<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997
REGISTRATION NO. 333-31361
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ITC/\DELTACOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 58-2301135
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
206 WEST NINTH STREET
WEST POINT, GEORGIA 31833
(706) 645-8990
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ANDREW M. WALKER
CHIEF EXECUTIVE OFFICER
ITC/\DELTACOM, INC.
206 WEST NINTH STREET
WEST POINT, GEORGIA 31833
(706) 645-8990
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
NANCY J. KELLNER, ESQ.
RICHARD J. PARRINO, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-5600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
11% Senior Notes Due
June 1, 2007.......... $200,000,000 100% $200,000,000 $60,606
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f).
(2) Previously paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
SUBJECT TO COMPLETION
DATED SEPTEMBER 24, 1997
[LOGO OF ITC/\DELTACOM APPEARS HERE]
$200,000,000
OFFER TO EXCHANGE ALL OUTSTANDING 11% SENIOR NOTES DUE
JUNE 1, 2007
FOR
11% SENIOR NOTES DUE JUNE 1, 2007
OF
ITC/\DELTACOM, INC.
-----------
INTEREST PAYABLE JUNE 1 AND DECEMBER 1,
COMMENCING DECEMBER 1, 1997
-----------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED.
ITC/\DeltaCom, Inc. (the "Company") hereby offers, upon the terms and subject
to the conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time) and in the accompanying Letter of Transmittal
(the "Letter of Transmittal") (which together constitute the "Exchange Offer"),
to exchange $1,000 principal amount of its 11% Senior Notes due June 1, 2007
(the "Exchange Notes") which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), for each $1,000 principal amount of
its outstanding unregistered 11% Senior Notes due June 1, 2007, of which $200
million in aggregate principal amount is outstanding as of the date hereof (the
"Senior Notes" and, together with the Exchange Notes, the "Notes").
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Senior Notes, except that (i) the
Exchange Notes will have been registered under the Securities Act and therefore
will not be subject to certain restrictions on transfer applicable to the
Senior Notes and (ii) holders of the Exchange Notes will not be entitled to
certain rights of holders of the Senior Notes under the Registration Rights
Agreement dated June 3, 1997 (the "Registration Rights Agreement") among the
Company and Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, First Union Capital Markets Corp. and NationsBanc Capital
Markets, Inc. (collectively, the "Placement Agents"). The Exchange Notes will
evidence the same indebtedness as the Senior Notes (which they will replace)
and will be issued pursuant to, and entitled to the benefits of, an indenture
dated as of June 3, 1997 between the Company and the United States Trust
Company of New York, as trustee (the "Trustee"), governing the Senior Notes and
the Exchange Notes (the "Indenture").
(Continued on next page.)
-----------
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
The Exchange Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after June 1, 2002, initially at 105.5% of their
principal amount, plus accrued interest, declining ratably to 100% of their
principal amount, plus accrued interest, on or after June 1, 2004. In
addition, at any time prior to June 1, 2000, the Company may redeem up to 35%
of the aggregate principal amount of the Senior Notes and the Exchange Notes
from the proceeds of one or more Public Equity Offerings (as defined herein)
at 111% of their principal amount, plus accrued interest; provided that after
any such redemption at least $130.0 million aggregate principal amount of the
Senior Notes and the Exchange Notes remains outstanding. See "Description of
the Exchange Notes--Certain Definitions."
Approximately $62.7 million of the net proceeds from the Offering (as
defined herein) have been used to purchase a portfolio of U.S. government
securities that have been pledged to secure and fund the first six scheduled
interest payments on the Senior Notes and the Exchange Notes.
The Exchange Notes will be unsubordinated indebtedness of the Company,
ranking pari passu in right of payment with the Senior Notes and all other
existing and future unsubordinated indebtedness of the Company and senior in
right of payment to all subordinated indebtedness of the Company. After giving
pro forma effect to the Reorganization (as defined herein), as of June 30,
1997, the Company would have had (on an unconsolidated basis) no indebtedness
other than the Senior Notes and the Exchange Notes. However, the Company is a
holding company and the Senior Notes are, and the Exchange Notes will be,
effectively subordinated to all existing and future liabilities (including
trade payables) of the Company's subsidiaries. On June 30, 1997, on the same
pro forma basis, the Company's subsidiaries would have had approximately $37.7
million of liabilities (excluding intercompany payables), including
approximately $14.4 million of indebtedness (including capital leases).
The Senior Notes were originally issued and sold on June 3, 1997 in a
transaction not registered under the Securities Act (the "Offering").
Accordingly, the Senior Notes may not be offered for resale, resold or
otherwise transferred unless so registered or unless an applicable exemption
from the registration requirements of the Securities Act is available. Based
on interpretations by the staff of the Securities and Exchange Commission (the
"Commission"), as set forth in no-action letters issued to third parties
unrelated to the Company, the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by holders thereof (other than any holder that is (i) a broker-
dealer that acquired Senior Notes as a result of market-making activities or
other trading activities or (ii) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration or prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with any person
to participate in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. Any holder who tenders Senior Notes in the Exchange Offer
with the intention to participate, or for the purpose of participating, in a
distribution of the Exchange Notes or who is an affiliate of the Company may
not rely upon such interpretations by the staff of the Commission and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Failure to comply with such requirements in such
instance may result in such holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the Company. The staff of the
Commission has not considered the Exchange Offer in the context of a no-action
letter, and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer as in such
other circumstances.
By tendering Senior Notes in exchange for Exchange Notes, each holder will
represent to the Company, among other things, that: (i) any Exchange Notes to
be received by such holder will be acquired in the ordinary course of such
holder's business; (ii) such holder has no arrangement or understanding with
any person to participate in a distribution (within the meaning of the
Securities Act) of the Exchange Notes; and (iii) such holder is not an
"affiliate" of the Company (within the meaning of Rule 405 under the
Securities Act), or if such holder is an affiliate, that such holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Senior Notes, where such
Senior Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in
2
<PAGE>
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Senior Notes where
such Senior Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has agreed that,
for a period not to exceed 180 days after the Expiration Date (as defined
herein), it will furnish additional copies of this Prospectus, as amended or
supplemented, to any broker-dealer that reasonably requests such documents for
use in connection with any such resale. See "Plan of Distribution."
The Company does not intend to apply for listing of the Exchange Notes for
trading on any securities exchange or for inclusion of the Exchange Notes in
any automated quotation system. The Senior Notes, however, have been
designated for trading in the Private Offerings, Resales and Trading through
Automatic Linkages ("PORTAL") Market of the National Association of Securities
Dealers, Inc. Any Senior Notes not tendered and accepted in the Exchange Offer
will remain outstanding. To the extent that Senior Notes are not tendered and
accepted in the Exchange Offer, a holder's ability to sell such Senior Notes
could be adversely affected. Following consummation of the Exchange Offer, the
holders of Senior Notes will continue to be subject to the existing
restrictions on transfer thereof and the Company will have no further
obligation to such holders to provide for the registration under the
Securities Act of the Senior Notes. See "Description of the Exchange Notes--
Exchange Offer; Registration Rights." No assurance can be given as to the
liquidity of either the Senior Notes or the Exchange Notes.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF SENIOR NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER.
Senior Notes may be tendered for exchange prior to 5:00 p.m., New York City
time, on , 1997 (such time on such date being hereinafter called the
"Expiration Date"), unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended). Tenders of Senior Notes may be
withdrawn at any time prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Senior Notes being
tendered for exchange. The Exchange Offer is, however, subject to certain
events and conditions and to the terms of the Registration Rights Agreement.
Senior Notes may be tendered only in integral multiples of aggregate principal
amount of $1,000. The Company has agreed to pay all expenses of the Exchange
Offer. This Prospectus, together with the Letter of Transmittal, is being sent
to all registered holders of Senior Notes as of , 1997.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No underwriter is being used in connection with
the Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary................. 4
Risk Factors....................... 15
The Exchange Offer................. 26
History of the Company............. 34
Use of Proceeds.................... 35
Capitalization..................... 36
Selected Financial and Operating
Data.............................. 37
Pro Forma Financial Data........... 39
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 43
Business........................... 60
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management......................... 75
Certain Transactions............... 80
Principal Stockholders............. 82
Description of Certain
Indebtedness...................... 83
Description of the Exchange Notes.. 86
Plan of Distribution............... 114
Legal Matters...................... 115
Experts............................ 115
Available Information.............. 116
Glossary........................... G-1
Index to Financial Statements...... F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, the notes thereto and the other financial
data contained elsewhere in this Prospectus. Potential participants in the
Exchange Offer should carefully consider the factors set forth herein under the
caption "Risk Factors" and are urged to read this Prospectus and the related
Letter of Transmittal in its entirety. Unless otherwise indicated, (i) the
information in this Prospectus, other than the historical financial
information, gives effect to the Reorganization (as defined herein) and the
Offering and (ii) references herein to the "Company" or "ITC/\DeltaCom" refer to
ITC/\DeltaCom, Inc. and its subsidiaries. Certain terms used in this Prospectus
are defined in the "Glossary" appearing elsewhere herein.
THE COMPANY
The Company provides retail long distance services to mid-sized and major
regional businesses in the southern United States and is a leading regional
provider of wholesale long-haul services to other telecommunications companies
using the Company's owned, operated and managed fiber optic network (the
"Carriers' Carrier Services"). The Company intends to become a leading regional
provider of integrated telecommunications services to mid-sized and major
regional businesses in the southern United States by offering such customers a
broad range of telecommunications services, including local exchange and long
distance data and voice, Internet and operator services, and the sale and
servicing of customer premise equipment (collectively, the "Retail Services"),
in a single package tailored to the business customer's specific needs. In
1996, the Company had pro forma revenues of approximately $85.4 million,
earnings before extraordinary item, preacquisition (earnings) losses, equity in
losses of unconsolidated subsidiaries, net interest, income taxes, depreciation
and amortization ("EBITDA") of approximately $18.9 million and net losses from
continuing operations of approximately $12.1 million. For the six months ended
June 30, 1997, the Company had pro forma revenues of approximately $54.3
million, EBITDA of approximately $11.7 million and net losses from continuing
operations of approximately $4.5 million.
The Company provides Carriers' Carrier Services to other telecommunications
carriers, including AT&T, MCI, Sprint, WorldCom, Cable & Wireless, LCI,
Frontier and IXC. The Company's fiber optic network reaches over 60 points of
presence ("POPs") in ten southern states (Alabama, Arkansas, Florida, Georgia,
Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Texas)
and extends approximately 5,400 route miles, of which approximately 2,500 miles
are Company-owned and approximately 2,900 miles are owned and operated by three
public utilities (Duke Power Company, Florida Power & Light Company and Entergy
Technology Company) and managed and marketed by the Company. The Company
expects to add approximately 700 owned and operated route miles to its fiber
network by the end of 1997 and approximately 100 owned and operated route miles
in early 1998 through long-term dark fiber leases. In 1996, the Company's
Carriers' Carrier Services business generated pro forma revenues of
approximately $20.2 million, EBITDA of approximately $11.5 million and net
losses from continuing operations of approximately $1.8 million. For the six
months ended June 30, 1997, the Company's Carriers' Carrier Services business
generated pro forma revenues of approximately $14.3 million, EBITDA of
approximately $8.5 million and net income from continuing operations of less
than $.1 million. As of June 30, 1997, on a pro forma basis, the Company had
remaining future long-term contract commitments totaling approximately $75.8
million. These contracts expire on various dates through 2006 and are expected
to generate approximately $56.0 million in revenues to the Company through
2001, of which approximately $14.5 million are expected to be realized in 1998.
