock,  become  entitled to receive or shall receive any stock
         certificate   (including,    without   limitation,    any   certificate
         representing a stock dividend or a distribution  in connection with any
         reclassification,  increase or reduction of capital or any  certificate
         issued  in  connection  with any  reorganization),  option  or  rights,
         whether in addition to, in  substitution  of, as a conversion of, or in
         exchange for any shares of the Pledged  Stock,  or otherwise in respect
         thereof,  the  Pledgor  shall  accept  the  same  as the  agent  of the
         Administrative  Agent,  hold the same in trust  for the  Administrative
         Agent and deliver the same forthwith to the Administrative Agent in the
         exact form received, duly indorsed by the Pledgor to the Administrative
         Agent, if required,  together with an undated stock power covering such
         certificate  duly  executed in blank by the  Pledgor  and with,  if the
         Administrative Agent so requests,  signature guaranteed,  to be held by
         the  Administrative  Agent,  subject to the terms hereof, as additional
         collateral security for the Secured Obligations;  PROVIDED,  that in no
         event shall more than 66.66% of all the issued and  outstanding  shares
         of all  classes of capital  stock of each of the  Foreign  Subsidiaries
         constitute  collateral security hereunder.  In addition,  any sums paid
         upon or in  respect  of the  Pledged  Stock  upon  the  liquidation  or
         dissolution of any Issuer shall be held by the Administrative  Agent as
         additional collateral security for the Secured Obligations.

                  (b) Without the prior  written  consent of the  Administrative
         Agent,  the  Pledgor  will not (i) vote to  enable,  or take any  other
         action  to  permit,  any  Issuer  to issue  any  stock or other  equity
         securities of any nature or to issue any other  securities  convertible
         into or granting  the right to  purchase  or exchange  for any stock or
         other  equity  securities  of any  nature of such  Issuer,  (ii)  sell,
         assign,  transfer,  exchange,  or  otherwise  dispose  of, or grant any
         option with respect to, the Pledged  Stock,  or (iii) create,  incur or
         permit  to exist  any Lien or  option  in favor of, or any claim of any
         Person with respect to, any of the Collateral, or any interest therein,
         except for the Lien provided for by this Pledge Agreement.  The Pledgor
         will defend the right, title and interest of the  Administrative  Agent
         in and to the Collateral  against the claims and demands of all Persons
         whomsoever.

                  (c) At any  time  and from  time to  time,  upon  the  written
         request of the  Administrative  Agent,  and at the sole  expense of the
         Pledgor,  the Pledgor  will  promptly and duly execute and deliver such
         further  instruments and documents and take such further actions as the
         Administrative  Agent  may  reasonably  request  for  the  purposes  of
         obtaining or preserving the full benefits of this Pledge  Agreement and
         of the rights and powers herein granted. If any amount payable under or
         in connection with any of the Collateral  shall be or become  evidenced
         by any promissory note,  other instrument or chattel paper,  such note,
         instrument or chattel paper shall be immediately delivered to the

 
         Administrative  Agent,  duly endorsed in a manner  satisfactory  to the
         Administrative  Agent, to be held as Collateral pursuant to this Pledge
         Agreement.

                  (d) The Pledgor agrees to pay, and to save the  Administrative
         Agent and the  Lenders  harmless  from,  any and all  liabilities  with
         respect to, or resulting  from any delay in paying,  any and all stamp,
         excise, sales or other similar taxes which may be payable or determined
         to be payable with respect to any of the  Collateral  or in  connection
         with any of the transactions contemplated by this Pledge Agreement.

                  (e)  On or  prior  to  the  formation  or  acquisition  of any
         Subsidiary  of  the  Pledgor,   the  Pledgor  agrees  to  execute  such
         amendments and supplements to this Pledge Agreement,  including without
         limitation the Pledge Agreement  Supplement  attached hereto,  and such
         other documents and instruments and to take any and all actions, all as
         shall be necessary,  in the reasonable  judgment of the  Administrative
         Agent, to pledge the Pledgor's  interest therein to the  Administrative
         Agent for the ratable benefit of itself and the Lenders.

                  (f) Without the prior  written  consent of the  Administrative
         Agent,  the  Pledgor  will not sell,  assign,  transfer,  exchange,  or
         otherwise  dispose of, or grant any option with  respect to, or create,
         incur or  permit  to exist any Lien or option in favor of, or any claim
         of any Person with  respect  to, any of the shares of capital  stock of
         any Foreign  Subsidiary owned by the Pledgor but not pledged hereunder,
         or any  interest  therein,  except as otherwise  permitted  pursuant to
         Section 10.3 or Section 10.4 of the Credit Agreement.

         6. Cash Dividends; Voting Rights. Unless an Event of Default shall have
occurred and be continuing and the Administrative  Agent shall have given notice
to the  Pledgor of the  Administrative  Agent's  intent to  exercise  its rights
pursuant to Section 7 below,  the Pledgor shall be permitted to receive all cash
dividends paid in accordance  with the terms of the Credit  Agreement in respect
of the  Pledged  Stock and to  exercise  all voting and  corporate  rights  with
respect to the Pledged Stock; PROVIDED,  that no vote shall be cast or corporate
right exercised or other action taken which would impair the Collateral or which
would be  inconsistent  with or result in any  violation of any provision of the
Credit Agreement, the Notes, any other Loan Documents or this Pledge Agreement.

         7. Rights of the Administrative Agent.

         (a) If an  Event of  Default  shall  occur  and be  continuing  and the
Administrative  Agent shall give notice of its intent to exercise such rights to
the Pledgor,  (i) the  Administrative  Agent shall have the right to receive any
and all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Secured Obligations,  in the order set forth in Section 10 of the
Security  Agreement and (ii) all shares of the Pledged Stock shall be registered
in the name of the Administrative  Agent or its nominee,  and the Administrative
Agent or its nominee may thereafter exercise (A) all voting, corporate and other
rights  pertaining  to such  shares  of the  Pledged  Stock  at any  meeting  of
shareholders of the applicable Issuer or otherwise and (B) any

 
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 Credit
Agreement.

         10.  Amendments,  etc.  With  Respect to the Secured  Obligations.  The
Pledgor  shall  remain  obligated  hereunder,  and the  Collateral  shall remain
subject  to  the  Lien  granted  hereby,   notwithstanding   that,  without  any
reservation  of rights  against the  Pledgor,  and without  notice to or further
assent by the Pledgor,  any demand for payment of any of the Secured Obligations
made  by  the  Administrative  Agent  or any  Lender  may  be  rescinded  by the
Administrative  Agent  or  such  Lender,  and  any  of the  Secured  Obligations
continued,  and the Secured Obligations,  or the liability of the Pledgor or any
other  Person  upon or for any  part  thereof,  or any  collateral  security  or
guarantee  therefor or right of offset with respect  thereto,  may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered, or released by the Administrative Agent or any
Lender,  and the Credit  Agreement,  the Notes, any other Loan Documents and any
other documents  executed and delivered in connection  therewith may be amended,
modified,  supplemented or terminated,  in whole or part, as the Lenders (or the
Required Lenders,  as the case may be) may deem advisable from time to time, and
any guarantee,  right of offset or other collateral security at any time held by
the  Administrative  Agent  or  any  Lender  for  the  payment  of  the  Secured
Obligations may be sold, exchanged, waived, surrendered or released. Neither the
Administrative  Agent nor any  Lender  shall  have any  obligation  to  protect,
secure,  perfect or insure any other Lien at any time held by it as security for
the Secured Obligations or any property subject thereto.  The Pledgor waives any
and all  notice of the  creation,  renewal,  extension  or accrual of any of the
Secured  Obligations  and notice of or proof of reliance  by the  Administrative
Agent or any Lender upon this Pledge Agreement; the Secured Obligations, and any
of them,  shall  conclusively  be  deemed to have been  created,  contracted  or
incurred in reliance upon this Pledge Agreement; and all dealings

 
between  the  Pledgor,  on the one hand,  and the  Administrative  Agent and the
Lenders, on the other, shall likewise be conclusively  presumed to have been had
or  consummated  in reliance  upon this  Pledge  Agreement.  The Pledgor  waives
diligence,  presentment,  protest,  demand for  payment and notice of default or
nonpayment  to  or  upon  the  Pledgor  with  respect  to  any  of  the  Secured
Obligations.

         11.  Regulatory  Approval.  The Pledgor will, at its expense,  promptly
execute and deliver,  or cause the execution and delivery of, all  applications,
certificates,  instruments,  registration statements and all other documents and
papers the Administrative  Agent may reasonably request or as may be required by
law in  connection  with the obtaining of any consent,  approval,  registration,
qualification  or  authorization  of the FCC, CRTC, DTI,  OFTEL,  the Regulating
Authority for  Telecommunications and Postal Services  (Regulierungsbehorde  fur
Telekommunikation   und  Post)  and  any  applicable  PUC   (collectively,   the
"Regulatory  Authorities")  or of any other Person  necessary or appropriate for
the  effective  exercise  of any rights  under this  Pledge  Agreement.  Without
limiting the  generality  of the  foregoing,  if an Event of Default  shall have
occurred  and be  continuing,  the  Pledgor  shall  take any  action  which  the
Administrative  Agent may reasonably  request in order to transfer and assign to
the  Administrative  Agent,  or to  such  one  or  more  third  parties  as  the
Administrative Agent may designate,  or to a combination of the foregoing,  each
Communications License and PUC Authorization.  To enforce the provisions of this
Section,  upon the occurrence and during the continuance of an Event of Default,
the  Administrative  Agent is empowered to request the appointment of a receiver
from any court of competent  jurisdiction.  Such receiver shall be instructed to
seek from the Regulatory  Authorities an involuntary transfer of control of each
such  Communications  License and PUC Authorization for the purpose of seeking a
bona fide purchaser to whom control will ultimately be transferred.  The Pledgor
hereby  agrees to  authorize  such an  involuntary  transfer of control upon the
request of the  receiver  so  appointed  and,  if the  Pledgor  shall  refuse to
authorize  the  transfer,  its approval  may be required by the court.  Upon the
occurrence and during the continuance of an Event of Default,  the Pledgor shall
further use its best efforts to assist in obtaining  approval of the  Regulatory
Authorities,  if required,  for any action or transactions  contemplated by this
Pledge Agreement including,  without limitation, the preparation,  execution and
filing with the Regulatory Authorities of the assignor's or transferor's portion
of  any  application  or  applications  for  consent  to the  assignment  of any
Communications  License and PUC  Authorizations or transfer of control necessary
or appropriate under the rules and regulations of the Regulatory Authorities for
the approval of the  transfer or  assignment  of any portion of the  Collateral,
together with any Communications License and applicable PUC Authorizations.  The
Pledgor  acknowledges  that the  assignment  or transfer of each  Communications
License and  applicable  PUC  Authorizations  is integral to the  Administrative
Agent's and the Lenders' realization of the value of the Collateral,  that there
is no  adequate  remedy at law for  failure by the  Pledgor  to comply  with the
provisions of this Section and that such failure would cause irreparable  injury
not adequately  compensable in damages, and therefore agrees that each and every
covenant contained in this Section may be specifically enforced, and the Pledgor
hereby  waives  and  agrees  not to assert  any  defenses  against an action for
specific performance of such covenants.

 
         12.  Limitation  on Duties  Regarding  Collateral.  The  Administrative
Agent's  sole  duty  with  respect  to the  custody,  safekeeping  and  physical
preservation  of the  Collateral in its  possession,  under Section 9-207 of the
Code  or  otherwise,  shall  be to  deal  with  it in  the  same  manner  as the
Administrative  Agent deals with  similar  securities  and  property for its own
account.  Neither  the  Administrative  Agent,  any  Lender  nor  any  of  their
respective directors,  officers, employees or agents shall be liable for failure
to demand,  collect or realize  upon any of the  Collateral  or for any delay in
doing so or shall be under any  obligation  to sell or otherwise  dispose of any
Collateral upon the request of the Pledgor or otherwise.

         13. Powers Coupled with an Interest.  All  authorizations  and agencies
herein contained with respect to the Collateral  constitute  irrevocable  powers
coupled with an interest.

         14.  Severability.  Any  provision  of this Pledge  Agreement  which is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining  provisions  hereof,  and any such  prohibition  or
unenforceability   in  any   jurisdiction   shall  not   invalidate   or  render
unenforceable such provision in any other jurisdiction.

         15.  Paragraph  Headings.  The  paragraph  headings used in this Pledge
Agreement  are for  convenience  of  reference  only and are not to  affect  the
construction hereof or be taken into consideration in the interpretation hereof.

         16. No Waiver;  Cumulative  Remedies.  Neither the Administrative Agent
nor any Lender  shall by any act  (except by a written  instrument  pursuant  to
Section 17 hereof) be deemed to have waived any right or remedy  hereunder or to
have  acquiesced  in any  Default or Event of Default or in any breach of any of
the terms and  conditions  hereof.  No  failure  to  exercise,  nor any delay in
exercising,  on the part of the  Administrative  Agent or any Lender, any right,
power or privilege  hereunder  shall operate as a waiver  thereof.  No single or
partial exercise of any right,  power or privilege  hereunder shall preclude any
other or further exercise  thereof or the exercise of any other right,  power or
privilege.  A waiver by the  Administrative  Agent or any Lender of any right or
remedy  hereunder  on any one  occasion  shall not be  construed as a bar to any
right or remedy which the  Administrative  Agent or such Lender would  otherwise
have on any future  occasion.  The  rights  and  remedies  herein  provided  are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.

         17. Waivers and Amendments; Successors and Assigns; Governing Law. None
of the terms or provisions of this Pledge Agreement may be amended, supplemented
or otherwise modified except by a written instrument executed by the Pledgor and
the Administrative  Agent; PROVIDED that any consent by the Administrative Agent
to any waiver, amendment,  supplement or modification hereto shall be subject to
approval  thereof  by  the  Lenders  or  Required  Lenders,  as  applicable,  in
accordance  with Section 14.11 of the Credit  Agreement.  This Pledge  Agreement
shall be binding upon the  successors and assigns of the Pledgor and shall inure
to the benefit of the Administrative  Agent and the Lenders and their respective
successors and assigns. This

 
Pledge  Agreement  shall be  governed  by,  and  construed  and  interpreted  in
accordance with, the laws of the State of North Carolina.

         18. Notices. All notices and communications hereunder shall be given to
the  addresses  and  otherwise  in  accordance  with  Section 14.1 of the Credit
Agreement.

         19. Irrevocable  Authorization and Instruction to Issuers.  The Pledgor
hereby  authorizes  and  instructs  each Issuer to comply  with any  instruction
received by it from the Administrative  Agent in writing that (a) states that an
Event  of  Default  has  occurred  and is  continuing  and (b) is  otherwise  in
accordance with the terms of this Pledge Agreement, without any other or further
instructions from the Pledgor,  and the Pledgor agrees that such Issuer shall be
fully protected in so complying.

         20. Authority of  Administrative  Agent. The Pledgor  acknowledges that
the rights and  responsibilities  of the Administrative  Agent under this Pledge
Agreement  with respect to any action taken by the  Administrative  Agent or the
exercise or  non-exercise  by the  Administrative  Agent of any  option,  voting
right,  request,  judgment  or other  right or  remedy  provided  for  herein or
resulting  or  arising  out of this  Pledge  Agreement  shall,  as  between  the
Administrative Agent and the Lenders, be governed by the Credit Agreement and by
such other  agreements with respect thereto as may exist from time to time among
them,  but,  as  between  the   Administrative   Agent  and  the  Pledgor,   the
Administrative  Agent shall be  conclusively  presumed to be acting as agent for
itself and the Lenders  with full and valid  authority so to act or refrain from
acting, and neither the Pledgor nor any Issuer shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.

         21. Consent to Jurisdiction. The Pledgor hereby irrevocably consents to
the personal jurisdiction of the state and federal courts located in Mecklenburg
County, North Carolina,  in any action, claim or other proceeding arising out of
or any  dispute  in  connection  with  this  Pledge  Agreement,  any  rights  or
obligations  hereunder,  or the performance of such rights and obligations.  The
Pledgor  hereby  irrevocably  consents to the service of a summons and complaint
and  other  process  in  any  action,   claim  or  proceeding   brought  by  the
Administrative Agent or any Lender in connection with this Pledge Agreement, any
rights  or  obligations  hereunder,  or  the  performance  of  such  rights  and
obligations,  on behalf of itself or its  property,  in the manner  provided  in
Section  14.1 of the Credit  Agreement.  Nothing in this Section 21 shall affect
the right of the  Administrative  Agent or any Lender to serve legal  process in
any  other  manner  permitted  by  Applicable  Law or  affect  the  right of the
Administrative Agent or any Lender to bring any action or proceeding against the
Pledgor or its properties in the courts of any other jurisdictions.