The Company currently provides a variety of Retail Services, including retail
long distance services such as traditional switched and dedicated long
distance, 800/888 calling, calling card and operator services, Asynchronous
Transfer Mode ("ATM"), frame relay, high capacity broadband private line
services, as well as Internet, Intranet and Web page hosting and development
services, and customer premise equipment installation and repair. As of June
30, 1997, the Company provided services to over 6,600 business customers. The
Company currently offers Retail Services, other than local exchange services
(which are provided in two markets), in 12
4
<PAGE>
metropolitan areas in Alabama, Florida, Georgia, Louisiana, North Carolina and
South Carolina and intends to provide a full range of Retail Services
(including local exchange services) in approximately 15 additional metropolitan
areas throughout the southern United States over the next five years. In 1996,
the Retail Services business generated pro forma revenues of approximately
$65.2 million, EBITDA of approximately $7.4 million and net losses from
continuing operations of approximately $3.7 million. For the six months ended
June 30, 1997, the Retail Services business generated pro forma revenues of
approximately $39.9 million, EBITDA of approximately $3.2 million and net
losses from continuing operations of approximately $2.2 million.
In July 1997, the Company began offering local services on a limited, resale
basis in Birmingham and Montgomery, Alabama, and commenced general sales of
such services in those markets in August 1997. Also in August 1997, the Company
initiated a limited offering in Birmingham and Montgomery of facilities-based
local services, and expects that general marketing of such services will
commence in September 1997. Although the Company's local exchange services
offerings in such markets are in the very early stages, initial expressions of
customer interest in such services have been positive, consistent with
management's expectations. However, there can be no assurance that demand for
the Company's local services will match such preliminary indications of
customer interest. The Company expects to offer local exchange services as part
of its Retail Services in six to nine markets (including Birmingham and
Montgomery) by the end of 1997, initially by reselling the services of
incumbent local exchange carriers and, where market conditions warrant, by
using its own local switching facilities.
In connection with offering local exchange services, the Company has entered
into an Interconnection Agreement (the "Interconnection Agreement") with
BellSouth Telecommunications, Inc. ("BellSouth") to (i) resell BellSouth's
local exchange services and (ii) interconnect the Company's network with
BellSouth's network for the purpose of immediately gaining access to all of
BellSouth's unbundled network elements. This agreement will allow the Company
to enter new markets with minimal capital expenditures and to offer local
exchange services to its current customer base. The Interconnection Agreement
currently allows the Company to provide local service on a resale basis or by
purchasing all unbundled network elements required to provide local service on
a facilities bases, without using Company-owned facilities. The terms of the
Interconnection Agreement, including interim pricing terms agreed to by the
Company and BellSouth, have been approved by state regulatory authorities in
most states, although they remain subject to review and modification by such
authorities. In addition, the Interconnection Agreement does not resolve all
operational issues, particularly those relating to the collocation of the
Company's equipment with that of BellSouth. The Company and BellSouth are
continuing to negotiate to resolve such issues. The Company expects that the
Interconnection Agreement will provide a foundation for it to provide local
services on a reasonable commercial basis, but there can be no assurance of
this and important issues remain unsettled as a result of legal and regulatory
developments and related matters. The Interconnection Agreement expires in
1999, and there can be no assurance that the Company will be able to renew it
under favorable terms, or at all.
BUSINESS STRATEGY
The Company's objectives are to maintain its leadership position in the
provision of Carriers' Carrier Services and to become a leading provider of
Retail Services in the southern United States. The Company intends to increase
its market share in existing markets and expand into new markets by (i)
aggressively expanding its customer base and increasing its telecommunications
services, including reselling services and facilities of the incumbent local
exchange carriers; (ii) leveraging the Company's extensive network in its
Retail Services and Carriers' Carrier Services businesses; (iii) concurrently
constructing or obtaining access to additional network infrastructure to serve
its customers more cost-effectively; and (iv) expanding its regional network of
sales offices. The principal elements of the Company's business strategy
include the following:
PROVIDING INTEGRATED TELECOMMUNICATIONS SERVICES TO EXISTING BASE OF MID-
SIZED AND MAJOR REGIONAL BUSINESS CUSTOMERS. By providing additional
telecommunications services such as local telephone service to its existing,
well-established base of long distance customers, the Company expects to be
able to increase revenues at relatively low incremental cost. The Company
believes that bundling a variety of telecommunications services and presenting
customers with one fully integrated monthly billing statement for all of those
services
5
<PAGE>
will allow it to penetrate its target markets rapidly and build customer
loyalty. The Company believes that there is substantial demand in its target
markets among mid-sized and major regional business customers for an integrated
package of telecommunications services that meets all of their
telecommunications needs.
LEVERAGING ITS EXTENSIVE FIBER OPTIC NETWORK. The Company intends to leverage
its extensive fiber optic network, which currently reaches over 60 POPs, by (i)
continuing to provide switched and transport services to other communications
carriers throughout its region to enable such carriers to diversify their
routes and expand their networks; (ii) targeting customers that need to
transmit large amounts of data within the Company's service region, such as
banks and local and state governments; and (iii) offering local exchange
services to its business customers, which began on a limited basis in the
second half of 1997, as part of its integrated package of telecommunications
services. The Company intends initially to provide local exchange services by
reselling the services of incumbent local exchange carriers and, in some
established markets, using its own local switching facilities. Over time, the
Company expects to provide local services primarily using the Company's own
switching facilities and existing regional fiber optic network, supplemented by
unbundled facilities of incumbent local exchange carriers or other competitive
local exchange carriers. The configuration of the Company's network enables the
Company to expand its network by installing additional remote local switches,
which operate in conjunction with the Company's DMS-500 switches to provide
facilities-based local services. Because remote local switches are less
expensive to purchase and install than DMS-500 switches, and can be installed
more quickly than DMS-500 switches, the Company believes that it will be able
to enter new markets at less expense than many of its competitors. At present,
the Company does not plan to construct intra-city local loop facilities.
FOCUSING ON THE SOUTHERN UNITED STATES. The Company intends to continue to
focus on the southern United States in order to leverage its extensive
telecommunications network in the region. The Company believes that its
regional focus will enable it to take advantage of economies of scale in
management, network operations and sales and marketing. The regional
concentration of the Company's network also provides an opportunity for
improved margins because a high portion of its customers' telecommunications
traffic originates and terminates within the region. The Company also believes
that its regional focus will enable it to build on its long-standing customer
and business relationships in the region.
BUILDING MARKET SHARE THROUGH PERSONALIZED CUSTOMER SERVICE. The Company
believes that the key to revenue growth in its target markets is capturing and
retaining customers by emphasizing marketing, sales and customer service.
Management believes that customers prefer one company to be accountable for
their telecommunications services, and that a consultative, face-to-face sales
and service strategy is the most effective method of acquiring and maintaining
a high quality customer base. The Company seeks to obtain long-term commitments
from its business customers by responding rapidly and creatively to their
telecommunications needs. The Company currently operates 14 sales offices in
Alabama, Florida, Georgia, Louisiana, North Carolina and South Carolina. Each
sales office is staffed by personnel capable of marketing all of the Company's
products and providing comprehensive support to the Company's customers.
EXPANDING ITS FIBER OPTIC NETWORK AND SWITCHING FACILITIES. The Company
expects to expand its fiber optic telecommunications network and switching
facilities to include additional markets within the southern United States. The
Company currently owns and operates approximately 2,500 route miles of fiber
optic network extending from Georgia to Texas, with an additional 700 owned and
operated route miles expected to be added by the end of 1997 and approximately
100 owned and operated route miles expected to be added in early 1998. The
Company also markets and manages capacity on 2,900 additional network route
miles through its strategic relationships with public utilities. In addition,
the Company has a buy-sell agreement with Carolinas Fibernet, LLC, which
manages fiber optic facilities in North Carolina and South Carolina. This
agreement enables the parties to buy and sell capacity on each other's networks
and allows the Company to provide customers with access to POPs throughout
those states. The Company believes that, by continuing to combine its owned
network with the networks of public utilities and by adding switching
facilities throughout its network, it will be able to achieve capital
efficiencies and rapidly expand its network in a cost-effective manner.
6
<PAGE>
LEVERAGING PROVEN MANAGEMENT TEAM. The Company's management team consists of
experienced telecommunications managers who in the past have successfully
implemented a customer-focused long distance telecommunications strategy in the
southern United States. Members of the team include Andrew Walker, Chief
Executive Officer of the Company, Foster McDonald, President of the Company,
and Douglas Shumate, Chief Financial Officer of the Company. ITC Holding
Company, Inc. ("ITC Holding"), a diversified company with substantial holdings
in telecommunications businesses operating in the southern United States, is
the Company's sole stockholder. The Company anticipates that ITC Holding's
experience and contacts in the telecommunications industry will enhance the
Company's development.
HISTORY OF THE COMPANY
ITC/\DeltaCom was incorporated in March 1997 as a wholly owned subsidiary of
ITC Holding to acquire and operate ITC Holding's Retail Services and Carriers'
Carrier Services businesses. The Company acquired such businesses on July 25,
1997 in the Reorganization as described below.
BACKGROUND. ITC Holding has provided operator and directory assistance
services since March 1993 through its subsidiary, Eastern Telecom, Inc., which
does business as InterQuest ("InterQuest"). Carriers' Carrier Services have
been offered since April 1992 through Interstate FiberNet, a partnership
originally formed by ITC Holding (with a 49% interest) and SCANA
Communications, Inc. ("SCANA") (with a 51% interest). In August 1994, ITC
Holding acquired SCANA's interest in Interstate FiberNet through ITC
Transmission Systems II, Inc., a wholly owned subsidiary of ITC Holding
("Transmission II"). Also in August 1994, ITC Holding and SCANA formed a second
partnership, Gulf States FiberNet, to construct and operate a fiber optic route
primarily between Atlanta, Georgia and Shreveport, Louisiana with several
supplemental spur routes. In a transaction consummated in March 1997 (the "Gulf
States Acquisition"), ITC Holding acquired SCANA's 64% partnership interest in
Gulf States FiberNet and certain fiber and fiber-related assets, including a
significant customer contract for network services in Georgia (the "Georgia
Fiber Assets"). Following the Gulf States Acquisition, ITC Holding contributed
the remaining 64% interest in Gulf States FiberNet to Gulf States Transmission
Systems, Inc., a wholly owned subsidiary of ITC Holding ("Gulf States
Transmission"), and the Georgia Fiber Assets to ITC Transmission Systems, Inc.,
a wholly owned subsidiary of ITC Holding ("Transmission"). Members of the
Company's management have been managing the businesses of both Interstate
FiberNet and Gulf States FiberNet since their inception.
In January 1996, through its acquisition (the "DeltaCom Acquisition") of
DeltaCom, Inc. ("DeltaCom"), ITC Holding entered the retail long distance
business and acquired several fiber optic routes within the state of Alabama
that complemented the existing networks operated by Interstate FiberNet
(including a fiber optic route from Atlanta, Georgia to Columbus, Georgia) and
Gulf States FiberNet. DeltaCom, a provider of telecommunications services since
its inception in 1982, provides long distance services to mid-sized businesses
primarily in Alabama. In July 1996, DeltaCom purchased substantially all of the
assets of Viper Computer Systems, Inc. ("ViperNet"), which provides Internet
access, Web-hosting and Web page development services to business customers.
To finance the DeltaCom Acquisition and to refinance existing DeltaCom debt,
ITC Holding incurred approximately $74.0 million of indebtedness, which was
pushed down to the Company (the "DeltaCom Indebtedness"). The aggregate
consideration paid by ITC Holding in the Gulf States Acquisition was
approximately $27.9 million, of which $10.0 million consisted of an unsecured
note (the "SCANA Note"), which has been assumed by a subsidiary of the Company,
and $17.9 million consisted of ITC Holding preferred stock. In connection with
the Gulf States Acquisition, Gulf States Transmission borrowed $41.6 million
under a credit facility (the "Bridge Facility") with NationsBank, N.A., to
refinance a project loan incurred by Gulf States FiberNet.
SENIOR NOTE OFFERING. On June 3, 1997, the Company completed the sale of
$200.0 million principal amount of Senior Notes in a private offering. The net
proceeds from the sale of the Senior Notes, other than the
7
<PAGE>
portion of such proceeds invested in U.S. government securities pledged to
secure and fund the first six scheduled interest payments on the Senior Notes
and the Exchange Notes (the "Pledged Securities"), were released to the Company
upon consummation of the Reorganization.
REORGANIZATION. On July 25, 1997, ITC Holding contributed to the Company in a
series of transactions the businesses of Interstate FiberNet, Gulf States
FiberNet, DeltaCom and InterQuest (such transactions collectively referred to
herein as the "Reorganization"). In connection with the Reorganization,
approximately $31.0 million of the $74.0 million of the DeltaCom Indebtedness
was forgiven by ITC Holding and contributed to the Company as additional
equity. Following the Reorganization, the Company repaid the remaining
$43.0 million of the DeltaCom Indebtedness, accrued interest on all $74.0
million of such indebtedness and the $41.6 million of indebtedness outstanding
under the Bridge Facility and accrued interest thereon with a portion of the
net proceeds from the Offering. See "Use of Proceeds."
THE EXCHANGE OFFER
The Exchange Offer........ Up to $200.0 million aggregate principal amount of
Exchange Notes are being offered in exchange for a
like aggregate principal amount of Senior Notes.
Senior Notes may be tendered for exchange in whole
or in part in integral multiples of $1,000
principal amount. The Company is making the
Exchange Offer in order to satisfy its obligations
under the Registration Rights Agreement relating to
the Senior Notes. For a description of the
procedures for tendering Senior Notes, see "The
Exchange Offer--Procedures for Tendering Senior
Notes."
Expiration Date........... 5:00 p.m., New York City time, on , 1997
unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer--Expiration Date; Extensions, Amendments."
Conditions to the
Exchange Offer............ The Exchange Offer is subject to certain conditions
which may be waived by the Company in its sole
discretion. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of
Senior Notes being tendered. See "The Exchange
Offer--Conditions to the Exchange Offer."
The Company reserves the right in its sole and
absolute discretion, subject to applicable law, at
any time and from time to time, (i) to delay the
acceptance of the Senior Notes, (ii) to terminate
the Exchange Offer if certain specified conditions
have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain
all Senior Notes tendered pursuant to the Exchange
Offer, subject, however, to the right of holders of
Senior Notes to withdraw their tendered Senior
Notes, and (iv) to waive any condition or otherwise
amend the terms of the Exchange Offer in any
respect. See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
Withdrawal Rights......... Tenders of Senior Notes may be withdrawn at any
time prior to the Expiration Date by delivering a
written notice of such withdrawal to
8
<PAGE>
the Exchange Agent (as defined herein) in
conformity with certain procedures as set forth
below under "The Exchange Offer--Withdrawal
Rights."
Procedures for Tendering
Senior Notes............. Tendering holders of Senior Notes must complete and
sign a Letter of Transmittal in accordance with the
instructions contained therein and forward the same
by mail, facsimile transmission or hand delivery,
together with any other required documents, to the
Exchange Agent, either with the Senior Notes to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Senior Notes.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Senior
Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Senior Notes pursuant to the Exchange
Offer. See "The Exchange Offer--Procedures for
Tendering Senior Notes."
Letters of Transmittal and certificates
representing Senior Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender
and requests for information should be directed to
the Exchange Agent. See "The Exchange Offer--
Exchange Agent."
Resales of Exchange
Notes..................... Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to third parties, the Company believes that
holders of Senior Notes (other than any holder that
is (i) a broker-dealer that acquired Senior Notes
as a result of market-making activities or other
trading activities or (ii) an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) who exchange their Senior Notes for
Exchange Notes pursuant to the Exchange Offer may
offer for resale, resell and otherwise transfer
such Exchange Notes without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders have no
arrangement or understanding with any person to
participate in a distribution (within the meaning
of the Securities Act) of such Exchange Notes. Any
holder who tenders Senior Notes in the Exchange
Offer with the intention to participate, or for the
purpose of participating, in a distribution of the
Exchange Notes or who is an affiliate of the
Company may not rely upon such interpretations by
the staff of the Commission and, in the absence of
an exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
secondary resale transaction. Failure to comply
with such requirements in such instance may result
in such holder incurring liabilities under the
Securities Act for which the holder is not
indemnified by the Company. The staff of the
Commission has not considered the Exchange Offer in
the context of a no-action letter, and there can be
no assurance that the staff of the
9
<PAGE>
Commission would make a similar determination with
respect to the Exchange Offer. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Senior Notes, where such Senior Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. The Company has
agreed that, for a period not to exceed 180 days
after the Expiration Date, it will furnish
additional copies of this Prospectus, as amended or
supplemented, to any broker-dealer that reasonably
requests such documents for use in connection with
any such resale. See "Plan of Distribution."
Exchange Agent............ The exchange agent with respect to the Exchange
Offer is United States Trust Company of New York
(the "Exchange Agent"). The address, telephone
number and facsimile number of the Exchange Agent
are set forth in "The Exchange Offer--Exchange
Agent" and in the Letter of Transmittal.
Use of Proceeds........... The Company will not receive any cash proceeds from
the issuance of the Exchange Notes offered hereby.
The net proceeds from the Offering have been and
will be used to repay certain outstanding
indebtedness of the Company; to fund expansion of
the Company's telecommunications business,
including expansion of the Company's fiber optic
network and the opening of new sales offices; and
for additional working capital and general
corporate purposes, including funding cash flow
deficits and the payment of interest on the Senior
Notes and the Exchange Notes. See "Use of
Proceeds."
Certain United States
Federal Income Tax
Consequences............. The exchange of the Senior Notes for the Exchange
Notes will not be a taxable exchange for federal
income tax purposes, and holders of Senior Notes
should not recognize any taxable gain or loss or
any interest income as a result of such exchange.
See "The Exchange Offer--Certain United States
Federal Income Tax Consequences."
THE EXCHANGE NOTES
Securities Offered........ $200.0 million aggregate principal amount of 11%
Senior Notes dueJune 1, 2007. The terms of the
Exchange Notes will be identical in all material
respects to the terms of the Senior Notes, except
that (i) the Exchange Notes will have been
registered under the Securities Act and therefore
will not be subject to certain restrictions on
transfer applicable to the Senior Notes and (ii)
holders of the Exchange Notes will not be entitled
to certain rights of holders of the Senior Notes
under the Registration Rights Agreement. The
Exchange Notes will evidence the same debt as the
Senior Notes and will be issued pursuant to and
entitled to the benefits of the Indenture.
10
<PAGE>
Maturity.................. June 1, 2007.
Interest.................. Interest on the Exchange Notes is payable
semiannually in cash, on each June 1 and December
1, commencing December 1, 1997.
Security.................. Pursuant to the Indenture, approximately $62.7
million of the net proceeds from the Offering were
used by the Trustee to purchase a portfolio of
Pledged Securities (consisting only of U.S.
government securities) that are being held as
security for the payment of the first six scheduled
interest payments due on the Senior Notes and the
Exchange Notes. The Pledged Securities are being
and will be held by the Trustee for the benefit of
the holders of the Senior Notes and the Exchange
Notes under a Pledge and Security Agreement dated
June 3, 1997 between the Company and the Trustee
(the "Pledge Agreement"), pending disbursement.
After the first six scheduled interest payments on
the Senior Notes and Exchange Notes are made, the
Senior Notes and the Exchange Notes will be
unsecured. See "Description of the Exchange Notes--
Security."
Optional Redemption....... The Exchange Notes may be redeemed at any time on
or after June 1, 2002, at the option of the
Company, in whole or in part, at 105.5% of their
principal amount, plus accrued interest, declining
ratably to 100% of their principal amount, plus
accrued interest, on and after June 1, 2004. In
addition, at any time prior to June 1, 2000, up to
35% of the aggregate principal amount of the Senior
Notes and the Exchange Notes may be redeemed from
the proceeds of one or more Public Equity Offerings
at 111% of their principal amount plus accrued
interest; provided that after any such redemption
at least $130.0 million aggregate principal amount
of the Senior Notes and the Exchange Notes remains
outstanding.
Change of Control......... Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
purchase the Exchange Notes at a purchase price
equal to 101% of their principal amount, plus
accrued interest. There can be no assurance that
the Company will have sufficient funds available at
the time of any Change of Control to make any
required debt repayment (including repurchases of
the Exchange Notes). See "Description of the
Exchange Notes--Repurchases of Exchange Notes upon
a Change of Control," and "Description of the
Exchange Notes--Certain Definitions."
Ranking................... The Exchange Notes will be unsubordinated
indebtedness of the Company, ranking pari passu in
right of payment with the Senior Notes and all
other existing and future unsubordinated
indebtedness of the Company and senior in right of
payment to all subordinated indebtedness of the
Company. After giving pro forma effect to the
Reorganization and the use of the net proceeds from
the Offering, at June 30, 1997, the Company (on an
unconsolidated basis) would have had no other
indebtedness other than the Senior Notes. In
addition, the Exchange Notes will be unsecured
(except as described under""--Security") and will
be effectively subordinated to all secured
11
<PAGE>
indebtedness. The Company is a holding company and
the Senior Notes are, and the Exchange Notes will
be, effectively subordinated to all existing and
future liabilities (including trade payables) of
the Company's subsidiaries. On June 30, 1997, on
the same pro forma basis, the subsidiaries of the
Company would have had approximately $37.8 million
of liabilities (excluding intercompany payables),
including approximately $14.4 million of
indebtedness (including capital leases). In
September 1997, a subsidiary of the Company entered
into a credit agreement (the "Credit Agreement")
with NationsBank of Texas, N.A. ("NationsBank") for
a $100 million secured credit facility (the "Credit
Facility") to be used for working capital and other
purposes, including refinancing existing
indebtedness, capital expenditures and permitted
acquisitions. The Credit Facility is secured by
substantially all of the assets of the Company's
subsidiaries. In addition, all obligations under
the Credit Facility are guaranteed by the Company
and its other subsidiaries. Indebtedness under the
Credit Facility is effectively senior to the
Exchange Notes (except as described under "--
Security") to the extent of such security
interests. See "Risk Factors--Holding Company
Structure; Priority of Secured Debt."