         22.      Binding Arbitration; Waiver of Jury Trial.

         (a) Binding  Arbitration.  If in the  reasonable  determination  of the
Administrative Agent and its counsel, Section 22(b) is unenforceable under North
Carolina  law unless  paired  with a binding  arbitration  provision,  then upon
demand of any party made within ninety (90)

 
days  after  institution  of any  judicial  proceeding,  any  dispute,  claim or
controversy  between a Lender (or group of Lenders)  and a Borrower (or group of
Borrowers)  (but not any  dispute,  claim or  controversy  among any Lenders not
involving  any  Borrower)  arising  out of,  connected  with or relating to this
Pledge Agreement ("Disputes"), between or among parties to this Pledge Agreement
shall be resolved by binding  arbitration as provided  herein.  Institution of a
judicial  proceeding by a party does not waive the right of that party to demand
arbitration hereunder.  Disputes may include,  without limitation,  tort claims,
counterclaims,  claims brought as class actions, claims arising from supplements
to this Pledge Agreement executed in the future, or claims concerning any aspect
of the past,  present or future  relationships  arising out of or connected with
this Pledge Agreement.  Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American  Arbitration  Association and Title 9 of the U.S. Code. All arbitration
hearings  shall  be  conducted  in  Charlotte,  North  Carolina.  The  expedited
procedures  set  forth in Rule 51, et seq.  of the  Arbitration  Rules  shall be
applicable  to  claims of less  than  $1,000,000.  All  applicable  statutes  of
limitation shall apply to any Dispute.  A judgment upon the award may be entered
in any court  having  jurisdiction.  The panel  from which all  arbitrators  are
selected  shall be  comprised  of  licensed  attorneys.  The  single  arbitrator
selected for expedited procedure shall be a retired judge from the highest court
of general  jurisdiction,  state or federal, of the state where the hearing will
be conducted.

         (b) Jury Trial. EACH AGENT,  LENDER AND THE PLEDGOR HEREBY  IRREVOCABLY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION,  CLAIM
OR  OTHER  PROCEEDING  ARISING  OUT OF  ANY  DISPUTE  IN  CONNECTION  WITH  THIS
AGREEMENT,  THE NOTES OR THE OTHER LOAN  DOCUMENTS,  ANY  RIGHTS OR  OBLIGATIONS
HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.

         (c)  Preservation of Certain  Remedies.  Notwithstanding  the preceding
binding arbitration provisions, the parties hereto preserve, without diminution,
certain remedies that such Persons may employ or exercise freely,  either alone,
in conjunction with or during a Dispute.  Each such Person shall have and hereby
reserves  the right to  proceed in any court of proper  jurisdiction  or by self
help to  exercise  or  prosecute  the  following  remedies:  (i) all  rights  to
foreclose  against any real or personal property or other security by exercising
a power of sale granted in this Pledge  Agreement or under  applicable law or by
judicial  foreclosure and sale, (ii) all rights of self help including  peaceful
occupation of property and collection of rents, set off, and peaceful possession
of  property,  (iii)  obtaining  provisional  or  ancillary  remedies  including
injunctive  relief,  sequestration,   garnishment,  attachment,  appointment  of
receiver  and in  filing an  involuntary  bankruptcy  proceeding,  and (iv) when
applicable, a judgment by confession of judgment. Preservation of these remedies
does not limit the power of an arbitrator to grant similar  remedies that may be
requested by a party in a Dispute.

                            [Signature Page Follows]

 
         IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to
be duly executed and delivered as of the date first above written.


[CORPORATE SEAL]                             ACC CORP.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________

 
                           ACKNOWLEDGEMENT AND CONSENT


         Each  Issuer of  Pledged  Stock  referred  to in the  foregoing  Pledge
Agreement hereby  acknowledges  receipt of a copy thereof and agrees to be bound
thereby  and to  comply  with  the  terms  thereof  insofar  as such  terms  are
applicable to it. Each Issuer agrees to notify the Administrative Agent promptly
in writing of the  occurrence of any of the events  described in Section 5(a) of
the Pledge  Agreement.  Each United States  Subsidiary  further  agrees that the
terms of Section 9 of the Pledge Agreement shall apply to it, mutatis  mutandis,
with  respect to all actions  that may be required of it under or pursuant to or
arising out of Section 9 of the Pledge Agreement.

                                             ACC LONG DISTANCE CORP.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________


                                             ACC NATIONAL TELECOM CORP.

                                             By_________________________________
                                             Name:______________________________
                                             Title:_____________________________


                                             ACC RADIO CORP.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________


                                             ACC GLOBAL CORP.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________

 
                                             ACC NATIONAL LONG DISTANCE CORP.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________


                                             ACC CREDIT CORP.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________


                                             ACC SERVICE CORP.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________


                                             ACC TELENTERPRISES LTD.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________


                                             ACC LONG DISTANCE U.K. LTD.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________

 
                                                                      SCHEDULE 1
                                                                       To Pledge
                                                                       Agreement


                          DESCRIPTION OF PLEDGED STOCK
                              Domestic Subsidiaries

Issuer                    Class of Stock      Certificate No.      No. of Shares

ACC Long
Distance
Corp.                     Common              1                    200

ACC National
Telecom
Corp.                     Common              1                    1

ACC Radio
Corp.                     Common              1                    200

ACC Global
Corp.                     Common              2                    1

ACC National
Long
Distance
Corp.                     Common              1                    1

                          Common              3                    4

ACC Credit Corp.          Common              2                    1

ACC Service Corp.         Common              2                    1

 
                              Foreign Subsidiaries

Issuer                    Class of Stock      Certificate No.      No. of Shares

ACC Tel-
Enterprises
Ltd.                      Common              C-1                  66

ACC Long
Distance
U.K. Ltd.                 Common              10                   2,000,000

                          Common              7                    3,999,401

 
                           PLEDGE AGREEMENT SUPPLEMENT


         PLEDGE AGREEMENT  SUPPLEMENT,  dated as of  _______________,  199_ (the
"Supplement"),   made  by  _________,   a   ________________   corporation  (the
"Pledgor"),   in  favor  of  First  Union  National  Bank,  a  national  banking
association,  as  Administrative  Agent (in such capacity,  the  "Administrative
Agent"), under the Credit Agreement (as defined in the Pledge Agreement referred
to below) for the benefit of itself and the Lenders (as so defined).

         1.  Reference  is hereby  made to that  Pledge  Agreement,  dated as of
___________ ___, 1996, made by the Pledgor in favor of the Administrative  Agent
(as further amended,  restated or otherwise modified,  the "Pledge  Agreement").
This Supplement  supplements the Pledge  Agreement,  forms a part thereof and is
subject to the terms  thereof.  Terms  defined in the Pledge  Agreement are used
herein as therein defined.

         2. The Pledgor hereby  confirms and reaffirms the security  interest in
the Collateral  granted to the  Administrative  Agent for the ratable benefit of
itself and the Lenders under the Pledge Agreement, and, as additional collateral
security  for the  prompt  and  complete  payment  when due  (whether  at stated
maturity,  by acceleration or otherwise) of the Secured Obligations and in order
to induce the  Lenders  to make their  Loans  under the  Credit  Agreement,  the
Pledgor  hereby  delivers to the  Administrative  Agent,  for the benefit of the
Lenders,  [all of the issued and outstanding  shares of capital stock of [INSERT
NAME OF NEW  DOMESTIC  SUBSIDIARY]]  or [66.66%  of the  issued and  outstanding
shares of capital  stock of [INSERT NAME OF NEW FOREIGN  SUBSIDIARY]]  (the "New
Issuer") listed below, together with all stock certificates,  options, or rights
of any  nature  whatsoever  which may be issued or  granted by the New Issuer in
respect to such stock which the Pledge Agreement,  as supplemented hereby, is in
force  (the  "Additional  Pledged  Stock";  as used in the Pledge  Agreement  as
supplemented by this Supplement,  "Pledged Stock" shall be deemed to include the
Additional Pledged Stock) and hereby grants to the Administrative Agent, for the
ratable benefit of itself and the Lenders, a first priority security interest in
the Additional Pledged Stock and all Proceeds thereof.

         3. The Pledgor hereby represents and warrants that the  representations
and  warranties  contained in paragraph 5 of the Pledge  Agreement  are true and
correct on the date of this Supplement  with references  therein to the "Pledged
Stock" to include the Additional  Pledged Stock, with references  therein to the
"Issuer"  to  include  the  New  Issuer,  and  with  references  to the  "Pledge
Agreement" to mean the Pledge Agreement as supplemented by this Supplement.

         4.  The  Pledgor  shall  deliver  to  the   Administrative   Agent  the
Acknowledgement and Consent attached hereto duly executed by the New Issuer. The
Additional  Pledged Stock pledged hereby is as follows which Pledged Stock shall
be deemed part of Schedule 1 thereto:

 
                          DESCRIPTION OF PLEDGED STOCK

Issuer        Class of Stock        Certificate No.        No. of Shares

         5. The Pledgor  hereby  agrees to deliver to the  Administrative  Agent
such  certificates  and other  documents  and take such other action as shall be
reasonably  requested by the  Administrative  Agent in order to  effectuate  the
terms hereof and the Pledge Agreement.

         IN WITNESS  WHEREOF,  the  undersigned has caused this Supplement to be
duly executed under seal and delivered as of the date first above written.

[CORPORATE SEAL]                            ____________________________________


                                            By__________________________________
                                            Name:_______________________________
                                            Title:______________________________

 
                    ACKNOWLEDGEMENT AND CONSENT OF NEW ISSUER

         The undersigned hereby acknowledges  receipt of a copy of the foregoing
Supplement   and  the  Pledge   Agreement   referred  to  therein  (the  "Pledge
Agreement").  The undersigned agrees for the benefit of the Administrative Agent
and the Lenders as follows:

         1. The undersigned  will be bound by the terms of the Pledge  Agreement
and will  comply  with such terms  insofar as such terms are  applicable  to the
undersigned.

         2. The  undersigned  will notify the  Administrative  Agent promptly in
writing of the occurrence of any of the events  described in Section 5(a) of the
Pledge Agreement.

         [3. The Issuer further agrees that the terms of Section 9 of the Pledge
Agreement shall apply to it, mutatis mutandis,  with respect to all actions that
may be  required  of it under or  pursuant to or arising out of Section 9 of the
Pledge Agreement.] [ONLY INCLUDE FOR DOMESTIC SUBSIDIARIES]

                                                     [NAME OF NEW ISSUER]



By:_________________________________
                                               Name:____________________________
                                               Title:___________________________

EX-10.29

 
                                                                   EXHIBIT-10.29



                 SECOND AMENDED AND RESTATED SECURITY AGREEMENT


         THIS SECOND AMENDED AND RESTATED SECURITY AGREEMENT (this "Agreement"),
dated as of December __, 1997 by and between ACC CORP., a corporation  organized
under the laws of Delaware ("ACC"),  certain Domestic Subsidiaries of ACC listed
on the signature pages hereto (the "Subsidiary  Grantors" and, collectively with
ACC Corp.,  the  "Grantors")  and FIRST UNION NATIONAL BANK, a national  banking
association  organized  under the laws of the United States,  as  Administrative
Agent (the "Administrative  Agent") for the benefit of itself, and the financial
institutions (the "Lenders") as are, or may from time to time become, parties to
the Credit Agreement (as defined below).

                              STATEMENT OF PURPOSE

         ACC and  certain  of its  Subsidiaries  have  previously  executed  and
delivered to the Administrative  Agent a Security Agreement dated as of July 21,
1995,  as amended by the Amended and  Restated  Security  Agreement  dated as of
January 14, 1997 (the "First Amended and Restated Security Agreement").

         Pursuant to the Second Amended and Restated  Credit  Agreement dated as
of even date herewith (together with all amendments and other modifications,  if
any, from time to time hereafter made thereto, the "Credit Agreement"),  between
the  Grantors  and  certain   Subsidiaries   of  ACC  as  Borrowers   thereunder
(collectively,  the "Borrowers"),  the Lenders and the Administrative Agent, the
Lenders will provide  Extensions of Credit to the Borrowers as more specifically
described  in the  Credit  Agreement.  In order to induce  the  Lenders  and the
Administrative  Agent to enter into the Credit Agreement,  and as a condition to
the provision of Extensions of Credit  thereunder,  the Lenders require that the
Grantors amend and restate the First Amended and Restated Security  Agreement in
order to grant a continuing  security  interest in and to the  "Collateral"  (as
hereinafter  defined)  to  secure  the  "Secured  Obligations"  (as  hereinafter
defined).

         NOW,  THEREFORE,  in  consideration  of the premises and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the parties hereto agree as follows:

         SECTION 1.  Definitions.  Terms defined in the Credit Agreement and not
otherwise  defined herein,  when used in this Agreement,  including its preamble
and  recitals,  shall have the  respective  meanings  provided for in the Credit
Agreement.  The following  additional terms, when used in this Agreement,  shall
have the following meanings:

         "Account Debtor" means any Person who is or may become obligated to any
Grantor under, with respect to, or on account of, an Account.

 
         "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  satisfactory  to the  Administrative  Agent
pursuant to Section 5.2(c) of the Credit Agreement.

 
         "Fixtures" means all "fixtures" (as defined in the UCC) of any Grantor,
whether  now owned or  hereafter  acquired,  or in which any  Grantor now has or
hereafter acquires any right or interest.

         "General  Intangibles"  means all "general  intangibles" (as defined in
the UCC) now or  hereafter  owned or  acquired  by any  Grantor  or in which any
Grantor now or  hereafter  has or acquires  any right or  interest,  and, in any
event,   shall   mean  and   include,   without   limitation,   all   rights  to
indemnification, and all rights, title and interest which any Grantor may now or
hereafter have in or under all contracts (other than contracts  described in the
definition of Accounts),  agreements  (including without limitation the Versatel
Security Documents), permits, licenses (which contracts, agreements, permits and
licenses  may be  pledged  pursuant  to the terms  thereof)  causes  of  action,
franchises,  tax refund claims, customer lists,  Intellectual Property,  license
royalties,  goodwill,  trade secrets, data bases, business records and all other
intangible property of every kind and nature.

         "Instruments"  means all "instruments",  "chattel paper" or "letters of
credit"  (each  as  defined  in  the  UCC),   including,   without   limitation,
instruments,  chattel  paper and  letters  of credit  evidencing,  representing,
arising  from or existing  in respect of,  relating  to,  securing or  otherwise
supporting  the payment of, any of the Accounts,  including (but not limited to)
promissory  notes,  drafts,  bills of  exchange  and trade  acceptances,  now or
hereafter  owned or  acquired  by any  Grantor  or in which any  Grantor  now or
hereafter has or acquires any right or interest.

         "Intellectual Property" means,  collectively,  (a) all systems software
and applications  software,  including,  but not limited to, screen displays and
formats,  program structures,  sequence and organization,  all documentation for
such  software,  including,  but  not  limited  to,  user  manuals,  flowcharts,
programmer's  notes,  functional  specifications,  and operations  manuals,  all
formulas,  processes,  ideas and know-how embodied in any of the foregoing,  and
all program materials, flowcharts, notes and outlines created in connection with
any of the foregoing, whether or not patentable or copyrightable,  (b) concepts,
discoveries,  improvements and ideas, (c) any useful information relating to the
items  described  in  clause  (a)  or  (b),  including   know-how,   technology,
engineering drawings,  reports,  design information,  trade secrets,  practices,
laboratory  notebooks,  specifications,  test procedures,  maintenance  manuals,
research,  development,   manufacturing,   marketing,  merchandising,   selling,
purchasing and accounting,  (d) Patents,  Patent rights and Patent applications,
Copyrights  and Copyright  applications,  Trademarks,  Trademark  rights,  trade
names, trade name rights,  service marks, service mark rights,  applications for
registration of Trademarks,  trade names and service marks, and Trademark, trade
name and service mark registrations and Patent Licenses,  Trademark Licenses and
Copyright Licenses,  and (e) other licenses to use any of the items described in
the  foregoing  clauses (a),  (b), (c) and (d) or any other similar items of any
Grantor necessary for the conduct of its business.

         "Inventory"  means  all  "inventory"  (as  defined  in the  UCC) now or
hereafter  owned or  acquired  by any  Grantor  or in which any  Grantor  now or
hereafter  has or acquires any right or interest,  wherever  located and, in any
event, shall mean and include, without limitation, all raw materials,  inventory
and  other  materials  and  supplies,   work-in-process,   finished  goods,  all

 
accessions  thereto,  documents  therefor  and any  products  made or  processed
therefrom and all substances, if any, commingled therewith or added thereto.

         "Patent  License"  means any  written  agreement  now or  hereafter  in
existence  granting  to any Grantor  any right to use any  invention  on which a
Patent is in existence.

         "Patents"  means,  collectively,  all of the  following  now  owned  or
hereafter  created  or  acquired  by any  Grantor:  (a) all  patents  and patent
applications including all patentable inventions;  (b) all reissues,  divisions,
continuations,  renewals,  extensions  and  continuations-in-part  of any of the
foregoing; (c) all income,  royalties,  damages or payments now or hereafter due
and/or  payable  under  any of  the  foregoing  or  with  respect  to any of the
foregoing, including, without limitation, damages or payments for past or future
infringements  of any of the foregoing;  (d) the right to sue for past,  present
and  future  infringements  of  any  of  the  foregoing;   and  (e)  all  rights
corresponding to any of the foregoing throughout the world.