Certain Covenants......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company to incur indebtedness, pay dividends,
prepay subordinated indebtedness, repurchase
capital stock, make investments, engage in
transactions with stockholders and affiliates,
create liens, sell assets and engage in mergers and
consolidations. However, these limitations are
subject to a number of important qualifications and
exceptions. See "Description of the Exchange
Notes--Covenants."
RISK FACTORS
Potential participants in the Exchange Offer should consider carefully
certain factors relating to the Company, its business and an investment in the
Exchange Notes before tendering their Senior Notes for Exchange Notes. See
"Risk Factors."
12
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The summary historical and pro forma financial and operating data set forth
below should be read in conjunction with "History of the Company," "Use of
Proceeds," "Selected Financial and Operating Data," "Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and notes thereto, and other financial
and operating data contained elsewhere in this Prospectus. The pro forma
statement of operations data for 1996 give effect to the following transactions
as if each had occurred on January 1, 1996: (i) the DeltaCom Acquisition; (ii)
the Gulf States Acquisition; (iii) the Reorganization; and (iv) the Offering
and the use of the net proceeds therefrom. The pro forma statement of
operations data for the six months ended June 30, 1997 give effect to the
following transactions as if each had occurred on January 1, 1996: (i) the Gulf
States Acquisition; (ii) the Reorganization; and (iii) the Offering and the use
of the net proceeds therefrom. The pro forma balance sheet data at June 30,
1997 give effect to (i) the Reorganization, including ITC Holding's forgiveness
and contribution of approximately $31.0 million of the DeltaCom Indebtedness to
the Company as additional equity and (ii) the use of the net proceeds from the
Offering as if such transactions had occurred on June 30, 1997. The pro forma
financial and operating information does not purport to represent what the
Company's consolidated results of operations would have been if these
transactions had in fact occurred on these dates, nor does it purport to
indicate the future consolidated financial position or consolidated results of
future operations of the Company. The pro forma adjustments are based on
currently available information and certain assumptions that management
believes to be reasonable.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------- ---------------------------------------
COMBINED PRO FORMA COMBINED PRO FORMA
-------------------------------------- CONSOLIDATED ------------------------- CONSOLIDATED
1994(A)(B) 1995 1996(C) 1996 1996(C) 1997(D)(E) 1997(D)(E)
----------- ----------- ------------ ------------ ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating revenues.... $ 4,945,902 $ 5,750,587 $ 66,518,585 $ 85,374,362 $28,574,799 $ 53,365,061 $ 54,250,511
Operating expenses:
Cost of service...... 2,484,744 3,149,231 38,756,287 42,587,228 16,129,463 25,302,747 25,302,747
Selling, operations
and
administration expense.. 948,230 1,626,678 18,876,572 23,866,169 8,206,621 16,961,324 17,209,549
Depreciation and am-
ortization.......... 738,052 1,267,882 6,438,074 14,612,761 2,832,017 8,273,232 8,634,041
----------- ----------- ------------ ------------ ----------- ------------ ------------
Total operating ex-
penses.............. 4,171,026 6,043,791 64,070,933 81,066,158 27,168,101 50,537,303 51,146,337
Operating income
(loss)............... 774,876 (293,204) 2,447,652 4,308,204 1,406,698 2,827,758 3,104,174
Equity in losses of
unconsolidated
subsidiaries......... (96,920) (258,242) (1,589,812) -- (1,088,404) -- --
Interest expense...... (273,759) (297,228) (6,172,421) (26,266,789) (2,762,757) (7,561,591) (12,389,998)
Interest and other in-
come................. 82,348 41,734 171,514 3,717,951 107,216 883,388 2,697,611
----------- ----------- ------------ ------------ ----------- ------------ ------------
Income (loss) before
taxes,
preacquisition (earnings)
losses and extraordi-
nary item............ 486,545 (806,940) (5,143,067) (18,240,634) (2,337,247) (3,850,445) (6,588,213)
Income tax (provision)
benefit.............. (113,248) 302,567 1,233,318 6,167,132 671,467 1,005,809 2,046,160
Preacquisition (earn-
ings) losses......... (236,300) -- -- -- -- 74,132 --
----------- ----------- ------------ ------------ ----------- ------------ ------------
Income (loss) from
continuing
operations........... 136,997 (504,373) (3,909,749) (12,073,502) (1,665,780) (2,770,504) (4,542,053)
Extraordinary item--
loss on
extinguishment of
debt (net of tax
benefit)............. -- -- -- -- -- (507,515) (507,515)
----------- ----------- ------------ ------------ ----------- ------------ ------------
Net income (loss)..... $ 136,997 $ (504,373) $ (3,909,749) $(12,073,502) $(1,665,780) $ (3,278,019) $ (5,049,568)
=========== =========== ============ ============ =========== ============ ============
BALANCE SHEET DATA (AT PERIOD
END):
Working capital (defi-
cit)................. $ 254,988 $ (242,136) $ 3,415,088 $ 68,175,664 $ 53,895,964
Property and equip-
ment, net............ 8,486,996 9,386,444 31,880,556 115,852,080 115,852,080
Total assets.......... 20,062,286 20,922,337 113,207,979 402,015,721 301,908,472
Long-term debt,
advances from ITC
Holding and capital
lease obligations,
including current
portions............. 4,013,977 3,143,977 75,442,971 335,915,346 335,915,346
Stockholder's equity.. 13,761,409 14,307,036 19,256,526 33,450,572 64,120,400
OTHER FINANCIAL DATA:
Capital expenditures.. $ 3,703,835 $ 1,805,742 $ 6,172,660 $ 7,427,263 $ 2,279,913 $ 12,357,471 $ 12,559,439
EBITDA(f)............. 1,512,928 974,678 8,885,726 18,920,965 4,238,715 11,100,990 11,738,215
Cash flows from opera-
tions................ 978,775 1,437,317 8,188,618 8,252,717 2,448,698 9,409,779 10,212,231
Ratio of earnings to
fixed charges(g)..... 1.85x -- -- -- -- -- --
</TABLE>
(footnotes on following page)
13
<PAGE>
(a) Through August 17, 1994, the Company owned a 49% interest in Interstate
FiberNet and accounted for this investment under the equity method. On
August 17, 1994, the Company purchased the remaining 51% interest in
Interstate FiberNet from SCANA. Therefore, Interstate FiberNet's revenues
and expenses have been included in the combined statement of operations
data effective January 1, 1994, with the preacquisition earnings
attributable to SCANA deducted to determine the combined net income for
1994. See note 5 to the combined financial statements.
(b) On August 17, 1994, the Company entered into the Gulf States FiberNet
partnership with SCANA. The Company obtained a 36% general partnership
interest and the investment was accounted for under the equity method. See
note 5 to the combined financial statements.
(c) On January 29, 1996, ITC Holding purchased DeltaCom. DeltaCom's results of
operations are included in the historical statement of operations data
since the date of acquisition. See note 13 to the combined financial
statements.
(d) On March 27, 1997, the Company purchased the remaining 64% partnership
interest in Gulf States FiberNet from SCANA. Therefore, Gulf States
FiberNet's revenues and expenses have been included in the combined
statement of operations data effective January 1, 1997 with the
preacquisition losses attributable to SCANA deducted to determine the
combined net loss for the six months ended June 30, 1997. See note 16 to
the combined financial statements.
(e) On March 27, 1997, the Company purchased the Georgia Fiber Assets from
SCANA. The results of operations for the Georgia Fiber Assets were included
in the combined statements of operations beginning April 1, 1997. See note
16 to the combined financial statements.
(f) EBITDA represents earnings before extraordinary item, preacquisition
(earnings) losses, equity in losses of unconsolidated subsidiaries, net
interest, income taxes, depreciation and amortization. EBITDA is provided
because it is a measure commonly used in the industry. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity. EBITDA is
not necessarily comparable with similarly titled measures for other
companies.
(g) Earnings consist of income before income taxes, plus fixed charges. Fixed
charges consist of interest charges and amortization of debt issuance costs
(including those reflected as an extraordinary item) and the portion of
rent expense under operating leases representing interest (estimated to be
one-third of such expense). Earnings were insufficient to cover fixed
charges for the years ended December 31, 1995, 1996 and pro forma 1996 and
the six months ended June 30, 1996, 1997 and pro forma 1997 by $.8 million,
$5.1 million, $18.2 million, $2.3 million, $3.8 million and $6.6 million,
respectively.
14
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of Senior Notes should consider carefully the following factors before
tendering their Senior Notes for Exchange Notes.
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW
AFTER CAPITAL EXPENDITURES
The Company expects to incur significant and increasing operating losses and
negative cash flow (after capital expenditures) during the next several years
as it implements its business strategy to expand its telecommunications
service offerings, expand its fiber optic network and enter new markets.
Although the Company expects that a majority of its revenue growth will come
from Retail Services, it does not expect its Retail Services to obtain a
significant share of the market for telecommunications services in the
southern United States, and there can be no assurance that the Company will
achieve or sustain profitability or positive net cash flow in the future. If
the Company cannot achieve or sustain operating profitability and positive net
cash flow, it may not be able to meet its working capital or debt service
requirements, which could have a material adverse effect on the Company's
ability to meet its obligations on the Exchange Notes. See "--Significant
Capital Requirements; Uncertainty of Additional Financing," "Selected
Financial and Operating Data," "Pro Forma Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FINANCING
Expansion of the Company's network, operations and services will require
significant capital. The Company currently estimates that its aggregate
capital requirements will total approximately $104 million in 1997 and 1998,
of which approximately $50 million is expected to be incurred in 1997
(including $12.4 million of capital expenditures made as of June 30, 1997) and
$54 million in 1998. The Company anticipates making substantial capital
expenditures thereafter. Capital expenditures will be primarily for: the
addition of facilities-based local telephone service to the Company's bundle
of integrated telecommunications services, including acquisition and
installation of switches; market expansion; continued development and
construction of its fiber optic network (including transmission equipment);
and infrastructure enhancements, principally for information systems. The
Company believes that the net proceeds from the Offering, together with cash
flow from operations and available borrowings under the Credit Facility, will
provide sufficient funds to enable the Company to expand its business as
currently planned through the maturity of the Credit Facility in 2002, after
which the Company will need to seek additional financing to fund capital
expenditures and working capital. Because the Credit Facility will mature in
2002, the Company may not have a ready source of liquidity after 2002. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Certain Indebtedness."