         "Perfection  Certificate"  means a  certificate  dated as of even  date
herewith, setting forth the corporate names, chief executive office or principal
place of business in each state and other  current  locations of  Collateral  of
each  Grantor  and such other  information  as the  Administrative  Agent  deems
pertinent to the perfection of security  interests,  completed and  supplemented
with the schedules and attachments  contemplated  thereby to the satisfaction of
the  Administrative  Agent,  and duly certified by the chief  executive or chief
financial officer of each Grantor so authorized to act.

         "Permitted Investments" means investments described in Section 10.4 of
 the Credit Agreement.

         "Permitted  Liens"  means  all such  Liens  respecting  the  Collateral
permitted pursuant to Section 10.3 of the Credit Agreement.

         "Proceeds"  means all  proceeds of, and all other  profits,  rentals or
receipts, in whatever form, arising from the collection,  sale, lease, exchange,
assignment,  licensing or other disposition of, or realization upon, Collateral,
including,  without limitation,  all claims of any Grantor against third parties
for loss of, damage to or  destruction  of, or for proceeds  payable  under,  or
unearned  premiums  with  respect to,  policies of  insurance in respect of, any
Collateral,  and any  condemnation  or requisition  payments with respect to any
Collateral  and the following  types of property  acquired  with cash  proceeds:
Accounts, Inventory, Documents, Fixtures,  Instruments,  General Intangibles and
Equipment.

         "Secured   Obligations"  means,  with  respect  to  each  Grantor,  the
Obligations of such Grantor as defined in the Credit  Agreement and any renewals
or extensions of any of such Obligations.

 
         "Security  Interests" means the security  interests granted pursuant to
Section  2, as well as all other  security  interests  created  or  assigned  as
additional  security for the Secured  Obligations  pursuant to the provisions of
this Agreement.

         "Trademark  License"  means any written  agreement  now or hereafter in
existence granting to any Grantor any right to use any Trademark.

         "Trademarks"  means,  collectively,  all of the  following now owned or
hereafter created or acquired by any Grantor:  (a) all Trademarks,  trade names,
corporate names, company names, business names, fictitious business names, trade
styles,  service marks, logos, other business identifiers,  prints and labels on
which any of the  foregoing  have  appeared  or appear,  all  registrations  and
recordings  thereof,  and all  applications in connection  therewith,  including
registrations,  recordings  and  applications  in the United  States  Patent and
Trademark  Office or in any similar office or agency of the United  States,  any
state thereof or any other country or any political  subdivision of any thereof,
including without  limitation any thereof referred to on Schedule I hereto;  (b)
all reissues,  extensions and renewals of any of the foregoing;  (c) all income,
royalties, damages and payments now or hereafter due and/or payable under any of
the  foregoing  or with  respect  to any of the  foregoing,  including,  without
limitation,  damages or payments for past or future  infringements of any of the
foregoing;  (d) the right to sue for past,  present and future  infringements of
any of the foregoing;  and (e) all rights  corresponding to any of the foregoing
throughout the world.

         "UCC" means the Uniform Commercial Code as in effect on the date hereof
in the  State  of  North  Carolina;  provided  that if by  reason  of  mandatory
provisions of law, the perfection or the effect of perfection or  non-perfection
of the  Security  Interests  in  any  Collateral  is  governed  by  the  Uniform
Commercial Code as in effect in a jurisdiction other than North Carolina,  "UCC"
means the Uniform  Commercial Code as in effect in such other  jurisdiction  for
purposes  of the  provisions  hereof  relating to such  perfection  or effect of
perfection or non-perfection.

         "Versatel  Security  Documents"  means the loan and security  documents
between  ACC and  [Versatel]  executed  pursuant  to Section  10.4 of the Credit
Agreement.

         SECTION 2. The Security Interests.

         (a) In order to secure  the Credit  Agreement  in  accordance  with the
terms thereof,  and to secure the payment and  performance of all of the Secured
Obligations,  each Grantor hereby grants to the  Administrative  Agent,  for the
ratable benefit of itself and the Lenders, a continuing security interest in and
to all of  such  Grantor's  estate,  right,  title  and  interest  in and to all
Collateral  whether now or  hereafter  owned or  acquired by such  Grantor or in
which such Grantor now has or hereafter has or acquires any rights, and wherever
located.

         (b) The Security  Interests  are granted as security only and shall not
subject  the  Administrative  Agent  or  any  Lender  to,  or  transfer  to  the
Administrative  Agent  or any  Lender,  or

 
in any way affect or modify,  any  obligation  or  liability of any Grantor 
with respect to any of the Collateral or any transaction in connection
therewith.

         (c) A first priority lien on  approximately  66.66% of the  outstanding
capital stock of ACC Telekommunikation GMBH shall be granted by ACC Credit Corp.
and ACC Service Corp.  as pledgors in favor of the Lenders  pursuant to a Pledge
Agreement  dated on or about the date hereof governed by the laws of the Federal
Republic of Germany.  Such Pledge Agreement shall govern the rights and remedies
of the Administrative Agent and Lenders with respect to such capital stock.

         SECTION 3. Representations and Warranties.  Each Grantor represents and
warrants as follows:

         (a) Such Grantor has the  corporate  power and  authority and the legal
right to execute and deliver, to perform its obligations under, and to grant the
Security  Interests in the Collateral  pursuant to, this Agreement and has taken
all  necessary  corporate  action  to  authorize  its  execution,  delivery  and
performance of, and grant of the Security  Interests in the Collateral  pursuant
to, this Agreement.

         (b) This Agreement constitutes a legal, valid and binding obligation of
such Grantor  enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization,  moratorium or similar
laws affecting the enforcement of creditors' rights generally.

         (c) The execution,  delivery and performance of this Agreement will not
violate any provision of any Applicable  Law or  contractual  obligation of such
Grantor and will not result in the creation or  imposition of any Lien on any of
the  properties or revenues of such Grantor  pursuant to any  Applicable  Law or
contractual obligation of such Grantor, except as contemplated hereby.

         (d) No consent or authorization  of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person  (including,  without  limitation,  any  stockholder  or creditor of such
Grantor), is required in connection with the execution,  delivery,  performance,
validity or enforceability of this Agreement.

         (e)  No  litigation,  investigation  or  proceeding  of or  before  any
arbitrator  or  Governmental  Authority is pending or, to the  knowledge of such
Grantor after due inquiry,  threatened by or against such Grantor or against any
of its  properties  or revenues  with  respect to this  Agreement  or any of the
transactions contemplated hereby.

         (f) Such Grantor has good and marketable title to all of its respective
Collateral, free and clear of any Liens other than the Permitted Liens.

 
         (g) Such  Grantor has not  performed or failed to perform any acts that
would prevent or hinder the Administrative Agent from enforcing any of the terms
of  this  Agreement.  Other  than  financing  statements  or  other  similar  or
equivalent  documents  or  instruments  with  respect  to  Permitted  Liens,  no
financing  statement,  mortgage,  security  agreement  or similar or  equivalent
document  or  instrument  covering  all or any  part of the  Collateral  of such
Grantor  is on file or of  record in any  jurisdiction.  No  Collateral  of such
Grantor is in the  possession of any Person (other than such Grantor)  asserting
any claim thereto or security interest therein,  except that the  Administrative
Agent or its designee may have  possession  of the  Collateral  as  contemplated
hereby.

         (h) All of the information set forth in the Perfection Certificate with
respect to such Grantor is true and correct as of the date hereof.

         (i) Such  Grantor  has,  contemporaneously  herewith,  delivered to the
Administrative Agent possession of all originals of all negotiable  Instruments,
documents and chattel paper constituting  Collateral  currently owned or held by
such Grantor, if any (duly endorsed in blank, if requested by the Administrative
Agent).

         (j) With  respect to any  Intellectual  Property  of Grantor  the loss,
impairment or infringement of which might have a Material Adverse Effect:

            (i)     such  Intellectual  Property is subsisting  and has not been
                    adjudged invalid or unenforceable, in whole or in part;

           (ii)     such Intellectual Property is valid and enforceable;

          (111)     such Grantor has made all necessary filings and recordations
                    to  protect  its  interest  in such  Intellectual  Property,
                    including,  without  limitation,  recordations of all of its
                    interests  in the  Patents and  Trademarks  included in such
                    Intellectual  Property  in  the  United  States  Patent  and
                    Trademark  Office and its claims to the Copyrights  included
                    in such Intellectual Property in the United States Copyright
                    Office;

           (iv)     such  Grantor  is the  exclusive  owner  of the  entire  and
                    unencumbered  right,  title  and  interest  in and  to  such
                    Intellectual  Property  and no claim  has been made that the
                    use of such  Intellectual  Property  does or may violate the
                    asserted rights of any third party; and

            (v)     such Grantor has  performed and will continue to perform all
                    acts and has paid and will continue to pay all required fees
                    and  taxes  to   maintain   each  and  every  such  item  of
                    Intellectual Property in full force and effect.

         (k)  The  Financing   Statements   executed  by  such  Grantor  are  in
appropriate  form and when  filed in the  offices  specified  in the  Perfection
Certificate, the Security Interests will constitute valid and perfected security
interests in the Collateral of such Grantor, prior to all other 

 
Liens and rights of  others therein  except for the Permitted  Liens (to the
exten that a security  interest  therein may be perfected by filing  pursuant
to the UCC) and all filings and other actions necessary or desirable to perfect
and protect such Security Interests have been duly taken.

         (l) The  Inventory,  Fixtures and Equipment of such Grantor are insured
in accordance with the requirements hereof and of the Credit Agreement.


         SECTION 4. Further Assurances; Covenants.

         (a)      General.

                  (i) Each  Grantor  agrees  not to change the  location  of its
         chief  executive  office or  principal  place of  business in any state
         unless it shall have given the  Administrative  Agent  thirty (30) days
         prior   written   notice   thereof,   executed  and  delivered  to  the
         Administrative  Agent all financing  statements and financing statement
         amendments  which the  Administrative  Agent may request in  connection
         therewith.  Each Grantor  agrees not to change the  locations  where it
         keeps or holds any Collateral or any records  relating thereto from the
         applicable location described in the Perfection Certificate unless such
         Grantor  shall have given the  Administrative  Agent  thirty  (30) days
         prior  written  notice of such  change of  location  and  executed  and
         delivered to the  Administrative  Agent all  financing  statements  and
         financing  statement  amendments  which  the  Administrative  Agent may
         request in connection therewith;  provided,  that such Grantor may keep
         Inventory  at,  or  in  transit  to,  any  location  described  in  the
         Perfection  Certificate.  Each  Grantor  agrees  not to, in any  event,
         change the  location of any  Collateral  if such change would cause the
         Security  Interests  in  such  Collateral  to  lapse  or  cease  to  be
         perfected.

                  (ii) Each Grantor  agrees not to change its name,  identity or
         corporate  structure  in any  manner  unless  it shall  have  given the
         Administrative  Agent thirty (30) days prior  written  notice  thereof,
         executed  and  delivered  to the  Administrative  Agent  all  financing
         statements and financing statement  amendments which the Administrative
         Agent may request in connection therewith.

                  (iii) Each Grantor  will,  from time to time,  at its expense,
         execute,   deliver,   file  and  record  any   statement,   assignment,
         instrument,  document,  agreement  or other  paper  and take any  other
         action  (including  without  limitation  any  filings of  financing  or
         continuation  statements  under  the UCC) that from time to time may be
         necessary,  or that the Administrative Agent may reasonably request, in
         order to create,  preserve,  upgrade  in rank (to the  extent  required
         hereby),  perfect,  confirm or validate  the  Security  Interests or to
         enable  the  Administrative  Agent and the  Lenders  to obtain the full
         benefits of this Agreement,  or to enable the  Administrative  Agent to
         exercise and enforce any of its rights,  powers and remedies  hereunder
         with respect to any of the Collateral  (other than any filings with the
         United  States  Patent  and  Trademark  Office  or  the  United  States
         Copyright  Office).  Prior to the  irrevocable  payment  in full of the
         Secured Obligations,

 
         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 Credit Agreement; or

                           (B)  create  or  suffer  to  exist  any Lien or other
                  charge  or  encumbrance  upon  or with  respect  to any of the
                  Collateral  to secure  indebtedness  of any  Person or entity,
                  except as permitted by the Credit Agreement.

         (b)      Accounts, Etc.

                  (i) Each Grantor shall use all reasonable  efforts to cause to
         be  collected  from its Account  Debtors,  as and when due, any and all
         amounts owing under or on account of each Account  (including,  without
         limitation,   Accounts  which  are  delinquent,  such  Accounts  to  be
         collected in accordance with lawful collection procedures) and to apply
         forthwith upon receipt  thereof all such amounts as are so collected to
         the  outstanding  balance  of such  Account.  The  costs  and  expenses
         (including,  without  limitation,  attorney's  fees),  of collection of
         Accounts incurred by such Grantor or the Administrative  Agent shall be
         borne by such Grantor.

                  (ii) Upon the  occurrence  and during the  continuance  of any
         Event of  Default,  upon  request  of the  Administrative  Agent or the
         Required  Lenders,  each Grantor will promptly notify (and each Grantor
         hereby authorizes the  Administrative  Agent so to notify) each Account
         Debtor in respect of any Account that such Account has been assigned to
         the  Administrative  Agent  hereunder  and that any  payments due or to
         become due in respect of such  Account  are to be made  directly to the
         Administrative Agent or its designee.

                  (iii) Each  Grantor  will  perform and comply in all  material
         respects with all of its obligations in respect of Accounts and General
         Intangibles and the exercise by the Administrative  Agent of any of its
         rights  hereunder  shall not release any Grantor from any of its duties
         or obligations.

 
                  (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, as  Administrative  Agent".  For the  Administrative
Agent's and the Lenders'  further  security,  such Grantor  agrees that upon the
occurrence  and during the  continuation  of any Event of Default,  such Grantor
shall  deliver  and  turn  over any  such  books  and  records  directly  to the
Administrative   Agent  or  its   designee.   Such  Grantor   shall  permit  any
representative of the Administrative  Agent to inspect such books and records in
accordance  with  Section  8.11  of  the  Credit   Agreement  and  will  provide
photocopies thereof to the Administrative Agent upon its reasonable request.

 
         (b)   Certain Provisions Regarding Maintenance of Records and Reporting
Re: Accounts.

                  (i) In the  event  any  amounts  due and  owing in  excess  of
         $500,000 are in dispute  between any Account  Debtor and such  Grantor,
         such Grantor shall provide the Administrative Agent with written notice
         thereof promptly after such Grantor's  learning thereof,  explaining in
         detail the reason for the dispute,  all claims related  thereto and the
         amount in controversy;  provided,  that a report of such items provided
         within ten (10) days after the end of each fiscal  quarter of ACC shall
         be deemed to be prompt delivery of such notice.

                  (ii) Such  Grantor  will  promptly  notify the  Administrative
         Agent in writing  if any  Account  arises  out of a  contract  with the
         United States of America,  or any  department,  agency,  subdivision or
         instrumentality  thereof,  or of  any  state  (or  department,  agency,
         subdivision  or  instrumentality  thereof) where such state has a state
         assignment  of  claims  act or  other  law  comparable  to the  Federal
         Assignment  of  Claims  Act,  and will  take  any  action  required  or
         requested   by  the   Administrative   Agent  or  give  notice  of  the
         Administrative  Agent's  Security  Interest in such Accounts  under the
         provisions of the Federal  Assignment  of Claims Act or any  comparable
         law or act enacted by any state or local governmental authority.

         (c) Further  Identification  of  Collateral.  Such Grantor  will, if so
requested  by the  Administrative  Agent,  furnish to the  Administrative  Agent
statements and schedules  further  identifying and describing the Collateral and
such other reports in connection with the Collateral as the Administrative Agent
may reasonably request, all in reasonable detail.

         (d)  Notices.  In  addition to the  notices  required  by Section  5(b)
hereof,  such  Grantor  will  advise  the  Administrative  Agent  promptly,   in
reasonable  detail,  (i) of any material Lien or claim made or asserted  against
any of the Collateral, (ii) of any material adverse change in the composition of
the Collateral,  and (iii) of the occurrence of any other event which could have
a material  adverse effect on the  Collateral or on the validity,  perfection or
priority of the Security Interests.

         SECTION 6. Collateral Account.

         (a)  There  is  hereby  established  with  the  Administrative  Agent a
Collateral  Account in the name and under the exclusive  dominion and control of
the  Administrative  Agent. There shall be deposited from time to time into such
account the cash  proceeds of the  Collateral  required to be  delivered  to the
Administrative  Agent  pursuant to Section  6(b) or any other  provision of this
Agreement.  Any income received by the Administrative  Agent with respect to the
balance  from time to time  standing  to the credit of the  Collateral  Account,
including any interest or capital gains on  investments of amounts on deposit in
the Collateral Account, shall remain, or be deposited, in the Collateral Account
together with any investments  from time to time made pursuant to subsection (c)
of this Section 6, shall vest in the Administrative Agent, shall 

 
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  9-504(3)  of the UCC (to the  extent  such  Section is
applicable).

         (b) Each Grantor hereby  ratifies all that said attorney shall lawfully
do or cause to be done by  virtue  hereof.  This  power of  attorney  is a power
coupled with an interest and shall be irrevocable.

         (c) Each Grantor also authorizes the  Administrative  Agent at any time
and from time to time, to execute,  in connection  with the sale provided for in
Section  8  hereof,  any  endorsements,  assignments  or  other  instruments  of
conveyance or transfer with respect to the Collateral.

         SECTION 8. Remedies Upon Event of Default.

         (a) If any  Event  of  Default  has  occurred  and is  continuing,  the
Administrative Agent may exercise on behalf of itself and the Lenders all rights
of a secured  party under the UCC (whether or not in effect in the  jurisdiction
where such rights are exercised) and, in addition,  the Administrative Agent may
(i) withdraw all cash, if any, in the Collateral  Account and  investments  made
with  amounts on  deposit  in the  Collateral  Account,  and apply such  monies,
investments  and other cash,  if any, then held by it as Collateral as specified
in Section 10 hereof and (ii) if there shall be no such monies,  investments  or
cash or if such monies, investments or cash shall be insufficient to pay all the
Secured  Obligations in full,  sell the Collateral or any part thereof at public
or private sale, for cash, upon credit or for future delivery, and at such price
or prices as the Administrative Agent may deem satisfactory.  The Administrative
Agent or any Lender may be the purchaser of any or all of the Collateral so sold
at any public sale (or, if the  Collateral  is of a type  customarily  sold in a
recognized  market or is of a type which is the  subject  of widely  distributed
standard price quotations or if otherwise permitted under applicable law, at any
private sale) and thereafter hold the same,  absolutely,  free from any right or
claim of whatsoever  kind.  Each Grantor will execute and deliver such documents
and  take  such  other  action  as the  Administrative  Agent  deems  reasonably
necessary  or  advisable  in order that any such sale may be made in  compliance
with law.  Upon any such sale the  Administrative  Agent shall have the right to
deliver,  assign and transfer to the  purchaser  thereof the  Collateral so sold
(without warranty). Each purchaser at any such sale shall hold the Collateral so
sold to it  absolutely,  free  from  any  claim or  right  of  whatsoever  kind,
including  any  equity or right of  

 
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 Credit Agreement,
          or Section 4(f) or 13 hereof or any corresponding  provision of any of
          the other Loan Documents;

                  second,  to payment  of any fees  owing to the  Administrative
         Agent or any Lender under the Credit  Agreement in accordance  with the
         provisions of the Credit Agreement;

                  third,  to  ratable  payment of  accrued  but unpaid  interest
         (including  post-petition  interest) on the Secured Obligations and any
         termination  payments due in respect of any Hedging  Agreement with any
         Lender (pro rata in accordance with all such amounts due);

                  fourth, to the ratable payment of unpaid principal of the 
          Secured Obligations;

                  fifth,   to  the   ratable   payment  of  all  other   Secured
         Obligations,  until all  Secured  Obligations  shall  have been paid in
         full; and

                  finally,  to  payment  to the  applicable  Grantors  or  their
         respective   successor   or  assigns,   or  as  a  court  of  competent
         jurisdiction  may  direct,  of any  surplus  then  remaining  from such
         proceeds.

The Administrative Agent may make distribution  hereunder in cash or in kind or,
on a ratable basis, in any combination thereof.

         SECTION 11.  Concerning  the  Administrative  Agent.  The provisions of
Article  XIII  of  the  Credit  Agreement  shall  inure  to the  benefit  of the
Administrative  Agent in respect of this Agreement and shall be binding upon the
parties to the Credit  Agreement  in such  respect.  In  furtherance  and not in
derogation of the rights,  privileges and immunities of the Administrative Agent
therein set forth:

                  (a) The  Administrative  Agent is  authorized to take all such
         action  as is  provided  to be  taken  by  it as  Administrative  Agent
         hereunder and all other action  incidental  thereto.  As to any matters
         not expressly provided for herein, the Administrative Agent may request
         instructions  from the Lenders and shall act or refrain  from acting in
         accordance  with written  instructions  from the Required  Lenders (or,
         when expressly required by this Agreement or the Credit Agreement,  all
         the Lenders)  or, in the absence of such  instructions,  in  accordance
         with its discretion.

                  (b) The Administrative  Agent shall not be responsible for the
         existence,  genuineness  or value of any of the  Collateral  or for the
         validity,  perfection,  priority  or  enforceability  of  the  Security
         Interests,  whether  impaired by  operation  of law or by reason of any
         action or  omission  to act on its part  (other than any such action or
         inaction  constituting  gross  negligence  or willful  misconduct.  The
         Administrative  Agent shall 

 
          have  no  duty  to  ascertain  or  inquire  as to the  performance  or
          observance of any of the terms of this Agreement by any Grantor.

         SECTION 12.  Appointment of Collateral Agents. At any time or times, in
order to comply with any legal  requirement in any  jurisdiction  or in order to
effectuate any provision of the Loan  Documents,  the  Administrative  Agent may
appoint  another bank or trust company or one or more other  Persons,  either to
act as  collateral  agent or agents,  jointly with the  Administrative  Agent or
separately,  on behalf of the  Administrative  Agent and the  Lenders  with such
power and  authority  as may be  necessary  for the  effectual  operation of the
provisions hereof and specified in the instrument of appointment  (which may, in
the  discretion  of  the  Administrative   Agent,  include  provisions  for  the
protection  of such  collateral  agent  similar to the  provisions of Section 11
hereof).

         SECTION 13.  Expenses.  In the event that any  Grantor  fails to comply
with the  provisions of the Credit  Agreement,  this Agreement or any other Loan
Document,  such that the value of any  Collateral or the  validity,  perfection,
rank or value of the Security  Interests are thereby  diminished or  potentially
diminished or put at risk, the Administrative Agent if requested by the Required
Lenders may, but shall not be required to,  effect such  compliance on behalf of
such Grantor,  and such Grantor shall reimburse the Administrative Agent for the
reasonable  costs thereof on demand.  All insurance  expenses and all reasonable
expenses of protecting,  storing, warehousing,  insuring, handling,  maintaining
and shipping the Collateral,  any and all excise, stamp, intangibles,  transfer,
property, sales, and use taxes imposed by any state, federal, or local authority
or any other Governmental  Authority on any of the Collateral,  or in respect of
the sale or other disposition thereof,  shall be borne and paid by the Grantors;
and if any  Grantor  fails  promptly to pay any portion  thereof  when due,  the
Administrative Agent or any Lender may, at its option, but shall not be required
to, pay the same and charge such Grantor's  account  therefor,  and such Grantor
agrees to reimburse the Administrative  Agent or such Lender therefor on demand.
All sums so paid or incurred by the  Administrative  Agent or any Lender for any
of the  foregoing  and any and all other sums for which any  Grantor  may become
liable  hereunder and all costs and expenses  (including  reasonable  attorneys'
fees,  legal expenses and court costs) incurred by the  Administrative  Agent or
any Lender in enforcing  or  protecting  the Security  Interests or any of their
rights or remedies  thereon shall be payable by the Grantors on demand and shall
bear  interest  (after as well as before  judgment)  until paid at the rate then
applicable to Base Rate Loans under the Credit Agreement and shall be additional
Secured Obligations hereunder.

         SECTION 14.  Notices.  All notices,  communications  and  distributions
hereunder  shall be given or made in accordance with Section 14.1 of the Credit 
Agreement.

         SECTION 15. Waivers,  Non-Exclusive Remedies. No failure on the part of
the Administrative  Agent or any Lender to exercise,  and no delay in exercising
and no course of dealing with respect to, any right under the Credit  Agreement,
this  Agreement or any other Loan Document  shall operate as a waiver thereof or
hereof; nor shall any single or partial exercise by the Administrative  Agent or
any Lender of any right under the Credit Agreement,  this Agreement or any other
Loan Document preclude any other or further exercise  thereof,  and the exercise
of 

 
any rights in this Agreement,  the Credit Agreement and the other Loan Documents
are cumulative and are not exclusive of any other remedies provided by law. This
Agreement is a Loan Document executed pursuant to the Credit Agreement.

         SECTION 16.  Successors and Assigns.  This Agreement is for the benefit
of the Administrative Agent and the Lenders and their successors and assigns (as
permitted by the Credit Agreement),  and in the event of an assignment of all or
any of the Secured Obligations,  the rights hereunder,  to the extent applicable
to the indebtedness so assigned, may be transferred with such indebtedness. This
Agreement  shall be binding  on each  Grantor  and its  successor  and  assigns;
provided,  that such  Grantor  may not assign  any of its rights or  obligations
hereunder without the prior written consent of the Administrative  Agent and the
Lenders.

         SECTION  17.  Changes  in  Writing.  Neither  this  Agreement  nor  any
provision hereof may be changed,  waived,  discharged or terminated  orally, but
only in writing  signed by each  Grantor and the  Administrative  Agent with the
consent of the Required  Lenders (or, when expressly  required by this Agreement
or the Credit Agreement, all of the Lenders).

         SECTION 18.  Powers Coupled with an Interest.  All  authorizations  and
agencies  herein  contained with respect to the Collateral are irrevocable and 
powers coupled with an interest.

         SECTION 19. GOVERNING  LAW.  THIS  AGREEMENT  SHALL  BE  GOVERNED  BY,
  CONSTRUED  AND  ENFORCED  IN ACCORDANCE  WITH THE LAWS OF THE STATE OF NORTH  
CAROLINA,  WITHOUT  REFERENCE  TO THE  CONFLICTS  OR CHOICE OF LAW
PRINCIPLES THEREOF.

         SECTION 20. Consent to  Jurisdiction.  Each Grantor hereby  irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Mecklenburg  County,  North Carolina,  in any action,  claim or other proceeding
arising out of or any dispute in connection with this  Agreement,  any rights or
obligations hereunder,  or the performance of such rights and obligations.  Each
Grantor  hereby  irrevocably  consents to the service of a summons and complaint
and  other  process  in  any  action,   claim  or  proceeding   brought  by  the
Administrative Agent or any Lender in connection with this Agreement, any rights
or obligations hereunder, or the performance of such rights and obligations,  on
behalf of itself or its property,  in the manner provided in Section 14.1 of the
Credit  Agreement.  Nothing  in this  Section  20 shall  affect the right of the
Administrative  Agent or any Lender to serve legal  process in any other  manner
permitted by Applicable Law or affect the right of the  Administrative  Agent or
any  Lender to bring  any  action  or  proceeding  against  any  Grantor  or its
properties in the courts of any other jurisdictions.



         SECTION 21.   Binding Arbitration; Waiver of Jury Trial.

 
         (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.

                            [Signature Pages Follow]

 
R155170.1
         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed  under seal by their duly  authorized  officers,  all as of the day and
year first written above.


[CORPORATE SEAL]                    ACC CORP.

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________


[CORPORATE SEAL]                    ACC LONG DISTANCE CORP.

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________


[CORPORATE SEAL]                    ACC NATIONAL TELECOM CORP.

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________


[CORPORATE SEAL]                    ACC LONG DISTANCE OF MASSACHUSETTS CORP.

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________


[CORPORATE SEAL]                    ACC RADIO CORP.

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________


[CORPORATE SEAL]                    ACC GLOBAL CORP.

                                            By:______________________________
                                            Name:____________________________

 
                                            Title:___________________________

[CORPORATE SEAL]                    ACC NATIONAL LONG DISTANCE CORP.

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________


[CORPORATE SEAL]                    ACC CREDIT CORP.

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________


[CORPORATE SEAL]                    ACC SERVICE CORP.

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________


                                            Administrative Agent:

[CORPORATE SEAL]                    FIRST UNION NATIONAL BANK,
                                            as Administrative Agent

                                            By:______________________________
                                            Name:____________________________
                                            Title:___________________________

 
                                   Schedule I
                                       to
                               Security Agreement

                             Trademark Registrations


Mark               Reg. No.             Date                    Goods

Flying ACC         1,371,741            11/19/85                 Telecom.
                                                                 Services

Design             1,607,689             7/24/89                 Telecomm.
                                                                 Services

                             Trademark Applications

Mark                              Serial No.                Goods

ACC &
Design (fed)                      74/607003                 Telecomm.
                                                            Services

Digitrunk                         74/499613                 Telecomm.
                                                            Services

                               Trademark Licenses

                                      None

 
R155170.1

                                     ANNEX I
                             (to Security Agreement)


                            [FORM OF LOCKBOX LETTER]

                                              _______________, 19___



[Name and Address of Lockbox Bank)

         Re:      [GRANTOR]

Ladies and Gentlemen:

         We  hereby  notify  you  that  effective  __________,   19__,  we  have
transferred  exclusive  ownership and control of our lock-box  account(s) no[s].
_____________________  (the "Lockbox Account[s]")  maintained with you under the
terms of the  [Lockbox  Agreement]  attached  hereto as Exhibit A (the  "Lockbox
Agreement[s]") to First Union National Bank, as Agent (the "Agent").

         We hereby  irrevocably  instruct you to make all payments to be made by
you out of or in  connection  with the Lockbox  Account(s)  (i) to the Agent for
credit  to  account  no.   __________   maintained   by  it  at  its  office  at
________________________  or (ii)  as you may  otherwise  be  instructed  by the
Agent.

         We also hereby notify you that the Agent shall be irrevocably  entitled
to exercise any and all rights in respect of or in  connection  with the Lockbox
Account(s),  including,  without limitation,  the right to specify when payments
are to be made out of or in connection with the Lockbox Account(s).

         All funds deposited into the Lockbox  Account(s) will not be subject to
deduction,  set-off,  banker's  lien or any  other  right in favor of any  other
person  than  the  Agent,  except  that  you may  set-off  against  the  Lockbox
Account(s)  the face  amount  of any check  deposited  in and  credited  to such
Lockbox  Account(s)  which  is  subsequently   returned  for  any  reason.  Your
compensation  for  providing the service  contemplated  herein shall be mutually
agreed  between  you and us from time to time and we will  continue  to pay such
compensation.

 
         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:________________________

 
R155170.1
                                    ANNEX II
                             (to Security Agreement)

                          SECURITY AGREEMENT SUPPLEMENT


         SECURITY AGREEMENT SUPPLEMENT, dated as of _____________________,  (the
"Supplement"),  made by [INSERT NAME OF NEW  SUBSIDIARY],  a  __________________
(the "New  Grantor"),  in favor of First Union National Bank, as  Administrative
Agent (in such capacity, the "Administrative  Agent") under the Credit Agreement
(as defined in the Security Agreement referred to below) for the ratable benefit
of itself and the Lenders (as so defined).

         1. Reference is hereby made to the Second Amended and Restated Security
Agreement  dated as of  December  [__],  1997,  made by ACC  Corp.  and  certain
Subsidiaries  of ACC  Corp.  (collectively,  the  "Grantors"),  in  favor of the
Administrative  Agent (as amended,  supplemented or otherwise modified as of the
date hereof, the "Security Agreement"). This Supplement supplements the Security
Agreement, forms a part thereof and is subject to the terms thereof. Capitalized
terms used and not  defined  herein  shall have the  meanings  given  thereto or
referenced in the Security Agreement.

         2. In order to secure  the Credit  Agreement,  in  accordance  with the
terms thereof,  and to secure the payment and  performance of all of the Secured
Obligations,  the New Grantor hereby grants to the Administrative Agent, for the
ratable benefit of itself and the Lenders, a continuing security interest in and
to all of the New  Grantor's  estate,  right,  title and  interest in and to all
Collateral  whether now or hereafter  owned or acquired by the New Grantor or in
which the New  Grantor now has or  hereafter  has or  acquires  any rights,  and
wherever located (the "New Collateral").

         3. The Security  Interests  are granted as security  only and shall not
subject  the  Administrative  Agent  or  any  Lender  to,  or  transfer  to  the
Administrative  Agent  or any  Lender,  or in any  way  affect  or  modify,  any
obligation  or  liability  of the New  Grantor  with  respect  to any of the New
Collateral or any transaction in connection therewith.

         4. The New Grantor  hereby  agrees  that it is a party to the  Security
Agreement as if a signatory thereto on the Closing Date of the Credit Agreement,
and the New Grantor  shall comply with all of the terms,  covenants,  conditions
and agreements and hereby makes each  representation and warranty,  in each case
set forth  therein.  The New Grantor  agrees that  "Collateral"  as used therein
shall  include  all New  Collateral  pledged  pursuant  hereto and the  Security
Agreement and "Security Agreement" or "Agreement" as used therein shall mean the
Security Agreement as supplemented hereby.

         5. Attached hereto are (i) a Perfection  Certificate in the form of the
Perfection Certificate delivered to the Administrative Agent on the Closing Date
and (ii)  updated  Schedules 

 
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-10.44

 
                                                                   EXHIBIT-10.44



                              DATED OCTOBER 9, 1997



                               LASMO (ULX) LIMITED

                                     - to -

                         ACC LONG DISTANCE U.K. LIMITED

                                     - and -

                                    ACC CORP.