The actual amount and timing of the Company's future capital requirements
may differ materially from the Company's estimate depending on the demand for
the Company's services and as a result of regulatory, technological and
competitive developments (including new market developments and new
opportunities) in the Company's industry. The Company may also require
additional capital in the future (or sooner than currently anticipated) for
new business activities related to its current and planned businesses, or in
the event it decides to make additional acquisitions or enter into joint
ventures and strategic alliances. Sources of additional capital may include
cash flow from operations and public and private equity and debt financings.
There can be no assurance, however, that the Company will be successful in
producing sufficient cash flows or raising sufficient debt or equity capital
to meet its strategic objectives or that such funds, if available at all, will
be available on a timely basis or on terms that are acceptable to the Company.
Failure to generate or raise sufficient funds would require the Company to
delay or abandon some or all of its future expansion plans or expenditures,
which could have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
HIGH LEVERAGE; ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS
At June 30, 1997, on a pro forma basis, giving effect to the Reorganization,
including the forgiveness of, or repayment in full of certain indebtedness
with a portion of the net proceeds from the Offering, the Company
15
<PAGE>
would have had $214.4 million of indebtedness and its stockholder's equity
would have been $64.1 million. On a pro forma basis, the Company's earnings
would have been insufficient to cover its fixed charges for the year ended
December 31, 1996 and the six months ended June 30, 1997 by $18.2 million and
$6.6 million, respectively, and its EBITDA less capital expenditures and
interest expense would have been negative $14.8 million and negative $13.0
million, respectively.
The Indenture and the Credit Facility contain restrictions on the Company and
its subsidiaries that affect, and in certain cases significantly limit or
prohibit, among other things, the ability of the Company and its subsidiaries
to incur additional indebtedness, create liens, make investments, issue stock
of subsidiaries and sell assets. In addition, the Credit Facility requires the
Company to maintain certain financial ratios. See "Description of Certain
Indebtedness--Credit Facility." There can be no assurance that the Company will
be able to maintain such ratios or that such covenants will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interest of the
Company. The limitations in the Indenture are subject to a number of important
qualifications and exceptions. In particular, while the Indenture restricts the
Company's ability to incur indebtedness by requiring compliance with specified
leverage ratios, it permits the Company to incur an unlimited amount of
additional indebtedness to finance the acquisition of equipment, inventory or
network assets.
There can be no assurance that the Company will be able to improve its
earnings before fixed charges or that the Company will be able to meet its debt
service obligations, including its obligations on the Exchange Notes. If the
Company is unable to generate sufficient cash flow or otherwise obtain funds
necessary to make required payments, or if the Company otherwise fails to
comply with the various covenants in its debt obligations, it would be in
default under the terms thereof, which would permit the holders of such
indebtedness to accelerate the maturity of such indebtedness and could cause
defaults under other indebtedness of the Company. Such defaults could result in
a default on the Exchange Notes and could delay or preclude payment of interest
or principal on the Exchange Notes. The ability of the Company to meet its
obligations will be dependent upon the future performance of the Company, which
will be subject to prevailing economic conditions and to financial, business
and other factors. See "Description of Certain Indebtedness" and "Description
of the Exchange Notes--Covenants."
The level of the Company's indebtedness could adversely affect the Company in
a number of ways. For example, (i) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (ii) the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to, changes in its business; (iii) the Company will be more highly leveraged
than some of its competitors, which may place it at a competitive disadvantage;
(iv) the Company's degree of indebtedness may make it more vulnerable to a
downturn in its business or the economy generally; (v) the debt service
requirements of any additional indebtedness could make it more difficult for
the Company to make payments on the Exchange Notes; and (vi) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness and will not be available
for other purposes.
The successful implementation of the Company's strategy, including expansion
of its network and obtaining and retaining a significant number of customers,
and significant and sustained growth in the Company's cash flow are necessary
for the Company to be able to meet its debt service requirements, including its
obligations under the Exchange Notes. There can be no assurance that the
Company will successfully implement its strategy or that the Company will be
able to generate sufficient cash flow from operating activities to meet its
debt service obligations and working capital requirements. In the event the
implementation of the Company's strategy is delayed or is unsuccessful or the
Company does not generate sufficient cash flow to meet its debt service and
working capital requirements, the Company may need to seek additional
financing. There can be no assurance that any such financing could be obtained
on terms that are acceptable to the Company, or at all. In the absence of such
financing, the Company could be forced to dispose of assets in order to make up
for any shortfall in the payments due on its indebtedness under circumstances
that might not be favorable to realizing the highest price for such assets. A
substantial portion of the Company's assets consist of intangible assets, the
value of which will depend upon a variety of factors (including the success of
the Company's business). As a result, there can
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be no assurance that the Company's assets could be sold quickly enough or for
sufficient amounts to enable the Company to meet its obligations, including
its obligations with respect to the Exchange Notes.
ABILITY TO MANAGE GROWTH
The expansion and development of the Company's business will depend on,
among other things, the Company's ability to successfully implement its sales
and marketing strategy, evaluate markets, design fiber routes, secure
financing, install facilities, acquire rights of way, obtain any required
government authorizations, implement interconnection to, and co-location with,
facilities owned by incumbent local exchange carriers and obtain appropriately
priced unbundled network elements and wholesale services from the incumbent
local exchange carriers, all in a timely manner, at reasonable costs and on
satisfactory terms and conditions. The Company's rapid growth, particularly in
the provision of Retail Services, has placed, and anticipated growth in other
services in the future may also place, a significant strain on its
administrative, operational and financial resources. The Company's ability to
continue to manage its growth successfully will require the Company to enhance
its operational, management, financial and information systems and controls
and to hire and retain qualified sales, marketing, administrative, operating
and technical personnel. There can be no assurance that the Company will be
able to do so. In addition, as the Company increases its service offerings and
expands its targeted markets, there will be additional demands on customer
support, sales and marketing, administrative resources and network
infrastructure. The Company's inability to manage its growth effectively could
have a material adverse effect on the Company's business, results of
operations and financial condition.
BUSINESS DEVELOPMENT AND EXPANSION RISKS
The successful implementation of the Company's business strategy to provide
an integrated bundle of telecommunications services and expand its operations
will be subject to a variety of risks, including competition and pricing, the
availability of capital on favorable terms, regulatory uncertainties,
operating and technical problems, the need to establish interconnection and
co-location arrangements with incumbent local exchange carriers in its target
markets and the potential difficulties in adding a local service offering. See
"--Dependence on Incumbent Local Exchange Carriers." In addition, the
expansion of the Company's business may involve acquisitions of other
telecommunications businesses and assets that, if made, could divert the
resources and management time of the Company and could require integration
with the Company's operations. There can be no assurance that any such
acquisition could be successfully integrated into the Company's operations or
that any acquired business will perform as expected. Failure of the Company to
implement its expansion and growth strategy successfully would have a material
adverse effect on the Company's business, results of operations and financial
condition.
RISKS RELATED TO LOCAL SERVICES STRATEGY
The Company plans to enter the newly created competitive local
telecommunications services industry. The local dial tone services market has
only recently been opened to competition through the passage of the
Telecommunications Act of 1996 (the "Telecommunications Act") and subsequent
state and Federal regulatory actions designed to implement the
Telecommunications Act. Regulatory bodies have not completed all actions
expected to be needed to implement local service competition, and there is
little experience under those decisions that have been made to date. The
Company will have to make significant operating and capital investments in
order to implement its local exchange services strategy. There are numerous
operating complexities associated with providing these services. The Company
will be required to develop new products, services and systems and will need
to develop new marketing initiatives and train its sales force in connection
with selling these services. The Company will also need to implement the
necessary billing and collecting systems for these services. The Company will
face significant competition from the Regional Bell Operating Companies, whose
core business is providing local dial tone service. The Regional Bell
Operating Companies, who currently are the dominant providers of services in
their markets, are expected to mount a significant competitive response to new
entrants in their markets such as the Company. The Company also will face
significant competitive product and pricing
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pressures from other incumbent local exchange carriers and from other firms
seeking to compete in the local services market.
The Company also expects that the addition of local service to its bundle of
telecommunications services will have an adverse impact on its gross margin
because the gross margin on the resale of local services through incumbent
local exchange carrier facilities is lower than the gross margin on the
Company's existing business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
PRICING PRESSURES AND RISKS OF INDUSTRY OVER-CAPACITY
The long distance transmission industry has generally been characterized by
over-capacity and declining prices since shortly after the AT&T divestiture in
1984. The Company believes that, in the last several years, increasing demand
has ameliorated the over-capacity and that pricing pressure has been reduced.
However, the Company anticipates that prices for its Carriers' Carrier
Services will continue to decline over the next several years. The Company is
aware that certain long distance carriers are expanding their capacity and
believes that other long distance carriers, as well as potential new entrants
to the industry, are constructing new fiber optic and other long distance
transmission networks in the southern United States. Since the cost of the
actual fiber (as opposed to construction costs) is a relatively small portion
of the cost of building new transmission lines, persons building such lines
are likely to install fiber that provides substantially more transmission
capacity than will be needed over the short or medium term. Further, recent
technological advances may greatly expand the capacity of existing and new
fiber optic cable. Although such technological advances may enable the Company
to increase its capacity, an increase in the capacity of the Company's
competitors could adversely affect the Company's business. If industry
capacity expansion results in capacity that exceeds overall demand along any
of the Company's routes, severe additional pricing pressure could develop. In
addition, strategic alliances or similar transactions, such as the long
distance capacity purchasing alliance among certain Regional Bell Operating
Companies announced in the spring of 1996, could result in additional pricing
pressure on long distance carriers. Furthermore, the marginal cost of carrying
an additional call over existing fiber optic cable is extremely low. As a
result, within a few years, there may be dramatic and substantial price
reductions. Such pricing pressure could have a material adverse effect on the
Company. In addition, the Federal Communications Commission (the "FCC") has
announced changes to its interstate access rules which may result in
additional pricing pressures. See "--Competition."
DEPENDENCE ON BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. As the Company commences providing
dial tone and switched local access services, the need for enhanced billing
and information systems will increase significantly. The inability of the
Company to identify adequately all of its information and processing needs, or
to upgrade systems as necessary, could have a material adverse impact on the
ability of the Company to reach its objectives, on its financial condition and
results of operations and on its ability to pay interest and principal on the
Exchange Notes.
DEPENDENCE ON RIGHTS OF WAY AND OTHER THIRD PARTY AGREEMENTS
The Company has obtained easements, rights of way, franchises and licenses
from various private parties, including actual and potential competitors, and
local governments in order to construct and maintain its fiber optic network.
There can be no assurance that the Company will continue to have access to
existing rights of way and franchises after the expiration of such agreements.
If a franchise, license or lease agreement were terminated and the Company
were forced to remove or abandon a significant portion of its network, such
termination could have a material adverse effect on the Company.
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REGULATION
The Company is required to obtain certain authorizations from the FCC and
state public utility commissions ("PUCs") to offer certain of its
telecommunications services, as well as file tariffs for many of its services.