                       ----------------------------------

                                    AGREEMENT

                              FOR LEASE RELATING TO

                 Premises situate on the Ground to Fourth Floors
                            And 45 car parking spaces
                            Of the Building known as
                                 Adelaide House
                        626 Chiswick High Road, London W4

                       -----------------------------------



                                Nabarro Nathanson
                               50 Stratton Street
                                 London W1X 6NX

                               Tel: 0171 493 9933

 
                                   PARTICULARS

1.  DATE                                                     1997

2.  LANDLORD                           LASMO (ULX) LIMITED whose registered
                                       office is at 101 Bishopsgate, London EC2M
                                       3XH (Company Registration Number 936223).

3.  TENANT                             ACC  LONG  DISTANCE U.K. LIMITED whose 
                                       registered office is at 414 Chiswick
                                       High Road, Longin W4 5TF (Company 
                                       Registration Number 2671855).

4.  SURETY                             ACC CORP (a company incorporated in 
                                       Delaware USA) of 39 State Street, 
                                       Rochester, New York 14614 USA.

5.  PREMISES                           Premises  situate on  the Ground  to  
                                       Fourth Floors and 45 car  parking spaces
                                       of  the Building known as Adelaide House,
                                       626  Chiswick High  Road, London W4 as
                                       described in the Lease.

6.  COMPLETION DATE                    As defined in clause 1.9.

7.  LEASE                              An  underlease of the Premises in 
                                       the form of the draft attached to this
                                       Agreement.

8.  SUPERIOR LEASE                     A Lease dated 17  March 1989 and made 
                                       between Markheath Properties Limited (1) 
                                       and the Landlord (under  its former name,
                                       Ultramar Exploration Limited) (2) and 
                                       Ultramar PLC (3).

9.  LANDLORD'S                         London Borough of Hounslow Title 
    REGISTERED TITLE                   Number:AGL8895
                                       Class of Title:  Absolute

10. DISCLOSED DOCUMENTS                The documents referred to in the First 
                                       Schedule to this Agreement.

11. LANDLORD'S SOLICITORS              Nabarro Nathanson
                                       50 Stratton Street
                                       LONDON W1X 6NX
                                       Ref:  J1/AAS/L1718:7

12. TENANT'S  SOLICITORS               Hobson Audley Hopkins & Wood
                                       7 Pilgrim  Street LONDON EC4V
                                       6DR Ref: SJJS/ER/JC/ACCB-10  52854

13. INTEREST                           Interest at the rate of four per cent per
                                       annum  above  Midland  Bank PLC Base  
                                       Rate from time to time in force.

14. LANDLORD'S  SURVEYORS              means Stewart Watson & Co of 
                                       10 Devonshire Road, London EC2M 4RH or 
                                       such other firm or person as the Landlord
                                       may from time to time appoint to  perform
                                       the functions of its surveyor under this 
                                       Agreement.

15. TENANT'S APPROVED                  means the plans elevations sections and
    DRAWINGS                           specification of the Tenant's Works 
                                       approved by the Landlord's Surveyors
                                       pursuant to clause 11.

16. TENANT'S  WORKS                    means the works of which brief details  
                                       are set out in the Second Schedule to
                                       this Agreement and in more detail shown
                                       in the Tenant's Approved Drawings.

 
                                    CONTENTS

Clause      Subject matter                                                  Page

1.          Interpretation                                                     1
2.          Agreement for Lease                                                2
3.          Completion of the Lease                                            3
4.          Vacant Possession                                                  3
5.          Landlord's Title                                                   3
6.          Matters Affecting the Premises                                     4
7.          National Conditions                                                4
8.          Acknowledgments                                                    5
9.          Landlord's Consent                                                 6
10.         Application for Exclusion Order                                    6
11.         Approval of Tenant's Works                                         7
12.         Carrying out the Tenant's Works                                    7
13.         Inspection and Rectification of the Tenant's Works                12
14.         Completion and Approval of the Tenant's Works                     13
15.         Status of Tenant Pending Completion                               14
16.         Commencement of License Fees                                      14
17.         Further Provisions Relating to Completion of the Lease            15
18.         VAT                                                               16
19.         Default of Tenant                                                 17
20.         Arbitration                                                       19
21.         Non Assignment                                                    20
22.         Guarantee                                                         20
23.         No Publicity                                                      21
24.         Jurisdiction                                                      21
25.         Non-Merger                                                        21
26.         Notices                                                           21
27.         Rental Rebate                                                     22
28.         Right of First Refusal and Option to Lease in Relation
            to Sixth and Seventh Floors                                       24
29.         Landlord's Works to Create Office on Ground Floor                 30

SCHEDULE 1  DISCLOSED DOCUMENTS
SCHEDULE 2  TENANT'S WORKS

 
    1.    INTERPRETATION

1.1      The  Particulars  constitute part of this Agreement and the expressions
         contained in the Particulars are incorporated as definitions.

1.2      The National Conditions of Sale (Twentieth Edition) as set out on pages
         2 and 3 of the printed form of contract  published  by the  Solicitors'
         Law Stationery Society Plc ("National Conditions") (except as varied by
         or inconsistent with this Agreement) are incorporated.

1.3      The clause headings in this Agreement are for ease of reference only 
         and are not to be used for the purposes of construing this Agreement.

1.4      Obligations undertaken by more than one person are joint and several
         obligations.

1.5      This Agreement may only be varied in writing signed by or on behalf of 
         the parties to it.

1.6      Where the word "today" is used this means the date of this Agreement as
         written above.

1.7      "Superior  Landlord"  means  the  person  who at the  relevant  time is
         entitled to receive the rent under the Superior  Lease and includes the
         person who at the  relevant  time is entitled to receive the rent under
         any lease superior to the Superior Lease.

1.8      "Conditions" means:

1.8.1         The Consent being issued in accordance with clause 9; and

1.8.2         The Court Order being obtained in accordance with clause 10; and

1.8.3         The Tenant procuring for the benefit of the Landlord an opinion of
              Counsel qualified to practice in the State of Delaware  confirming
              that this Agreement and also the Lease when granted have been duly
              and properly executed by the Surety and will be

 
              enforceable against and binding upon the Surety in accordance with
              the  Law of  Delaware  and the  constitution  of the  Surety  Such
              opinion  shall be in a form  reasonably  approved by the  Landlord
              (such  approval not to be  unreasonably  withheld)  and the Tenant
              shall use all reasonable endeavors to procure such an opinion.

1.9      "Completion Date" means five working days after the date upon which all
         of the Conditions have been satisfied.

1.10     Words and expressions used in this Agreement and not defined herein 
         shall bear the same meaning ascribed to them in the Lease.

2.    AGREEMENT FOR LEASE

2.1      Subject to satisfaction of the Conditions and the provisions of this
         Agreement the Landlord will grant and the Tenant and the Surety will
         accept the Lease on the Completion Date.

2.2      If either of the conditions set out in the clause 1.8.1 or 1.8.2 hereof
         have not been satisfied  within three months after today's date then at
         any time afterwards (but not after such conditions have been fulfilled)
         either party (not itself being in breach of its obligations  hereunder)
         may rescind this  Agreement on the terms set out in National  Condition
         10(2) and if the  condition set out in clause 1.8.3 hereof has not been
         satisfied  within  three  months  after  today's  date then at any time
         afterwards  (but not  after  such  condition  has been  satisfied)  the
         Landlord  may rescind  this  Agreement on the terms set out in National
         Condition 10(2).

 
3.    COMPLETION OF THE LEASE

3.1      The  Lease  will  be  completed  before  1 pm on the  Completion  Date.
         Completion  will take place at the  Landlord's  Solicitors'  offices or
         where they reasonably  require.  If the Landlord's  Solicitors agree to
         complete by post it will be at the Tenant's risk.

3.2      Any monies due to the  Landlord  on  completion  will be paid by direct
         credit  transfer  (which  the  Landlord's  Solicitors  must  receive as
         cleared  funds by 1 pm on the day of  completion)  for the  credit of a
         bank account of a London  Clearing  Bank  specified  by the  Landlord's
         Solicitors  or  by  any  other  method  reasonably   requested  by  the
         Landlord's Solicitors.

3.3      The Lease will be prepared in original and counterpart and the original
         will be executed by the Landlord and the  counterpart  will be executed
         by the Tenant and the Surety.  The executed  counterpart  Lease will be
         handed over to the Landlord's Solicitors on completion.

3.4      The provisions of clause 17 shall apply.

4.    VACANT POSSESSION

         Vacant  possession  of the Premises will be given on  satisfaction  of
         the Conditions.

5.    LANDLORD'S TITLE

      Title to the Premises will comprise office copies of the filed plan and
      entries appearing on the Registered Title which the Tenant's Solicitors 
      are authorized to inspect.

6.    MATTERS AFFECTING THE PREMISES

      The Lease will be granted subject to and with the benefit of all and any 
      of the following in existence before the actual time of completion:

 
6.1      the matters contained or referred to in the entries appearing on the 
         Registered Title save for any financial charges;

6.2      all matters capable of registration as Local Land Charges or otherwise 
         whether registered or not;

6.3      all notices served and proposals  requirements or agreements made by or
         (as the case may be) with any  competent  authority  or  arising  under
         statute;

6.4      all matters in the nature of overriding interests as set out in section
         70(1) of the Land Registration Act 1925 as amended; and

6.5      all  matters  disclosed  or which  might  reasonably  be expected to be
         disclosed  by  searches  and  enquiries  made by the  Tenant or which a
         prudent tenant ought to make.

7.    NATIONAL CONDITIONS

      The National Conditions are varied as follows:

7.1      "Working Day" means a day on which Clearing Banks in the City of London
         are (or would be but for a strike, lock-out or other stoppage affecting
         a particular bank or banks generally) open during banking hours.

7.2      National Conditions 5(3) will not apply.

7.3      Proviso (I) to National Condition 5(5) is deleted  and the  following
         is substituted:

         "(i) for the purposes of  conditions  6, 7 and 8 only,  if completion
              takes place  later than 1 pm then the date of actual  completion
              will be deemed to be the next Working Day after the day on which
              completion has taken place".

 
7.4      National Condition 11(5) will not apply.

7.5      National Conditions 15(2), 15(3), 15(4), 21(2) and 21(3) will not
         apply.

7.6      The Landlord will be deemed ready and willing to complete for the 
         purpose of National Condition 22 even though any financial charge still
         affects the Premises at the time of service of a notice.

8.    ACKNOWLEDGEMENTS

     The Tenant confirms that:

8.1      it has inspected the Premises;

8.2      it has not been induced to enter into this  Agreement by or in reliance
         upon any oral or written  statement  by the  Landlord or anyone else on
         its behalf,  except the Landlord's  Solicitors'  written replies to the
         written  enquiries  made by the Tenant's  Solicitors  prior to the date
         hereof; and

8.3      no error or omission will annul the grant of the Lease or entitle the 
         Tenant to compensation; and

8.4      title to the  Premises  has been  deduced  in full  and  copies  of the
         Disclosed  Documents and the Registered Title have been supplied to the
         Tenant's Solicitors. The Tenant will be deemed to accept the Lease with
         full knowledge of the Landlord's  title to the Premises and the matters
         subject to which the Lease is granted and will raise no  objections  or
         requisitions about it.

 
9.   LANDLORD'S CONSENT

9.1      The Landlord  will use all  reasonable  endeavours to obtain the formal
         consent  of the  Superior  Landlord  to the  grant of the  Lease to the
         tenant (the "Consent").

9.2      The Tenant and the Surety will  forthwith  supply any  information  and
         references required by the Superior Landlord and will:

9.2.1         enter into any  reasonable  covenants  with the Superior  Landlord
              which  it may be  entitled  to  require  under  the  terms  of the
              Superior Lease; and

9.2.2         provide  such  reasonable  guarantees  as may be  required  by the
              Superior  Landlord  for the  performance  of the  Tenant's and the
              Surety's obligations under clause 9.2.1.

10.  APPLICATION FOR EXCLUSION ORDER

10.1     Immediately  following  exchange of this Agreement,  the Landlord shall
         lodge an originating  application  signed by the Landlord's  Solicitors
         and the Tenant's  Solicitors with the Mayors & City of London Court and
         the Tenant shall use all  reasonable  endeavours to assist the Landlord
         in obtaining a Court Order  (defined  below) as soon as possible  after
         the date hereof.

10.2     For the purpose of this Agreement,  the expression  "Court Order" shall
         mean an order of the Court under the provisions of section 38(4) of the
         Landlord  and  Tenant  Act 1954 (as  amended by section 5 of the Law of
         Property  Act  1969)   authorizing  the  exclusion  of  sections  24-28
         inclusive of the Landlord and Tenant Act 1954 in relation to the Lease.

 
11.  APPROVAL OF THE TENANT'S WORKS

11.1     The Tenant shall within two weeks after the date of this  Agreement,
         submit to the Landlord for approval plans elevations sections a
         programme and a full specification of the Tenant's Works prepared by
         the Tenant at its own expense.

11.2     The Tenant shall also supply:

11.2.1        such  other information relating to the Tenant's Works as the 
              Landlord's Surveyors may reasonably require; and

11.2.2        copies of all approvals consents permissions and licenses of every
              competent  authority  or other  person  which are  appropriate  to
              enable the Tenant lawfully to carry out the Tenant's Works.

11.3     The  Tenant's  Works  shall  not  subsequently  be varied  without  the
         Landlord's  and the Superior  Landlord's  prior written  approval which
         shall  not on the part of the  Landlord  be  unreasonably  withheld  or
         delayed and, if given, the Tenant's  Approved Drawings shall be amended
         as necessary.

11.4     The Landlord will use all reasonable endeavours to assist the Tenant in
         obtaining  the  consent  of the  Superior  Landlord  and  the  Superior
         Landlord's surveyor to the Tenant's Works.

12.   CARRYING OUT THE TENANT'S WORKS

12.1     After  receiving written confirmation from the Landlord or the
         Landlord's Surveyors that the material submitted under clause 11.1 has
         been  approved by both the Landlord and the  Superior  Landlord  (which
         written  confirmation  may be dealt with by way of a formal 

 
         license for alterations or otherwise), the Tenant shall (but only after
         giving written notice to the Landlord's Surveyors) within four weeks
         (save for force  majeure) start carrying out the Tenant's  Works and 
         shall then proceed  with the Tenant's Works and complete them as
         quickly  as reasonably possible.

12.2     The Tenant's Works shall be carried out:

12.2.1        in accordance with the Tenant's Approved Drawings;

12.2.2        in accordance with the terms of all appropriate approvals consents
              permissions  and licenses and  otherwise  in  compliance  with the
              requirements of all competent authorities;

12.2.3        in compliance with all relevant legislation;

12.2.4        in a good and workmanlike manner and with materials and substances
              which accord with the best current building practice; and

12.2.5        to the reasonable  satisfaction  both of the Landlord's  Surveyors
              and any surveyor appointed by the Superior Landlord.

12.2.6        the Tenant shall pay the reasonable professional fees and expenses
              of the Superior  Landlord in  connection  with the approval of the
              Tenant's  Works  and  all  matters  arising  under  clauses  11-14
              (inclusive) of this  Agreement,  such payment(s) to be made within
              seven days of written demand.

12.3     In the course of carrying out the Tenant's Works, the Tenant shall:

 
12.3.1        as far as shall be reasonably  practicable  not interfere with any
              works  being  carried  out  anywhere  else in the  vicinity of the
              Premises or the Building;

12.3.2        cause  as  little  damage  injury  nuisance  or  inconvenience  as
              possible  to the  Landlord  or other  owner or  occupier  of other
              property in the vicinity of the Premises or the Building;

12.3.3        as far as shall be reasonably practicable not (without the consent
              of the  Landlord)  store  any  materials  machinery  or  equipment
              elsewhere than inside the Premises;

12.3.4        not impede or interfere with the use by anyone else of other 
              property near the Premises;

12.3.5        maintain  such   supports   hoardings  and  coverings  as  may  be
              reasonably  necessary or which either the Landlord's  Surveyors or
              any surveyor  appointed by the  Superior  landlord may  reasonably
              require so as to prevent damage injury nuisance or

              inconvenience arising from the Tenant's Works or to preserve the
              amenities of other property near the Premises;

12.3.6        maintain,  through its  contractor or otherwise,  such  insurances
              with  such  level of cover as the  Landlord  and/or  the  Superior
              Landlord  may approve  (such  approval on the part of the Landlord
              not to be  unreasonably  withheld  or  delayed)  in respect of the
              Tenant's  Works  and all  materials  or  goods  delivered  for the
              purposes of the Tenant's Works, and in respect of all liability of
              the Tenant and the Landlord and the Superior Landlord arising from
              the carrying out of the Tenant's Works;

 
12.3.7        comply  with any lawful and proper  requirements  of the  Superior
              Landlord's  insurers  of the  Premises  which shall be notified in
              writing to the Tenant and pay any increased or other premium which
              those  insurers  may  require  in  respect  of the  Premises,  the
              Building or any other  property as a result of the carrying out of
              the Tenant's Works;

12.3.8        not allow  the  Premises,  or any  hoarding  scaffolding  or other
              materials about the Premises,  to be used for advertising,  except
              for  notices  approved by the  Landlord  such  approval  not to be
              unreasonably withheld or delayed and (to the extent required under
              the terms of the Superior Lease) the Superior Landlord advertising
              the  names  of the  Tenant  and of  its  contractors  or as may be
              required by statute bye-law or other legislation;

12.3.9        comply  with any  reasonably  regulations  made by the  Landlord's
              Surveyors or any surveyor  appointed by the Superior Landlord from
              time to time  governing  the carrying  out of the  Tenant's  Works
              including (but not limited to) permitted times and means of access
              to the Premises and the delivery of materials and equipment which
              may be notified in writing to the Tenant; and

12.3.10       allow the Landlord's contractors access at all reasonable times to
              the Premises for the purpose of carrying out any remedial or other
              works to the Premises or to any other property without liability 
              to compensate the Tenant for any delay or obstruction to the 
              Tenant's Works save that where there shall be any material delay 
              or obstruction to the completion of the Tenant's Works which is
              directly attributable to the Landlord exercising its right of 
              access to the Premises under this clause 12.3.10 the Tenant's 
              liability to pay the rent reserved by the lease shall be postponed
              in the case of the 

 
              First Initial Rent and the Second Initial Rent for such period as
              shall be equal to the length of delay so caused by the Landlord 
              and the period of any such delay shall be agreed between the 
              Landlord and the Tenant or in default of agreement shall be 
              determined by the Expert (as hereinafter defined) in accordance
              with clause 20.

12.3.11       It is anticipated  that works to be carried out by the Landlord at
              the  Building may at least in part be carried out at the same time
              as the Tenant's Works and  accordingly the Landlord and the Tenant
              agree to act reasonably towards each other and to cooperate as far
              as practicable in the  programming  and methods of effecting their
              respective  works and the use of common  areas and  facilities  so
              that such  respective  works can both be carried out as quickly as
              possible and without the works of one party seriously  impeding or
              interfering with the works of the other.

12.4     The Tenant shall fully indemnify the Landlord and the Superior landlord
         against damage claims costs and expenses arising out of:

12.4.1        the state and condition of the premises and/or the Building during
              and after the carrying  out of the  Tenant's  Works as a result of
              the carrying out of the Tenant's Works;

12.4.2        the carrying out of the Tenant's Works;

12.4.3        any entry on, or occupation of, the Premises by the Tenant before
              completion of the Lease; or

12.4.4        any breach of or non-compliance by the Tenant with the terms of 
              this Agreement.

 
12.5     Neither  the  Landlord  nor the  Superior  Landlord  shall be under any
         liability to effect any insurance in relation to the Tenant's Works, or
         any materials,  goods,  machinery or equipment on or about the Premises
         otherwise than under the Lease following its grant.

13.   INSPECTION AND RECTIFICATION OF THE TENANT'S WORKS

13.1     Without  prejudice  to  clause  15.2 or 19,  the  Landlord  and/or  the
         Superior  landlord may at any time until the Landlord's  Surveyors have
         given approval under clause 14.5:

13.1.1        authorise  in writing  any person to enter on the  Premises at any
              time to inspect the Tenant's Works and ascertain that the Tenant's
              obligations under this Agreement are being complied with; and

13.1.2        give  notice to the Tenant  requiring  it to rectify  any  defects
              found in the Tenant's  Works such that the same do not comply with
              this Agreement or would otherwise adversely affect the Building or
              the Premises ("Defects") and to remove and make

              good to their reasonable satisfaction any works carried out by the
              Tenant which do not accord with this Agreement.

13.2     If the  Tenant  fails  to  comply  with  any such  notice  within  such
         reasonable  time as the  Landlord  and/or  the  Superior  Landlord  may
         require,  the Landlord and/or the Superior  Landlord may itself rectify
         the Defects and remove and make good any works which do not accord with
         this  Agreement,  and the cost of doing so will be repaid by the Tenant
         to the  Landlord on demand with  Interest in respect of the period from
         the date that the  incurring  of any such cost shall be notified to the
         Tenant to the date of payment by the Tenant.

 
14.   COMPLETION AND APPROVAL OF THE TENANT'S WORKS

14.1     The Tenant shall use its best endeavours to complete the Tenant's Works
         within ten weeks of receiving  the  confirmation  referred to in clause
         12.1.

14.2     Not later than  completion  of the  Tenant's  Works,  the Tenant  shall
         supply the Landlord and the Superior Landlord with an itemised schedule
         of the cost of the Tenant's  Works for the purposes of the insurance of
         the Premises and the Building.

14.3     The Tenant shall give  written  notice to the Landlord and the Superior
         Landlord as soon as possible after completion of the Tenant's Works.

14.4     The  Landlord's  Surveyors  shall inspect the Tenant's Works within two
         weeks of the notification given by the Tenant in accordance with clause
         14.3 of this Agreement.

14.5     Within two weeks of the  inspection  referred to in clause 14.4 of this
         Agreement the  Landlord's  Surveyors  shall  either  issue  a  written
         approval to that effect (and copies shall be  supplied  to both  the  
         Landlord and (if required) the Superior Landlord and  the Tenant),
         or shall advise the Tenant of any con-compliance  in respect of the
         completion of the Tenant's  Works in which case the provisions of 
         clauses 14.3, 14.4 and 14.5 shall be re-implemented until such time 
         that approval can be given provided that any dispute between the 
         parties shall be governed by the provisions of clause 20 of this 
         Agreement.

14.6     Until such  approval has been issued,  the Tenant shall not be entitled
         to enter on or occupy the Premises for any purpose  other than carrying
         out the Tenant's Works.

 
14.7     Issue  of the  Landlord's  Surveyor's  approval  under  clause  14.5 is
         without prejudice to the Tenant's obligations under this Agreement with
         respect to the carrying out of the Tenant's Works.

15.   STATUS OF TENANT PENDING COMPLETION

         Until completion of Lease:

15.1     any occupation of the Premises by the Tenant shall be as a licensee and
         not a tenant and no  relationship  of landlord  and tenant  shall exist
         between parties; and

15.2     subject  to clause  15.1 the  Tenant  shall  observe  and  perform  the
         Tenant's  covenants and obligations  contained in the Lease (including,
         without  limitation,  those  contained in clause 3.2 thereof) and shall
         (except  where  expressly  varied  by this  Agreement)  be bound by the
         conditions and other  provisions of the Lease as if it has been granted
         on the date of this Agreement.

16.   COMMENCEMENT OF LICENSE FEES

16.1     The  Tenant  shall  pay a  license  fee (or rent if the  Lease has been
         completed)  at the rate of the First  Initial  Rent  reserved by clause
         2.4.1 of the Lease on and from the date which is six  months  after  
         the date of this  Agreement  and at the rate of the Second Initial Rent
         reserved by clause 2.4.1 of the Lease on and from the date which is 
         nine months after the date of this Agreement in both cases at the times
         and in the manner specified in the Lease.

16.2     The Tenant shall with effect from the  Completion  Date or the date the
         Tenant is given  occupation  whichever is earlier pay the sums reserved
         as rent  payable  under the Lease in 

 
         respect of  Insurance  and service charge at the times and in the 
         manner specified in the Lease.

17.   FURTHER PROVISIONS RELATING TO COMPLETION OF THE LEASE

17.1     On the day being five working days after the satisfaction of all of the
         Conditions and (if the Landlord so requires) upon payment by the Tenant
         of any outstanding  sums payable to the Landlord  pursuant to the terms
         of this  Agreement.,  the Lease shall be completed in  accordance  with
         clause 3.

17.2     The following dates shall be completed in the Particulars to the Lease:

17.2.1        the date of the Lease (which shall be the Completion Date); and

17.2.2        the First Rent Commencement Date (which shall be the day being six
              months from the date of this Agreement); and

17.2.3        the Second Rent  Commencement  Date (which  shall be the day being
              nine months from the date of this Agreement); and

17.2.4        the Date of  Commencement  of the Term (which shall be the quarter
              day immediately preceding the date of this Agreement).

17.3     Upon completion of the Lease the Landlord shall pay to the Tenant the 
         sum of(pound)380,000 plus value added tax which sum represents the 
         Landlord's contribution towards (i) the cost to the Tenant of carrying
         out the  Tenant's  Works and (ii) the cost to the Tenant of  performing
         the Tenant's  obligations to reinstate the Premises in accordance  with
         clause 3.28 of the Lease. The Landlord's obligation to pay the value 
         added tax on such sum shall be conditional upon the Tenant delivering 
         to the Landlord (on the Completion Date) a valid value added tax 
         invoice therefor.

18.   VAT

18.1     The Tenant agrees in each case subject to the Landlord delivering to
         the Tenant a valid value added tax invoice therefor:

18.1.1        to pay the Landlord any value added tax chargeable upon any supply
              made  by  the  Landlord  to  the  Tenant  by,  pursuant  to  or in
              connection with this Agreement so that all  consideration  for any
              such supply is exclusive of value added tax;

18.1.2        to pay and to indemnify  the Landlord  against any value added tax
              chargeable  upon any supply  (whether made to the Landlord or to a
              third  person)  where  pursuant  to this  Agreement  the Tenant is
              required to pay the  Landlord any sum in respect of any costs fees
              expenses or other expenditure or liability (of whatever nature) in
              connection with that supply; and

18.1.3        to pay all such value added tax at the same time that the relevant
              sum of money or  consideration  is payable to or receivable by the
              Landlord or (if  earlier  and in relation to supplies  made by the
              Landlord  to the Tenant) at the time that the supply is treated as
              taking place for the purposes of the charge to value added tax.

18.2     The Landlord retains absolute  discretion (save in the case of manifest
         error) (so far as  permitted  by law) as to whether  any supply made by
         the Landlord to the Tenant is or is to be an exempt supply or a taxable
         supply for the purposes of value added tax.

 
19.   DEFAULT OF THE TENANT

19.1     Without  prejudice to any other rights and remedies  which the Landlord
         may have for breach of this Agreement,  the Landlord may determine this
         Agreement  and resume sole  occupation of the Premises to the exclusion
         of the Tenant if:

19.1.1        the Tenant fails to begin  carrying out the Tenant's  Works within
              four weeks of the date of this  Agreement  or (unless such failure
              shall not be due to the fault of the Tenant) the date of obtaining
              the  Landlord's and Superior  Landlord's  license for the Tenant's
              Works and the Consent at clause 9 whichever shall be the later;

19.1.2        the Tenant  fails to pay any license fees or other sums payable to
              the Landlord  under this Agreement  within  fourteen days of their
              becoming due in the case of license fees and after written  demand
              in the case of all other sums;

19.1.3        any execution or distress is levied upon any asset of the Tenant 
              at the Premises and is not discharged within seven days;

19.1.4        the  Tenant  or  the  Surety  enters  into   liquidation   whether
              compulsory or voluntary (not being merely a voluntary  liquidation
              whilst  solvent  for  the  purpose  of  reconstruction)  or  has a
              receiver or administrator or administrative  receiver appointed of
              all or any assets (or any application for such appointment is 
              made) or, in the case of the Surety, any analogous process in the 
              United States or elsewhere;

19.1.5        the Tenant fails to complete the Tenant's  Works by the date being
              twelve  weeks  from the date of this  Agreement  or  (unless  such
              failure  shall not be due to the fault of the  Tenant) the date of
              obtaining the Landlord's and Superior  Landlord's  license for the
              Tenant's Works and the Consent at clause 9 whichever  shall be the
              later;

 
19.1.6        the Tenant  otherwise at any time  breaches  any material  term of
              this  Agreement  and fails to remedy such breach  within  fourteen
              days of  receiving  written  notification  of the  same  from  the
              Landlord.

19.2     If this Agreement is determined under clause 19.1:

19.2.1        the Tenant  shall pay to the Landlord  all  reasonable  and proper
              costs and expenses  incurred by the Landlord in, and to the extent
              the Landlord  may require,  either  removing and  dismantling  the
              Tenant's  Works and  reinstating  the Premises,  or completing the
              Tenant's Works in circumstances  where the Tenant has failed to do
              so within two weeks of receiving written  notification to do so by
              the Landlord.

19.2.2        the Tenant shall indemnify the Landlord  against all  professional
              and other costs and expenses  arising out of the  determination of
              this Agreement;

19.2.3        any wholly or  partially  completed  Tenant's  Works and any other
              materials  plant and  equipment at the  Premises  belonging to the
              Tenant  shall be  removed  by the  Tenant  at the  request  of the
              Landlord and any not so removed within two weeks of such request

              shall become the property of the Landlord without any compensation
              being payable to the Tenant; and

19.2.4        the Tenant shall  indemnify  the Landlord in respect of any charge
              to tax or any other levy charge or duty or the loss or withholding
              of any relief or credit in respect of any tax levy  charge or duty
              arising  out  of or  resulting  from  the  Tenant's  Works or the

 
              provisions of this  Agreement  save in relation to the VAT payable
              in accordance with the provisions of clause 17.3 hereof.

20.   ARBITRATION

20.1     Any dispute or  difference  which  arises  between the Landlord and the
         Tenant as to the carrying  out of the Tenant's  Works shall be referred
         to the  decision  of any  expert if either the  Landlord  or the Tenant
         gives notice to the other  requiring  determination  of such dispute or
         difference.

20.2     Such notice may be given in writing not earlier than one week after the
         dispute or difference arose.

20.3     The expert("Expert") in the case of any matter relating to building
         obligations shall be CCM Smith of Fuller Horsey and Wills, 52 Bow Lane,
         London EC4M 9ET but in any other case shall be  appointed  by agreement
         between the parties or (in default of agreement) on the  application of
         either the Landlord or the Tenant by the  President  for the time being
         of the Royal Institution of Chartered Surveyors.

20.4     The  Expert  shall  invite the  parties  to submit to him  within  such
         reasonable  time limits as he may direct  (having regard to the urgency
         of the matter) such written representations
         concerning   the  dispute  or   difference  in  question  as  they  may
         respectively wish and the Expert shall have such regard (if any) to any
         such representations as he shall consider appropriate.

20.5     The Expert shall determine the matter in dispute with the utmost speed 
         and his decision shall be final and binding on the parties hereto.

 
20.6     The fees and expenses of the Expert including the cost of his 
         appointment shall be in the award of the Expert.

20.7     The Expert shall give to each of the Landlord and the Tenant a notice 
         in writing stating the results of his determination pursuant to 
         clause 20.5.

21.   NON ASSIGNMENT

     Subject to the provisions of clause 27.4  below, the Tenant will not be
     entitled  to assign charge or deal in any way with the benefit of this
     Agreement and the Landlord  will only grant the Lease of the Premises as a
     whole to the Tenant named in this Agreement.

22.   GUARANTEE

     In  consideration  of the Landlord  entering into this  Agreement  with the
     Tenant, the Surety, as a primary obligation:

22.1     guarantees to the Landlord  that the Tenant will  promptly  comply with
         its obligations under this Agreement, and

22.2     will  indemnify  the  Landlord  against  all losses  damages  costs and
         expenses  arising as a result of any default by the Tenant in complying
         with the terms of this Agreement; and

22.3     agrees that no time or indulgence granted to the Tenant by the Landlord
         nor any variation of the terms of this Agreement nor any other thing by
         virtue of which  but for this  provision  the  Surety  would  have been
         released save for the formal release of the Surety by the Landlord will
         in any way release the  obligations of the Surety to the Landlord under
         this clause; and

22.4     agrees to execute the counterpart Lease in accordance with clause 3.3.

 
23.   NO PUBLICITY

     Except  insofar as  required to comply  with Stock  Exchange  or  statutory
     requirements:

23.1     The terms and  conditions of this Agreement will not be released by any
         party to the press or any  periodical  journal  nor will any party make
         any public  announcement  about it without the prior written consent of
         all the other parties.

23.2     Each party will treat this Agreement as  confidential  to it and to its
         advisers  bankers and  (subject to clause  23.3  below)  other  parties
         involved in the grant of the Lease.

23.3     The provisions of clause 27 hereof shall remain confidential to the 
         parties hereto and their respective professional advisors.

24.   JURISDICTION

     The proper law of this Agreement and the  jurisdiction to which the parties
     are subject is that of England and the Tenant and the Surety agree that the
     office of the Tenant's  Solicitors  is an effective  address for service of
     any notices to be served upon either of them under this  Agreement  and any
     proceedings commenced in the English Courts.

25.   NON-MERGER

     The  provisions  of this  Agreement  will  remain in full  force and effect
     (notwithstanding completion of the Lease) to the extent that they remain to
     be observed and performed.

26.   NOTICES

26.1     Any demand or notice to be served on the  Landlord or the Tenant or the
         Surety under this Agreement will be validly served if sent by fax or by
         first class post addressed to that party's solicitors.

 
26.2     Any demand or notice sent by post will be conclusively treated as 
         having been served forty-eight (48) hours after posting.

26.3     The provisions for postal service set out above are not to prevent any
         other effective form of service.