To date the Company has not experienced significant difficulties in receiving
certification, maintaining tariffs, or otherwise complying with its regulatory
obligations. The Company will face new obligations arising out of the
Telecommunications Act as it begins to enter the local telephone market. It
also is likely that state PUCs will regulate the local telephone services
offered by the Company and other competitive local exchange carriers more
heavily than competitive long distance services have been regulated in the
past. Because the FCC and the states have yet to adopt many of the rules and
policies necessary to implement the Telecommunications Act, or to respond to
other related local telephone competition issues, it is uncertain how
burdensome these requirements will be for the Company.
Although the Company entered into the Interconnection Agreement pursuant to
which it will obtain wholesale local services and access to unbundled network
elements from BellSouth, the terms of the Interconnection Agreement are
subject to the approval of the PUCs regulating the Company's markets. Such
approval has been received from the PUCs of Alabama, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina and South Carolina and is pending in
Florida and Tennessee.
In addition, the Company's plans to provide local telephone service are
heavily dependent upon implementation of provisions of the Telecommunications
Act. The Telecommunications Act preempted state and local laws to the extent
that they prohibited local telephone competition, and imposed a variety of new
duties on incumbent local exchange carriers intended to advance such
competition, including the duty to negotiate in good faith with competitors
requesting interconnection to the incumbent local exchange carrier's network.
However, negotiations with incumbent local exchange carriers have sometimes
involved considerable delays and the resulting negotiated agreements may not
necessarily be obtained on terms and conditions that are acceptable to the
Company. In such instances, the Company may petition the proper state
regulatory agency to arbitrate disputed issues. There can be no assurance that
the Company will be able to negotiate acceptable new interconnection
agreements with incumbent local exchange carriers or that if state regulatory
authorities impose terms and conditions on the parties in arbitration, such
terms will be acceptable to the Company. On August 8, 1996, the FCC adopted
rules and policies implementing the local competition provisions of the
Telecommunications Act, which rules, in general, were considered favorable to
new competitive entrants, but those rules have not been fully implemented. The
FCC's rules were challenged in the federal courts by GTE, Regional Bell
Operating Companies, large independent incumbent local exchange carriers and
state regulatory commissions. On October 15, 1996, the U.S. Court of Appeals
for the Eighth Circuit issued a stay of the implementation of certain of the
FCC's rules and on July 18, 1997, the Court issued its decision finding that
the FCC lacked statutory authority under the Telecommunications Act for
certain of its rules. In particular, the Court found that the FCC was not
empowered to establish the pricing standards governing unbundled local network
elements or wholesale local services of the incumbent local exchange carriers.
The Court also struck down other FCC rules, including one that would have
enabled new entrants to "pick and choose" from provisions of established
interconnection agreements between the incumbent local exchange carriers and
other carriers. The Court rejected certain other objections to the FCC rules
brought by the incumbent local exchange carriers or the states, including
challenges to the FCC's definition of unbundled elements, and to the FCC's
rules allowing new competitors to create their own networks by combining
incumbent local exchange carrier network elements together without adding
additional facilities of their own. The overall impact of the Court's decision
is to materially reduce the role of the FCC in fostering local competition,
including its ability to take enforcement action if the Telecommunications Act
is violated, and increase the role of state utility commissions. The FCC has
indicated that it will ask the Supreme Court to review the Court's decision
and petitions for rehearing are pending concerning the decision's treatment of
unbundled elements. Meanwhile, certain state commissions have asserted that
they will be active in promoting local telephone competition using the
authority they have under the ruling, lessening the significance of the
reduced FCC role. At this time the impact of the Court's decision cannot be
evaluated, but there can be no assurance that the Court decision and related
developments will not have a materially adverse effect on the Company.
Furthermore, other FCC rules related to local telephone
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competition remain the subject of legal challenges, and there can be no
assurance that decisions affecting those rules will not be adverse to
companies seeking to enter the local telephone market.
The Telecommunications Act also creates the foundation for increased
competition in the long distance market from the incumbent local exchange
carriers, which could affect the successful implementation of the Company's
business plans. For example, certain provisions eliminate previous
prohibitions on the provision of interLATA long distance services (both retail
and carriers' carrier) by the Regional Bell Operating Companies subject to
compliance by such companies with requirements set forth in the
Telecommunications Act and implemented by the FCC. The Company could be
adversely affected if the Regional Bell Operating Companies (and particularly
BellSouth) are allowed to provide wireline interLATA long distance services
within their own regions before local competition is established. In a related
development, the FCC is considering proposed new policies and rules that would
grant the incumbent local exchange carriers additional flexibility in the
pricing of interstate access services, and states are considering or are
expected to consider incumbent local exchange carrier requests for similar
regulatory relief with respect to intrastate services. Such flexibility is
likely to come first for services offered in the business market. Any pricing
flexibility or other significant deregulation of the incumbent local exchange
carriers could have a material adverse effect on the Company. See "Business--
Regulation."
COMPETITION
The Company operates in a highly competitive environment, and the level of
competition, particularly with respect to pricing, is increasing. Local
telephone and intraLATA long distance services substantially similar to those
expected to be offered by the Company are also offered by the incumbent local
exchange carriers serving the markets that the Company plans to serve.
BellSouth is the incumbent local exchange carrier and a particularly strong
competitor in most of the markets to be served by the Company. BellSouth and
other incumbent local exchange carriers already have relationships with every
customer and have the potential to subsidize services of the type offered by
the Company from service revenues not subject to effective competition, which
could result in even more intense price competition. The Company competes with
long distance carriers in the provision of interLATA long distance Retail and
Carriers' Carrier Services. The interLATA long distance market consists of
three major competitors (AT&T, MCI and Sprint) but other companies operate or
are building networks in the southern United States and other geographic
areas. Other competitors of the Company in the Retail and Carriers' Carrier
Services markets are likely to include Regional Bell Operating Companies
providing out-of-region (and, with the future removal of regulatory barriers,
in-region) long distance services, other competitive local exchange carriers,
microwave and satellite carriers, and private networks owned by large end-
users. In addition, the Company competes with direct marketers, equipment
vendors and installers, and telecommunications management companies with
respect to certain portions of its business. Many of the Company's existing
and potential competitors have financial, technical and other resources and
customer bases and name recognition far greater than those of the Company. The
long distance business is extremely competitive and prices have declined
substantially in recent years and are expected to continue to decline, which
will adversely affect the Company's gross margins as a percentage of revenues.
The FCC recently announced changes to its interstate access rules that will
reduce per-minute access charges and substitute new per-line flat-rate monthly
charges. These actions are expected to reduce access rates. AT&T has committed
to reduce its long distance rates to reflect access cost reductions, and other
competitors of the Company are likely to make similar reductions. In such
event, the Company may need to reduce its rates to respond to competitive
pressures. See "--Dependence on Incumbent Local Exchange Carriers" and
"Business--Regulation."
The Telecommunications Act, other recent state legislative actions, and
current federal and state regulatory initiatives provide increased business
opportunities for the Company by removing or substantially reducing certain
barriers to local exchange competition. However, these new competitive
opportunities are expected to be accompanied by new competitive opportunities
for the incumbent local exchange carriers. It is also expected that increased
local competition will result in increased pricing flexibility for, and
relaxation of regulatory oversight of, the incumbent local exchange carriers.
If the incumbent local exchange carriers are permitted to engage in increased
volume and discount pricing practices or charge competitive local exchange
carriers increased fees for
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interconnection to their networks, or if the incumbent local exchange carriers
seek to delay implementation of interconnection by competitors to their
networks, the Company's results of operations and financial condition could be
adversely affected. There can be no assurance that the Company will be able to
achieve or maintain adequate market share or revenues, or compete effectively
in any of its markets.
In addition, a continuing trend toward business combinations and strategic
alliances in the telecommunications industry may further enhance competition.
For example, the national long distance carrier WorldCom acquired MFS
Communications Company, Inc., a competitive local exchange carrier, in
December 1996. In November 1996, British Telecommunications plc, an
international telecommunications company, announced its agreement to acquire
MCI. In March 1997, BellSouth and International Business Machines Corporation
("IBM") announced an alliance to provide Internet and Intranet services to
businesses in the southern United States. These types of strategic alliances
could put the Company at a significant competitive disadvantage.
The Company will face competition in the markets in which it operates from
one or more competitive local exchange carriers operating fiber optic
networks, in some cases in conjunction with the local cable television
operator. One of the primary purposes of the Telecommunications Act is to
promote competition, particularly in the local telephone market. AT&T, MCI,
Sprint and others have begun to offer local telecommunications services,
either directly or in conjunction with other competitive local exchange
carriers in certain locations, and are expected to expand that activity as
opportunities created by the Telecommunications Act develop. BellSouth has
announced plans to provide competitive local service in areas of its region
where it is not the incumbent local exchange carrier.
To complement its telecommunications services offerings, the Company offers
data transmission services. The data transmission business is extremely
competitive and prices have declined substantially in recent years and are
expected to continue to decline.
The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the level of competition faced by
the Company. Under this agreement, the United States and other members of the
WTO committed themselves to opening their telecommunications markets to
competition and foreign ownership and to adopting regulatory measures to
protect against anticompetitive behavior by dominant telephone companies
effective as early as January 1, 1998.
The Company also believes that providers of wireless services increasingly
will offer, in addition to products that supplement a customer's wireline
communications (similar to cellular telephone services in use today), wireline
replacement products that may result in wireless services becoming the
customer's primary mode of communication. For example, AT&T recently announced
plans to offer local services using a new wireless technology. AT&T's proposed
wireless system would link residential and business telephones via radio waves
to the AT&T network. If successful, this new service could further enhance
AT&T's ability to market, on a nationwide basis, "one-stop" telecommunications
services. Competition with providers of wireless telecommunications services
may be intense. Many of the Company's potential wireless competitors have
substantially greater financial, technical, marketing, sales, manufacturing
and distribution resources than those of the Company.
DEPENDENCE ON INCUMBENT LOCAL EXCHANGE CARRIERS
The Company is dependent on incumbent local exchange carriers to provide
access service for the origination and termination of its toll long distance
traffic and interexchange private lines. Historically charges for such access
service have made up a significant percentage of the overall cost of providing
long distance service. On May 7, 1997, the FCC adopted changes to its
interstate access rules that, among other things, will reduce per-minute
access charges and substitute new per-line flat rate monthly charges. The FCC
also approved reductions in overall access rates, and established new rules to
recover subsidies to support universal service and other public policies. The
impact of these changes on the Company or its competitors is not yet clear.
The Company could be adversely affected if it does not experience access cost
reductions proportionally equivalent to those of its competitors. See
"Business--Regulation."
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The Company also generally will be dependent on incumbent local exchange
carriers for provision of local telephone service through access to local
loops, termination service and, in some markets, central office switches of
such carriers. In addition, the Company intends to obtain the local telephone
services of the incumbent local exchange carriers on a wholesale basis and
resell that service to end users, particularly in the early stages of its
local telephone service business.