27.   RENTAL REBATE

27.1     With  effect  from the date upon which the First  Initial  Rent and the
         Second  Initial  Rent  become  payable or grant of the Lease  whichever
         shall be the  later  and  conditional  upon the  Tenant  paying  to the
         Landlord  the  Rents and other  sums  reserved  by the Lease on the due
         dates therein  provided,  the Landlord  agrees to pay to the Tenant the
         following amounts:

27.1.1        For the  period  commencing  from and  including  the  First  Rent
              Commencement Date up to and including the day immediately prior to
              the   Second   Rent   Commencement   Date,   the   annual  sum  of
              (pound)151,545.60 plus value added tax thereon.

27.1.2        For the period  commencing  from and  including  the  Second  Rent
              Commencement   Date  up  to  and  including  the  day  immediately
              preceding   the   Rent   Review   Date,    the   annual   sum   of
              (pound)193,603.60 plus value added tax thereon.

27.1.3        For the period  commencing from and including the Rent Review Date
              up  to  and   including   1  June   2002,   the   annual   sum  of
              (pound)193,603.60  plus value added tax thereon plus the amount by
              which the annual  rent  amount  (being  the rent  served by clause
              2.4.1 of the  Lease)  which the Tenant is  required  to pay to the
              Landlord  under  

 
              and by  virtue of the  provisions  of the  Second Schedule to the
              Lease exceeds (pound)1,006,305.60 plus value added tax on such 
              excess.

27.2     The amounts  payable by the  Landlord to the Tenant  pursuant to clause
         27.1  above  shall be paid by equal  quarterly  payments  within  three
         working  days of the date of receipt by the  Landlord of cleared  funds
         from the Tenant of the full rents due from the Tenant  under clause 2.4
         of the  Lease  and to the  extent  that any  payments  are due from the
         Landlord  to the Tenant  under  clause  27.1 in  relation to any period
         which is shorter than a quarter, the Landlord shall only be required to
         pay the proportionate amount.

27.3     For the avoidance of doubt:

27.3.1        The  Tenant  agrees to pay in full all  Rents  and other  sums due
              under  the Lease on the due dates  for  payment  therein  provided
              without any legal or equitable set off or deduction whatsoever.

27.3.2        The  Landlord  agrees to pay in full the amounts set out in clause
              27.1 hereof on the due dates for payment therein  provided without
              any legal or equitable set off or deduction whatsoever.

27.4     In the  event  that the Rent (or a fair and just  proportion  of it) is
         suspended in  accordance  with clause 5.2 of the Lease then the amounts
         payable by the  Landlord  to the Tenant  pursuant  to clause 27.1 above
         shall be  suspended in the same  proportion  and for the same period of
         time.

27.5     If the Tenant assigns the Lease to a third party in accordance with the
         provisions  of clause  3.17 of the  Lease,  the  Tenant  may assign the
         benefit of the  Landlord's  obligations  

 
         under  this  clause 27 to such assignee  provided that written notice 
         of such assignment is forthwith given to the Landlord.

27.6     The provisions of this clause 27 shall not be binding upon the 
         Landlord's successors in title.

28.  RIGHT OF FIRST REFUSAL AND OPTION TO LEASE IN RELATION TO SIXTH AND 
     SEVENTH FLOORS

28.1     The Landlord shall not grant a lease of the sixth and seventh floors of
         the Building  (the  "Additional  Premises")  to a third party before 17
         March 1998 without first giving  notice to the Tenant (the  "Landlord's
         Notice") of the terms which have been agreed  between the  Landlord and
         the third party  including any terms  relating to a rent rebate whether
         or not  similar  to that set out in  clause 27 of this  Agreement  (the
         "Rent Rebate").

28.2     Upon receipt of the Landlord's Notice the Tenant may (not later than 14
         days after  receipt of it) give  written  notice to the  Landlord  (the
         "Tenant's  Notice")  that the Tenant  and the Surety  wish to take up a
         lease of the Additional Premises and enter into an Agreement containing
         provisions relating to the Rent Rebate (the "Supplemental Deed").


28.3     Subject to clause 28.7 the Landlord  hereby grants the Tenant an option
         (the "Option") to take a lease of the Additional  Premises.  The Tenant
         may  exercise  the Option by written  notice to the  Landlord not later
         than 17 March 1998.

 
28.4     In the event that the Landlord  shall  receive the  Tenant's  Notice or
         notice of the exercise of the Option and provided that the Tenant shall
         at the date of the Tenant's  Notice or of the notice of exercise of the
         Option  and  thereafter  until  the grant of the  Additional  Lease (as
         hereinafter  defined)  have paid the Rent and performed and observed in
         all material respects the covenants contained in the Lease the Landlord
         (but subject to clause 28.5 hereof)  shall grant and the Tenant and the
         Surety shall take a lease of the Additional  Premises (the  "Additional
         Lease") upon the following terms:

28.4.1        The   Additional   Premises  shall  comprise  the  lettable  space
              (excluding  common areas)  situate on the sixth and seventh floors
              of the  Building  together  with the  right to use 20 car  parking
              spaces as shall be allocated by the Landlord.

28.4.2        The Additional Lease shall be for a term commencing on the date of
              its grant and expiring on 16 March 2004.

28.4.3.       The net  annual  rent  payable  by the  Tenant in  respect  of the
              Additional  Premises after allowing for the Rebate  referred to in
              clause 28.4.6 shall be:

              (a)    in the event that the Additional  Lease is granted pursuant
                     to receipt of the Tenant's Notice the rent contained in the
                     Landlord's Notice; or

              (b)    in the event the  Additional  Lease is granted  pursuant to
                     exercise  of the Option  the higher of (1) the Open  Market
                     Rent (as defined in the Second Schedule to the Lease but as
                     if reference therein to the Demised Premises were reference
                     to the  Additional  Premises) as at the date of exercise of
                     the Option and (2) rent at the rate of (pound)22 per square
                     foot net internal.

 
              the first proportionate payment being due on the date of the grant
              of the Additional Lease and thereafter on the usual quarter days.

28.4.4        The  Additional  Lease  shall  be in the  same  form as the  Lease
              subject to the modifications set out in clause 28.10 below.

28.4.5        The annual rent to be reserved in clause  2.4.1 of the  Additional
              Lease  shall be  (pound)339,590  being the part of the annual rent
              payable   pursuant   to  the   Superior   Lease  which  is  fairly
              attributable to the Additional Premises.

28.4.6        The  Landlord  the  Tenant  and  the  Surety  shall  enter  into a
              Supplemental  Deed pursuant to which the Landlord  shall rebate to
              the  Tenant  the  amount  (if any) by which the rent  reserved  in
              clause 2.4.1 of the Additional  Lease (in  accordance  with clause
              28.4.5 hereof)  exceeds the amount payable by the Tenant  pursuant
              to clause 28.4.3 hereof such deed to be in the same terms (and for
              the avoidance of doubt the  obligation to pay the rebate to expire
              on the same date)(mutatis mutandis) as the provisions of clause 27
              hereof.

28.5     The grant of the Additional Lease shall be conditional upon the 
         following:

28.5.1        obtaining the consent of the Superior Landlord to the grant of the
              Additional  Lease (and the  provisions  of clauses  9.1 and 9.2 of
              this  Agreement  shall be deemed to apply to the obtaining of such
              consent  mutatis  mutandis and the Tenant shall pay the Landlord's
              and  the  Superior  Landlord's  reasonable  and  proper  costs  in
              connection with the application for such consent);

 
28.5.2        obtaining  an Order of the Court under the  provisions  of section
              38(4) of the Landlord and Tenant Act 1954 (as amended by section 5
              of the Law of Property  Act 1969)  authorizing  the  exclusion  of
              sections 24-28  (inclusive) of the Landlord and Tenant Act 1954 in
              relation to the  Additional  Lease and the parties shall apply for
              such Order forthwith  following the receipt of the Tenant's Notice
              or the exercise of the Option

28.5.3        The Tenant procuring for the benefit of the Landlord an opinion of
              Counsel qualified to practice in the State of Delaware  confirming
              that the agreement for the Additional

 
              Lease and also the  Additional Lease when granted have been duly 
              and properly executed by the Surety and will be enforceable 
              against and binding upon the Surety in accordance with the Law of 
              Delaware and the constitution of the Surety. Such opinion shall be
              in a form reasonably approved by the Landlord (such approval not
              to be unreasonably withheld).

         and the parties hereto agree to use all reasonable endeavours to 
         satisfy the above conditions.

28.6     The completion of the grant of the Additional Lease (the "Additional 
         Lease Completion Date") shall be:

28.6.1        in the event that the Additional  Lease is to be granted  pursuant
              to  receipt  of the  Tenant's  Notice 14 days  after the date upon
              which the  conditions  specified  in clause  28.5  above have been
              satisfied  provided  that if within  one month of  receipt  of the
              Tenant's Notice (time being of the essence) either such conditions
              shall not have been  satisfied or the  Additional  Lease shall not
              have been granted  then the  Landlord  (not being in breach of it
              obligations  under this  Agreement)  shall be  entitled to 

 
               proceed  with the  grant of a lease  to the  third  party on 
               terms no less  beneficial to the lessee than those set out in the
               Landlord's Notice; or

28.6.2        in the event that the Additional  Lease is to be granted  pursuant
              to the  exercise  of the Option five  working  days after the date
              upon which the conditions specified in clause 28.5 above have been
              satisfied provided that if within two months of the date of notice
              of exercise of the Option (time being of the essence)  either such
              conditions  shall not have been satisfied or the Additional  Lease
              shall not have been granted then either party (not being in breach
              of its obligations under this Agreement) shall be
              entitled to terminate this Agreement in respect of the grant of 
              their claim by either party against the other.

28.7     In the event that the  Landlord  shall grant a lease to the third party
         in accordance  with the  provisions of this  Agreement  then the Option
         shall cease to have any further force or effect.

28.8     The following  provisions of this Agreement  shall apply in relation to
         the  grant of the  Additional  Lease  and  shall be  construed  as if a
         reference  therein to the "Lease" the  "Premises"  and the  "Completion
         Date"  were  reference  to  the  "Additional   Lease"  the  "Additional
         Premises" and the "Additional Lease Completion Date".

              Clauses 3.1, 3.2, 3.3, 4, 6, 7, 8, 18, 19.1.4, 21, 22, 23, 24, 25,
26.

28.9     The Tenant shall accept the Landlord's title as deduced prior to the 
         date of this Agreement.

 
28.10    The Additional Lease shall be in the same form as the Lease but subject
         to the following modifications:

28.10.1       The Demised  Premises  shall be deemed to refer to the  Additional
              Premises and the Lease shall be amended as  appropriate to reflect
              this.

28.10.2       The Date of  Commencement  of Term shall be the date of the grant
              of the Additional Lease.

28.10.3       Reference  to "First  Rent  Commencement  Date" and  "Second  Rent
              Commencement  Date" shall each be replaced  with  reference to the
              "Rent  Commencement  Date"  and this  date will be the date of the
              Additional Lease.

28.10.4       If the Additional Lease is granted pursuant to the exercise of the
              Option but if the  Landlord  and the Tenant shall have been unable
              to agree the Open  Market  Rent  prior to the date of the grant of
              the Additional Lease, then the Rent Review Dates shall be the date
              of the grant of the Additional  Lease and 17 March 1999 but if the
              Landlord  and the Tenant have agreed the Open Market Rent prior to
              the grant of the Additional  Lease then the Rent Review Date shall
              be 17 March 1999.

28.10.5       The "On Account Payment" (in respect of service charge) shall be 
              the sum of(pound)70,000 per annum.

28.10.6       Reference to the First Initial Rent and the Second Initial Rent to
              be replaced with reference to the Initial Rent.

 
28.11    In the event that the Tenant decides at any time that if does not wish
         to exercise the Option then the Tenant shall in good faith give written
         notice to the Landlord to that effect and shall irrevocably abandon the
         Option whereupon the provisions of clause 28.3 shall cease to have 
         effect.

28.12    The  Landlord the Tenant and the Surety  shall  execute a  supplemental
         deed upon the grant of the Additional Lease to the effect that:

28.12.1       if the Lease shall  determine  other than by the effluxion of time
              prior to the grant of the Additional  Lease then the provisions of
              this clause 28 and any  contract  created  pursuant to this clause
              shall be null and void and cease to have effect;

28.12.2       if either of the Lease or the  Additional  Lease is  forfeited  or
              terminated then this will  automatically  result in the forfeiture
              or termination of the other; and

28.12.3       neither the Lease or the Additional  Lease may be assigned without
              the concurrent assignment of the other to the same assignee.

29.   LANDLORD'S WORKS TO CREATE OFFICE ON GROUND FLOOR

29.1     Within  four weeks of the  Completion  Date  subject  to all  necessary
         consents  having  been  obtained  (which  the  Landlord  shall  use all
         reasonable  endeavours  to apply for and obtain) the Landlord  shall at
         its  sole  cost  and  expense  construct  (on the  ground  floor of the
         Building)  a new self  contained  office  (to form  part of the  Common
         Parts) in the position  shown for  identification  purposes  only edged
         blue on the plan attached to this Agreement for the purposes of housing
         security,  engineering  and other  maintenance  staff  employed  by the
         Landlord at the Building (the "Landlord Works").

 
29.2     The  Landlord  shall  in  carrying  out  such  works  cause  at  little
         inconvenience  disruption and disturbance as reasonably possible to the
         carrying out of the Tenant's Works and the least  practicable  delay in
         completion of the Tenant's Works  attributable to the Landlord's  works
         shall not entitle the Landlord to implement the provisions of clause 19
         of this Agreement.


IN WITNESS,  whereof this Agreement has been executed as a deed the day and year
first above written.

 
                           Diagram of Leased Premises

 
                                   -SCHEDULE 1

                               Disclosed Documents

1. Date               Document                     Parties

   17 March 1989      Superior Lease (as the       Markheath Properties (1)
                      same is registered under     and Ultramar Exploration
                      Title Number AGL 8895)       Ltd (2) and Ultramar PLC (3)

2. Matter disclosed in the registers of Title Number AGL8895.

 
                                   SCHEDULE 2


                                 Tenant's Works


1.    GENERALLY

1.1      The works described are to the Ground to Fourth Floor office areas and
         do not include common part or lift lobbies.

1.2      The existing  common parts (stairs,  lobbies,  toilets,  etc) are to be
         refurbished under a separate contract.

1.3      One existing lift will be available for  transporting  men and material
         (large items will need to be carried up or down the stairs).

1.4      Space will be  provided in  the rear car park for material  storage and
         rubbish
containers.

1.5 All labour must adhere to the strict  security  arrangements in place on the
site.


2.    PARTITIONS (WORKS TO BE CARRIED OUT BY UNILOCK)

2.1 Dismantle existing partitions and move surplus materials to store.

2.2      Re-erect existing partitions to new layout,  replacing plasterboard and
         other   components  as  necessary,   make  good  and  leave  ready  for
         decorations (by others).

2.3      Provide and fit new glazed partitions, as new layout. Glazed partitions
         to be formed  with two  panes of safety  glass  with  void  between  as
         existing.  Re-use existing components wherever possible.  Generally the
         glazed  partitions  will not require the  insertion of venetian  blinds
         other than to  directors  offices from Ground to Third Floor and Fourth
         Floor  East,  and all  offices to Fourth  Floor  West.  Allow to re-use
         existing  blinds  generally  but for the supply of new blinds to Fourth
         Floor West.

2.4      All solid partitions are to have acoustic quilt inserted in the void.

2.5      The existing doors and  ironmongery are to be re-used in the new layout
         (allow for new  ironmongery  to match existing and ply faced doors with
         vision panels,  where necessary).  Ironmongery shall only be re-used if
         it is fit for its  purpose.  Unilock will enter into a warranty for the
         whole of this section of the works including those materials re-used.

2.6      Wash down existing partition components and wall storage units prior to
         completion.

 
3.    SUSPENDED CEILINGS

3.1      Repair ceilings as necessary Ground to Third Floors.

3.2      Clean existing ceiling where retained.

3.3      Remove existing ceiling to Fourth Floor.

3.4      Provide and fit new 600 x 600 Armstrong Dune Plus ceiling tiles on 
         exposed 15mm Armstrong White grid to Fourth Floor

3.5      Adjust existing ceiling suspension grid and tiles to accept 600 x 600m
         light fittings as required.



4.    LIGHTING

4.1      Remove existing lights and provide and fit new 600 x 600mm category two
         lighting to ground and First  Floors to provide 450 Lux at desk height.
         Confirm number of fittings included in Tender Sum.

4.2      Re-use low voltage lights (elsewhere throughout the building) to Fourth
         Floor corridor (East and West), boardroom and reception areas.

4.3      All other areas to retain  existing  fittings,  supplement as necessary
         from ground and First Floors to provide 450 Lux at desk  height.  Clean
         etc.

4.4      Adjust switching to all lights to suit new partition layouts.

4.5  Ensure   Master   switching  at  exit  points  is  till   effective   after
re-configuration.



5.    FLOOR COVERINGS

5.1 The existing raised floor is generally to be retained.

5.2 Floor boxes may be moved to new positions to suit layout. (By others).

5.3      Remove existing carpet tiles throughout.

5.4      Provide and lay carpet tiles (allow p.c. sum of(pound)200.00/m2 - 
         supply only) to all office areas.

5.5      Provide and lay vinyl  flooring  with welded joints to tea stations and
         dining area (vinyl to be laid on 4mm ply  sub-base.  Allow p.c.  sum of
         (pound)200.00/m2 - supply only).

 
5.6      Provide and lay Altro D25 flooring  with welded  joints to shower areas
         including all preparation/boarding necessary.

5.7      Provide silicone sealant to perimeter of all vinyl flooring.



6.    DECORATIONS

6.1      Remove existing wall covering to under cill panels and isolated 
         columns, prepare and make good as necessary.

6.2      Emulsion plasterboard panels to partitions.

6.3      Emulsion chipboard under cill panels.

6.4      Emulsion plaster isolated columns.

6.5      Paint with oil paint all existing timber  skirtings,  framings to under
         cill  panels,  cills and  doors,  include  any timer  door  frames  and
         architraves.



7.    MECHANICAL SERVICES

7.1      reconfigure  controls and wiring to  Versatemp  units to conform to new
         partition  layouts  (minimum  of one  control  per room - more than one
         would be acceptable).

7.2      Check units are working and report any faults.

7.3      Relocate fresh air inlets/grilles to suit new layout.

7.4      Provide hot and  cold  water  supplies, and waste disposal drainage, to
         new tea stations.

7.5      Should the Tenant construct a partition over a Versatemp until then the
         Tenant will ensure  that the casing and the grill of the  partition  is
         adapted to permit the Landlord or his agents or  contractors  access to
         the Versatemp unit in order to carry out maintenance repair removal and
         replacement  of the  Versatemp  unit and the Tenant shall  restrict the
         airflow to the area containing the control if necessary.



8.    CANTEEN

      Remove remaining canteen equipment, floor coverings, wall finishes etc.

 
9.    NEW TEA STATIONS

9.1      Install new Tea  Station  with  kitchen  units,  worktops  etc. In each
         station allow for the  installation of two wall units,  two base units,
         worktops,  sink (taps and waste). Allow a p.c. sum of (pound)800.00 per
         station for the supply of these items.

9.2      Install ceramic tiles splashbacks above all worktops 300mm high.  Allow
         a p.c. sum of(pound)30.00/m2 for the supply only tiles.

9.3      Provide silicone sealant to worktop/tiles, sinks, flooring, etc.



10.   WINDOW BLINDS

10.1     Generally retain existing venetian blinds Ground to Third Floors.

10.2     Check blinds are in good working order,overhaul as necessary and clean.

10.3     Remove any existing roller blinds to North Elevation (all floors).

10.4     Provide and fit new venetian blinds to North Elevation  Ground to Third
         Floors (re-use  existing  blinds from Fourth Floor and First Floor West
         where possible).

10.5     Provide and fit new venetian blinds to all Elevations  Fourth Floor and
         First  Floor  West and First  Floor  West  (25mm  blades - colour to be
         selected).



EXECUTED as a DEED by the                   )
Landlord in the presence of:                )

                                            Director

                                            Director/Secretary

EX-21

                                                                      EXHIBIT-21

                                   EXHIBIT 21

                           SUBSIDIARIES OF ACC CORP.


                                           State, Province or Country of
Name                                       Incorporation

ACC Credit Corp.                           Delaware              
ACC Global Corp.                           Delaware
ACC Local Fiber Corp.                      New York
ACC Long Distance Corp.                    New York
ACC Long Distance Corp.*                   Delaware
ACC Long Distance of Connecticut Corp.*    Delaware
ACC Long Distance of Georgia Corp.*        Delaware
ACC Long Distance of Illinois Corp.        Delaware
ACC Long Distance of Maine Corp.*          Delaware
ACC Long Distance of Massachusetts Corp.*  Delaware
ACC Long Distance of New Hampshire Corp.*  Delaware
ACC Long Distance of Ohio Corp.            Delaware
ACC Long Distance of Pennsylvania Corp.    Delaware
ACC Long Distance of Rhode Island Corp.*   Delaware
ACC Long Distance of Vermont Corp.*        Delaware
ACC Long Distance UK Ltd.                  United Kingdom   
United Telecom Ltd. **                     United Kingdom
Transphone International Ltd. **           United Kingdom
ACC Long Distance Sales Corp.*             Delaware
ACC National Long Distance Corp.           Delaware
ACC National Telecom Corp.                 Delaware
ACC Network Corp.                          New York
ACC Radio Corp.                            New York
ACC Service Corp.                          Delaware
ACC Telecommunikation Gmb H.               Germany
ACC TelEnterprises Ltd.                    Ontario, Canada
Danbury Cellular Telephone Co.             Connecticut
ACC Long Distance France S.A.R.L.          France
ACC Long Distance of Australia PTY Ltd.    Australia
ACC Cellular Corp.                         Delaware
ACC Denmark A/S                            Denmark
Cel Tel Corp.                              Delaware
United Bluegrass Cellular Corp.            Delaware
Network Consultants                        New York
Vista International Communications         New Jersey
- -------------------------------
*       A subsidiary of ACC National Long Distance Corp.
**      Subsidiary of ACC Long Distance UK Ltd.

EX-23

 
                                                                      EXHIBIT-23


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements No. 333-01219, No. 33-30817, No. 33-36546, No. 33-52174,
No. 33-87056, No. 33-75558, No. 333-06831, No. 333-06833, No. 333-12295, 
No. 333-29405 and No. 333-30255.

                                                    /s/  Arthur Andersen LLP

Rochester, New York,
 March 25, 1998

EX-27.1

 


 
<ARTICLE> 5
<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               DEC-31-1997
<CASH>                                           3,988
<SECURITIES>                                         0
<RECEIVABLES>                                   82,200
<ALLOWANCES>                                     5,291
<INVENTORY>                                        733
<CURRENT-ASSETS>                                92,347
<PP&E>                                         189,249
<DEPRECIATION>                                  53,523
<TOTAL-ASSETS>                                 319,618
<CURRENT-LIABILITIES>                           89,793
<BONDS>                                         90,221
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           275
<OTHER-SE>                                     137,441
<TOTAL-LIABILITY-AND-EQUITY>                   319,618
<SALES>                                        327,490
<TOTAL-REVENUES>                               372,613
<CGS>                                          218,361
<TOTAL-COSTS>                                  134,739
<OTHER-EXPENSES>                                 4,970
<LOSS-PROVISION>                                 3,810
<INTEREST-EXPENSE>                               3,514
<INCOME-PRETAX>                                 10,867
<INCOME-TAX>                                       476
<INCOME-CONTINUING>                             10,391
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    10,391
<EPS-PRIMARY>                                     0.62
<EPS-DILUTED>                                     0.59

<F1>add back allowance
<F2>gross
<F3>long-term debt
<F4>tolls only
<F5>network costs
<F6>total operating expenses
<F7>merger costs
<F8>bad debt expense
<F9>net

        

 

EX-27.2

 


 
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                              JAN-1-1995
<PERIOD-END>                               DEC-31-1995
<CASH>                                             518
<SECURITIES>                                         0
<RECEIVABLES>                                   41,063
<ALLOWANCES>                                     2,085
<INVENTORY>                                        292
<CURRENT-ASSETS>                                45,726
<PP&E>                                          83,623
<DEPRECIATION>                                  26,932
<TOTAL-ASSETS>                                 123,984
<CURRENT-LIABILITIES>                           56,074
<BONDS>                                         28,050
<COMMON>                                           129
<PREFERRED-MANDATORY>                            9,448
<PREFERRED>                                          0
<OTHER-SE>                                      26,278
<TOTAL-LIABILITY-AND-EQUITY>                   123,984
<SALES>                                        175,269
<TOTAL-REVENUES>                               188,866
<CGS>                                          114,841
<TOTAL-COSTS>                                   73,807
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                 3,284
<INTEREST-EXPENSE>                               4,933
<INCOME-PRETAX>                                (4,825)
<INCOME-TAX>                                       396
<INCOME-CONTINUING>                            (5,354)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (5,354)
<EPS-PRIMARY>                                   (0.52)
<EPS-DILUTED>                                   (0.52)
         

 

EX-27.3

 


 
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                                    3-MOS
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               MAR-31-1996
<CASH>                                           1,389
<SECURITIES>                                         0
<RECEIVABLES>                                   44,158
<ALLOWANCES>                                     2,700
<INVENTORY>                                        417
<CURRENT-ASSETS>                                47,883
<PP&E>                                          88,946
<DEPRECIATION>                                  29,376
<TOTAL-ASSETS>                                 128,750
<CURRENT-LIABILITIES>                           53,833
<BONDS>                                         31,719
<PREFERRED-MANDATORY>                            9,956
<PREFERRED>                                          0
<COMMON>                                           132
<OTHER-SE>                                      29,053
<TOTAL-LIABILITY-AND-EQUITY>                   128,750
<SALES>                                         61,538
<TOTAL-REVENUES>                                66,855
<CGS>                                           41,608
<TOTAL-COSTS>                                   22,256
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                 1,212
<INTEREST-EXPENSE>                               1,524
<INCOME-PRETAX>                                  1,479
<INCOME-TAX>                                       324
<INCOME-CONTINUING>                                856
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                       856
<EPS-PRIMARY>                                     0.03
<EPS-DILUTED>                                     0.03
         

 

EX-27.4

 


 
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                                    6-MOS
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               JUN-30-1996
<CASH>                                          30,380
<SECURITIES>                                         0
<RECEIVABLES>                                   54,156
<ALLOWANCES>                                     3,648
<INVENTORY>                                        431
<CURRENT-ASSETS>                                85,804
<PP&E>                                          93,191
<DEPRECIATION>                                  32,180
<TOTAL-ASSETS>                                 171,351
<CURRENT-LIABILITIES>                           56,423
<BONDS>                                          5,948
<PREFERRED-MANDATORY>                           10,710
<PREFERRED>                                          0
<COMMON>                                           245
<OTHER-SE>                                      93,523
<TOTAL-LIABILITY-AND-EQUITY>                   171,351
<SALES>                                        136,137
<TOTAL-REVENUES>                               146,942
<CGS>                                           94,988
<TOTAL-COSTS>                                   45,784
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                 2,711
<INTEREST-EXPENSE>                               2,434
<INCOME-PRETAX>                                  3,762
<INCOME-TAX>                                       853
<INCOME-CONTINUING>                              2,313
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     2,313
<EPS-PRIMARY>                                     0.08
<EPS-DILUTED>                                     0.08
         

 

EX-27.5

 


 
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               SEP-30-1996
<CASH>                                          23,122
<SECURITIES>                                         0
<RECEIVABLES>                                   57,216
<ALLOWANCES>                                     3,889
<INVENTORY>                                        392
<CURRENT-ASSETS>                                82,566
<PP&E>                                          98,686
<DEPRECIATION>                                  35,121
<TOTAL-ASSETS>                                 173,066
<CURRENT-LIABILITIES>                           52,323
<BONDS>                                          6,884
<PREFERRED-MANDATORY>                           11,929
<PREFERRED>                                          0
<COMMON>                                           247
<OTHER-SE>                                      96,217
<TOTAL-LIABILITY-AND-EQUITY>                   173,066
<SALES>                                        206,362
<TOTAL-REVENUES>                               224,227
<CGS>                                          143,803
<TOTAL-COSTS>                                   58,977
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                 3,901
<INTEREST-EXPENSE>                               3,908
<INCOME-PRETAX>                                  6,812
<INCOME-TAX>                                     1,396
<INCOME-CONTINUING>                              4,517
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     4,517
<EPS-PRIMARY>                                     0.15
<EPS-DILUTED>                                     0.13
         

 

EX-27.6

 


 
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                           2,035
<SECURITIES>                                         0
<RECEIVABLES>                                   55,269
<ALLOWANCES>                                     3,795
<INVENTORY>                                        763
<CURRENT-ASSETS>                                61,933
<PP&E>                                         119,398
<DEPRECIATION>                                  38,946
<TOTAL-ASSETS>                                 204,031
<CURRENT-LIABILITIES>                           77,394
<BONDS>                                          6,007
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           265
<OTHER-SE>                                     117,598
<TOTAL-LIABILITY-AND-EQUITY>                   204,031
<SALES>                                        282,497
<TOTAL-REVENUES>                               308,767
<CGS>                                          193,599
<TOTAL-COSTS>                                  100,944
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                 5,143
<INTEREST-EXPENSE>                               3,874
<INCOME-PRETAX>                                 10,859
<INCOME-TAX>                                     2,185
<INCOME-CONTINUING>                              7,765
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     7,765
<EPS-PRIMARY>                                     0.37
<EPS-DILUTED>                                     0.34

<F1>Add back allowance
<F2>Gross
<F3>Total long term debt
<F4>Toll only
<F5>Network costs
<F6>Total operating expenses
<F7>Unusual operating expenses
<F8>Bad debt expense from consolidated income statement
<F9>Net

         

 

EX-27.7

 


 
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               MAR-31-1997
<CASH>                                              10
<SECURITIES>                                         0
<RECEIVABLES>                                   58,530
<ALLOWANCES>                                     3,670
<INVENTORY>                                        818
<CURRENT-ASSETS>                                62,593
<PP&E>                                         121,825
<DEPRECIATION>                                  41,787
<TOTAL-ASSETS>                                 210,149
<CURRENT-LIABILITIES>                           49,115
<BONDS>                                         33,824
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           267
<OTHER-SE>                                     123,000
<TOTAL-LIABILITY-AND-EQUITY>                   210,149
<SALES>                                         73,840
<TOTAL-REVENUES>                                82,652
<CGS>                                           48,616
<TOTAL-COSTS>                                   28,665
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                   281
<INTEREST-EXPENSE>                                 651
<INCOME-PRETAX>                                  4,568
<INCOME-TAX>                                       516
<INCOME-CONTINUING>                               4052
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                      4052
<EPS-PRIMARY>                                     0.24
<EPS-DILUTED>                                     0.23

<F1>Add back allowance
<F2>Gross
<F3>Total long-term debt
<F4>Toll only
<F5>Network costs
<F7>Unusual operating expenses
<F6>Total operating expenses
<F8>Bad debt expenses from consolidated income statement
<F9>Net

         

 

EX-27.8

 


 
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<CASH>                                               0
<SECURITIES>                                         0
<RECEIVABLES>                                   60,054
<ALLOWANCES>                                     3,612
<INVENTORY>                                        935
<CURRENT-ASSETS>                                66,083
<PP&E>                                         135,964
<DEPRECIATION>                                  45,472
<TOTAL-ASSETS>                                 224,754
<CURRENT-LIABILITIES>                           60,000
<BONDS>                                         33,419
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           268
<OTHER-SE>                                     127,881
<TOTAL-LIABILITY-AND-EQUITY>                   224,754
<SALES>                                        154,677
<TOTAL-REVENUES>                               172,153
<CGS>                                          102,136
<TOTAL-COSTS>                                   58,778
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                 1,163
<INTEREST-EXPENSE>                               1,340
<INCOME-PRETAX>                                  9,710
<INCOME-TAX>                                     1,294
<INCOME-CONTINUING>                              8,416
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     8,416
<EPS-PRIMARY>                                     0.50
<EPS-DILUTED>                                     0.48

<F1>add back allowance
<F2>gross
<F3>Total long-term debt
<F4>Toll only
<F5>Network costs
<F6>Total operating expenses
<F8>Bad debt expense from consolidated income statement
<F7>Unusual operating expenses
<F9>Net

         

 

EX-27.9

 


 
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS RESTATED FINANCIAL DATA SCHEDULES FOR
THE YEAR ENDING DECEMBER 1995 THROUGH THE QUARTER ENDING SEPTEMBER 1997.
THEY ARE RESTATED FOR PRIMARY AND DILUTED EARNINGS PER SHARE FIGURES.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               SEP-30-1997
<CASH>                                               0
<SECURITIES>                                         0
<RECEIVABLES>                                   73,072
<ALLOWANCES>                                     3,533
<INVENTORY>                                      1,057
<CURRENT-ASSETS>                                79,462
<PP&E>                                         153,758
<DEPRECIATION>                                  49,308
<TOTAL-ASSETS>                                 276,597
<CURRENT-LIABILITIES>                           62,441
<BONDS>                                         74,388
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           271
<OTHER-SE>                                     136,100
<TOTAL-LIABILITY-AND-EQUITY>                   276,597
<SALES>                                        238,596
<TOTAL-REVENUES>                               267,277
<CGS>                                          156,973
<TOTAL-COSTS>                                   92,492
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                 1,930
<INTEREST-EXPENSE>                               1,941
<INCOME-PRETAX>                                 15,703
<INCOME-TAX>                                     2,379
<INCOME-CONTINUING>                             13,324
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    13,324
<EPS-PRIMARY>                                     0.80
<EPS-DILUTED>                                     0.76

<F1>add back allowance
<F2>gross
<F3>total long-term debt
<F4>tolls only
<F5>network costs
<F6>total operating expenses
<F7>unusual operating expenses
<F8>bad debt expense
<F9>net