Any successful effort by the incumbent local exchange carriers to deny or
substantially limit the Company's access to the incumbent local exchange
carrier's network elements or wholesale services would have a material adverse
effect on the Company's ability to provide local telephone services. Although
the Telecommunications Act imposes interconnection obligations on incumbent
local exchange carriers, there can be no assurance that the Company will be
able to obtain access to such network elements or services at rates, and on
terms and conditions, that permit the Company to offer local services at rates
that are both profitable and competitive. As noted above, the Eighth Circuit
Court of Appeals recently struck down certain FCC rules intended to govern
such rates, terms and conditions. See "Risk Factors--Regulation." The result
of this decision is to give state utility commissions a significantly larger
role in implementing the Telecommunications Act. It is uncertain whether such
commissions will adopt and enforce rules or take other actions that will
permit new carriers to have economical use of incumbent local exchange carrier
networks and facilities. The Interconnection Agreement currently allows the
Company to provide local service on a resale basis or by purchasing all
unbundled network elements required to provide local service on a facilities
basis, without using Company-owned facilities. The terms of the
Interconnection Agreement, including interim pricing terms agreed to by the
Company and BellSouth, have been approved by state regulatory authorities in
most states, although they remain subject to review and modification by such
authorities. In addition, the Interconnection Agreement does not resolve all
operational issues, particularly those relating to the collocation of the
Company's equipment with that of BellSouth. The Company and BellSouth are
continuing to negotiate to resolve such issues. Many issues relevant to the
terms and conditions by which competitors may use the incumbent local exchange
carrier network and wholesale services remain to be resolved. For example,
BellSouth and certain other incumbent local exchange carriers have taken the
position that when a carrier seeking to provide local service obtains all
necessary elements (loops and switches) from the incumbent local exchange
carrier in a combined form, the incumbent local exchange carrier retains the
right to receive the access revenues associated with the service to the
customers served on that basis. Although the FCC has rejected this position,
further legal challenges are in progress and other important issues related to
this form of interconnection remain open. For example, many new carriers,
including the Company, have experienced problems with respect to the
operational support systems used by new carriers to order and receive network
elements and wholesale services from the incumbent local exchange carriers.
These systems are necessary for new carriers like the Company to provide local
service to customers on a timely and competitive basis. The FCC has recently
created a task force to examine problems that have slowed the development of
local telephone competition. See "Business--Regulation" and "Services and
Facilities."
DEPENDENCE ON CERTAIN CUSTOMERS
For the year ended December 31, 1996 and the six months ended June 30, 1997,
giving effect to the Reorganization, the Company's two largest Carriers'
Carrier customers would together have accounted for approximately 15% and 12%,
respectively, of the Company's combined pro forma revenues. For the six months
ended June 30, 1997, the Company's five largest Retail Services customers
would have represented an aggregate of approximately 10% of the Company's
combined pro forma revenues. The Company's customers generally use more than
one service provider and may reduce their use of the Company's services and
switch to other providers without incurring significant expense. The Company's
agreements with its customers generally provide that the customer may
terminate service without penalty in the event of certain outages in service
and for certain other defined causes. Although, as of June 30, 1997, on a pro
forma basis, the Company's Carriers' Carrier business had remaining future
long-term contract commitments totaling approximately $75.8 million, some of
such contractual commitments provide that, if the customer is offered lower
pricing with respect to any circuit by another carrier, the customer's
commitment to the Company will be reduced to the extent the Company does not
match the price for such circuit and the customer purchases such circuit from
the other carrier. There can be no assurance that the Company will be able to
retain its customers. The loss of or a significant decrease of business from
any of its largest customers would have a material adverse effect on the
Company's business, results of operations and financial condition.
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RISK OF RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology. Although the Company believes that, for the foreseeable future,
these changes will neither materially affect the continued use of its fiber
optic network, digital switches and transmission equipment, nor materially
hinder its ability to acquire necessary technologies, the effect of
technological changes on the business of the Company, such as changes relating
to emerging wireline (including fiber optic) and wireless (including
broadband) transmission technologies, cannot be predicted. In addition, the
Company may be required to select in advance one technology over another, but
it will be impossible to predict with any certainty, at the time the Company
is required to make its investment, which technology will prove to be the most
economic, efficient or capable of attracting customer usage.
DEPENDENCE ON NETWORK INFRASTRUCTURE
The Company has entered into marketing and management agreements with three
southern public utility companies to sell long-haul private line services on a
commission basis on the fiber optic networks owned by these companies.
Pursuant to these agreements, which have remaining terms ranging from five to
eight years, the Company generally earns a commission based upon a percentage
of the gross revenues generated by the sale of capacity on the utility's
networks. By interconnecting the Company's owned network to these other
networks owned by the public utilities, and by marketing and selling capacity
on such networks to the Company's customers, the Company has effectively
extended its network with minimal capital expenditure. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview." The Company also has a buy-sell agreement with Carolinas Fibernet,
LLC, which manages fiber optic facilities in North Carolina and South
Carolina. Although the Company does not believe that any of these agreements
will be terminated in the near future, cancellation or non-renewal of any of
such agreements could materially adversely affect the Company's business. In
addition, two of the Company's three agreements with public utility companies
are nonexclusive, and the Company may encounter competition for capacity on
the utilities' networks from other service providers that enter into
comparable arrangements with the utilities. Any reduction in the amount of
capacity that is made available to the Company could adversely affect the
Company. To the extent the Company is unable to establish similar arrangements
in new markets, it may be required to make additional capital expenditures to
extend its fiber network.
The Company's business also could be materially adversely affected by a
cable cut or equipment failure in the Company's fiber optic network. Although
the Company has implemented electronic redundancy throughout its network,
which enables traffic to be rerouted to another fiber in the same fiber sheath
in the event of a partial fiber cut or electronics failure, a substantial
portion of the Company's owned and managed fiber optic network is not
protected in the event of a total cable cut.
HOLDING COMPANY STRUCTURE; PRIORITY OF SECURED DEBT
The Company is a holding company with no direct operations and no
significant assets other than the stock of its subsidiaries. The Company is
dependent on the cash flows of its subsidiaries to meet its obligations,
including the payment of interest and principal on the Exchange Notes. The
Company's subsidiaries are separate legal entities that have no obligation to
pay any amounts due pursuant to the Exchange Notes or to make any funds
available therefor, whether by dividends, loans or other payments. Because the
Company's subsidiaries will not guarantee the payment of the principal or
interest on the Exchange Notes, any right of the Company to receive assets of
any of its subsidiaries upon its liquidation or reorganization (and the
consequent right of holders of the Exchange Notes to participate in the
distribution or realize proceeds from those assets) will be effectively
subordinated to the claims of the creditors of any such subsidiary (including
trade creditors and holders of indebtedness of such subsidiary), except if and
to the extent the Company is itself a creditor of such subsidiary, in which
case the claims of the Company would still be effectively subordinated to any
security interest in the assets of such subsidiary held by other creditors. As
of June 30, 1997, on a pro forma basis, giving effect to the Reorganization,
the subsidiaries of the Company had approximately $37.8 million of liabilities
(excluding
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intercompany payables), including approximately $14.4 million of indebtedness
(including capital leases). In addition, a subsidiary of the Company has $100
million of availability under the Credit Facility, which is secured. The
Company and its other subsidiaries are guarantors under the Credit Facility.
See "Description of Certain Indebtedness--Credit Facility."
The Exchange Notes are unsecured (except with respect to the Pledged
Securities) and therefore will be effectively subordinated to any secured
indebtedness of the Company. The Indenture permits the Company and its
subsidiaries to incur an unlimited amount of indebtedness to finance the
acquisition of equipment, inventory and network assets and to secure such
indebtedness, and up to $100 million of other secured indebtedness pursuant to
one or more credit facilities, including the Credit Facility. The Credit
Facility is secured by substantially all of the assets of the Company's
subsidiaries. Consequently, in the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding with respect to the Company,
such assets would be available to satisfy obligations of the secured debt
before any payment could be made on the Exchange Notes. In addition, to the
extent such assets did not satisfy in full the secured indebtedness, the
holders of such indebtedness would have a claim for any shortfall that would
be pari passu (or effectively senior if the indebtedness were issued by a
subsidiary) with the Exchange Notes. Accordingly, there may only be a limited
amount of assets available to satisfy any claims of the holders of the
Exchange Notes upon an acceleration of the Exchange Notes.
DEPENDENCE ON KEY PERSONNEL
The Company's business is currently managed by a small number of key
management and operating personnel. The Company does not have any employment
agreements with, nor does the Company maintain "key man" insurance on, these
employees. The loss of the services of key personnel, or the inability to
attract, recruit and retain sufficient or additional qualified personnel,
could have a material adverse effect on the Company. See "Management."
CONTROL BY ITC HOLDING COMPANY; CONFLICTS OF INTEREST
The Company is authorized under its certificate of incorporation to issue
60,000,000 shares of Class A common stock (the "Class A Common Stock"), which
have one vote per share, and 30,000,000 shares of Class B common stock (the
"Class B Common Stock"), which have ten votes per share. ITC Holding owns
15,000,000 shares of Class B Common Stock, which constitute all of the
Company's issued and outstanding capital stock. Certain decisions concerning
the operations or financial structure of the Company may present conflicts of
interest between ITC Holding and the holders of the Exchange Notes. For
example, if the Company encounters financial difficulties or is unable to pay
its debts as they mature, the interests of ITC Holding might conflict with
those of the holders of the Exchange Notes. In addition, ITC Holding may have
an interest in pursuing acquisitions, divestitures, financings or other
transactions that, in its judgment, could enhance its equity investment in the
Company, even though such transactions might involve risk to the holders of
the Exchange Notes.
ABSENCE OF PUBLIC MARKET
The Senior Notes have been designated for trading by qualified buyers in the
PORTAL Market. The Senior Notes have not been registered under the Securities
Act, however, and will continue to be subject to restrictions on
transferability to the extent that they are not exchanged for Exchange Notes.
Furthermore, the Exchange Offer will not be conditioned upon any minimum or
maximum aggregate principal amount of Senior Notes being tendered for
exchange. No assurance can be given as to the liquidity of the trading market
of the Senior Notes following the Exchange Offer.
Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by the holders thereof (other than any holder that is
(i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) a broker-dealer that acquired Senior Notes as a result
of market-making activities or other trading activities) without compliance
with the registration requirements under the Securities Act, the
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Exchange Notes will constitute a new issue of securities for which there is
currently no established trading market. If a trading market does not develop
or is not maintained, holders of the Exchange Notes may experience difficulty
in reselling the Exchange Notes or may be unable to sell them at all. If a
market for the Exchange Notes develops, any such market may cease at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of the Exchange Notes will depend on many factors, including, among
other things, prevailing interest rates, the market for similar securities,
the financial conditions and results of operations of the Company and other
factors beyond the control of the Company, including general economic
conditions. The Company does not intend to list the Exchange Notes on any
national securities exchange or to seek approval for quotation through any
automated quotation system. The Company has been advised by the Placement
Agents that following completion of the Exchange Offer, the Placement Agents
intend to make a market in the Exchange Notes. However, the Placement Agents
are not obligated to do so and any market-making activities with respect to
the Exchange Notes may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" of the Company (within the meaning of Rule
405 under the Securities Act) may publicly offer for sale or resell the
Exchange Notes only in compliance with the provisions of Rule 144 under the
Securities Act or any other available exemptions under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Senior Notes, where such Senior Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
CONSEQUENCES OF A FAILURE TO EXCHANGE SENIOR NOTES
The Senior Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case
in compliance with certain other conditions and restrictions. Senior Notes
that remain outstanding after consummation of the Exchange Offer will continue
to bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Senior Notes that remain
outstanding will not be entitled to any rights to have such Senior Notes
registered under the Securities Act, except under certain limited
circumstances. The Company does not intend to register under the Securities
Act any Senior Notes that remain outstanding after consummation of the
Exchange Offer. See "The Exchange Offer." To the extent that Senior Notes are
not tendered and accepted in the Exchange Offer, a holder's ability to sell
such Senior Notes could be adversely affected.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Senior Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent
of (i) such Senior Notes or a book-entry confirmation of a book-entry transfer
of the Senior Notes into the Exchange Agent's account at The Depository Trust
Company ("DTC"); (ii) the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees;
and (iii) any other documents required by the Letter of Transmittal. Holders
of the Senior Notes desiring to tender such Senior Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company and the Exchange Agent are under no duty to give notification of
defects or irregularities with respect to the tenders of Senior Notes for
exchange. See "The Exchange Offer."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Senior Notes, the Company entered into
the Registration Rights Agreement with the Placement Agents, pursuant to which
the Company agreed to file and to use its best efforts to cause to become
effective with the Commission a registration statement with respect to the
exchange of the Senior Notes for Exchange Notes with terms identical in all
material respects to the terms of the Senior Notes. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part (the "Registration Statement"). The Exchange
Offer is being made to satisfy the contractual obligations of the Company
under the Registration Rights Agreement.
By tendering Senior Notes in exchange for Exchange Notes, each holder will
represent to the Company that: (i) any Exchange Notes to be received by such
holder will be acquired in the ordinary course of such holder's business; (ii)
such holder has no arrangement or understanding with any person to participate
in a distribution (within the meaning of the Securities Act) of the Exchange
Notes; (iii) such holder is not an "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act), or if such holder is an
affiliate, that such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable; (iv)
such holder has full power and authority to tender, exchange, sell, assign and
transfer the tendered Senior Notes; (v) the Company will acquire good,
marketable and unencumbered title to the tendered Senior Notes, free and clear
of all liens, restrictions, charges and encumbrances; and (vi) the Senior
Notes tendered for exchange are not subject to any adverse claims or proxies.
Each tendering holder also will warrant and agree that such holder will, upon
request, execute and deliver any additional documents deemed by the Company or
the Exchange Agent to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the Senior Notes tendered pursuant to the
Exchange Offer. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Senior Notes, where such Senior Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept tenders
for exchange from, holders of Senior Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Senior Notes are registered
on the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder, or any participant in DTC
whose name appears on a security position listing as a holder of Senior Notes
(which, for purposes of the Exchange Offer, include beneficial interests in
the Senior Notes held by direct or indirect participants in DTC and Senior
Notes held in definitive form).
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange $1,000 principal amount of Exchange Notes for each $1,000 principal
amount of Senior Notes properly tendered prior to the Expiration Date and not
properly withdrawn in accordance with the procedures described below. Holders
may tender their Senior Notes in whole or in part in integral multiples of
$1,000 principal amount.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Senior Notes except that (i) the Exchange Notes will have been
registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Senior Notes and (ii)
holders of the Exchange Notes will not be entitled to certain rights of
holders of the Senior Notes under the Registration Rights Agreement. The
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Exchange Notes will evidence the same indebtedness as the Senior Notes (which
they will replace) and will be issued pursuant to, and entitled to the
benefits of, the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered for exchange. The Company reserves the
right in its sole discretion to purchase or make offers for any Senior Notes
that remain outstanding after the Expiration Date or, as set forth under "--
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Senior Notes in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer. As of
the date of this Prospectus,$200 million aggregate principal amount of Senior
Notes is outstanding.
Holders of Senior Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Senior Notes that are not tendered, or are
tendered but not accepted, in connection with the Exchange Offer will remain
outstanding and continue to accrue interest in accordance with their terms,
but will not retain any rights under the Registration Rights Agreement. See
"Risk Factors--Consequences of a Failure to Exchange Senior Notes."
If any tendered Senior Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Senior Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Senior Notes in connection with the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Senior Notes in connection with the Exchange Offer. The Company
will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO HOLDERS OF
SENIOR NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF SENIOR
NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE
OFFER AND, IF SO, THE AGGREGATE AMOUNT OF SENIOR NOTES TO TENDER AFTER READING
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS, AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on ,
1997 unless the Exchange Offer is extended by the Company (in which case the
term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i)
to delay the acceptance of the Senior Notes for exchange; (ii) to terminate
the Exchange Offer (whether or not any Senior Notes have theretofore been
accepted for exchange) if the Company determines, in its sole and absolute
discretion, that any of the events or conditions referred to under "--
Conditions to the Exchange Offer" has occurred or exists or has not been
satisfied; (iii) to extend the Expiration Date of the Exchange Offer and
retain all Senior Notes tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Senior Notes to withdraw their tendered
Senior Notes as described under "--Withdrawal Rights;" and (iv) to waive any
condition or otherwise amend the terms of the Exchange Offer in any respect
(whether or not any Senior Notes have theretofore been accepted for exchange).
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, or if the Company waives a material condition of
the Exchange Offer, the Company will promptly disclose such amendment by means
of a prospectus supplement that will be distributed to the registered holders
of the Senior
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Notes, and the Company will extend the Exchange Offer to the extent required
by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent (any
such oral notice to be promptly confirmed in writing) and by making a public
announcement thereof, and such announcement in the case of an extension will
be made no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Without limiting the manner in
which the Company may choose to make any public announcement, and subject to
applicable laws, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes
for Senior Notes validly tendered and not withdrawn (pursuant to the
withdrawal rights described under "--Withdrawal Rights") promptly after the
Expiration Date.
In all cases, delivery of Exchange Notes in exchange for Senior Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of (i) Senior Notes or a book-
entry confirmation of a book-entry transfer of Senior Notes into the Exchange
Agent's account at DTC; (ii) the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees;
and (iii) any other documents required by the Letter of Transmittal.
Accordingly, the delivery of Exchange Notes might not be made to all tendering
holders at the same time, and will depend upon when Senior Notes, book-entry
confirmations with respect to Senior Notes and other required documents are
received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Senior Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Senior Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent (any such oral notice to be promptly
confirmed in writing) of the Company's acceptance of such Senior Notes for
exchange pursuant to the Exchange Offer. The Company's acceptance for exchange
of Senior Notes tendered pursuant to any of the procedures described above
will constitute a binding agreement between the tendering holder and the
Company upon the terms and subject to the conditions of the Exchange Offer.
The Exchange Agent will act as agent for the Company for the purpose of
receiving tenders of Senior Notes, Letters of Transmittal and related
documents, and as agent for tendering holders for the purpose of receiving
Senior Notes, Letters of Transmittal and related documents and transmitting
Exchange Notes to holders who validly tendered Senior Notes. Such exchange
will be made promptly after the Expiration Date. If for any reason whatsoever
the acceptance for exchange or the exchange of any Senior Notes tendered
pursuant to the Exchange Offer is delayed (whether before or after the
Company's acceptance for exchange of Senior Notes), or the Company extends the
Exchange Offer or is unable to accept for exchange or exchange Senior Notes
tendered pursuant to the Exchange Offer, then, without prejudice to the
Company's rights set forth herein, the Exchange Agent may, nevertheless, on
behalf of the Company and subject to Rule 14e-1(c) under the Exchange Act,
retain tendered Senior Notes and such Senior Notes may not be withdrawn except
to the extent tendering holders are entitled to withdrawal rights as described
under "--Withdrawal Rights."
PROCEDURES FOR TENDERING SENIOR NOTES
Valid Tender. Except as set forth below, in order for Senior Notes to be
validly tendered pursuant to the Exchange Offer, either (i) (a) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, must be
received by the Exchange Agent at the address set forth under "--Exchange
Agent" prior to the Expiration Date and (b) tendered Senior
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Notes must be received by the Exchange Agent, or such Senior Notes must be
tendered pursuant to the procedures for book-entry transfer set forth below
and a book-entry confirmation must be received by the Exchange Agent, in each
case prior to the Expiration Date, or (ii) the guaranteed delivery procedures
set forth below must be complied with.
If less than all of the Senior Notes held by a holder are tendered by such
holder, such holder should fill in the amount of Senior Notes being tendered
in the appropriate box on the Letter of Transmittal. The entire amount of
Senior Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of Senior Notes that are held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
THE METHOD OF DELIVERY OF SENIOR NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE
OBTAINED. NO LETTER OF TRANSMITTAL OR SENIOR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH
HOLDERS.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Senior Notes at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the Senior Notes by causing
DTC to transfer such Senior Notes into the Exchange Agent's account at DTC in
accordance with DTC's procedures for transfers. However, although delivery of
Senior Notes may be effected through book-entry transfer into the Exchange
Agent's account at DTC, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees
and any other required documents, must in any case be delivered to and
received by the Exchange Agent at its address set forth under "--Exchange
Agent" prior to the Expiration Date, or the guaranteed delivery procedure set
forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
Signature Guarantees. Certificates for Senior Notes need not be endorsed and
signature guarantees on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are unnecessary unless (a) a certificate for Senior Notes is
registered in a name other than that of the person surrendering the
certificate or (b) a registered holder completes the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" in the Letter of
Transmittal. In the case of (a) or (b) above, such certificates for Senior
Notes must be duly endorsed or accompanied by a properly executed bond power,
with the endorsement or signature on the bond power and on the Letter of
Transmittal or the notice of withdrawal, as the case may be, guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined
therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association
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or clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association (each an "Eligible Institution"), unless
surrendered on behalf of such Eligible Institution. See Instructions 2 and 5
to the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Senior Notes pursuant to
the Exchange Offer and the certificates for such Senior Notes are not
immediately available or time will not permit all required documents to reach
the Exchange Agent before the Expiration Date, or the procedures for book-
entry transfer cannot be completed on a timely basis, such Senior Notes may
nevertheless be tendered, provided that all of the following guaranteed
delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter of
Transmittal, setting forth the name and address of the holder of Senior
Notes and the amount of Senior Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock
Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Senior
Notes, in proper form for transfer, or a book-entry confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent. The
Notice of Guaranteed Delivery may be delivered by hand, or transmitted by
facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery; and
(iii) the certificates (or book-entry confirmation) representing all
tendered Senior Notes, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal, with any
required signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange
of any tendered Senior Notes will be determined by the Company, in its sole
discretion, which determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance for exchange of which may, in the view of counsel to the Company,
be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "--Conditions to the Exchange Offer" or any defect or irregularity
in any tender of Senior Notes of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will
be final and binding on all parties. No tender of Senior Notes will be deemed
to have been validly made until all defects or irregularities with respect to
such tender have been cured or waived. Neither the Company, any affiliates or
assigns of the Company, the Exchange Agent or any other person shall be under
any duty to give any notification of any defects or irregularities in tenders
or incur any liability for failure to give any such notification.
RESALES OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to third parties unrelated to the Company, the Company
believes that holders of Senior Notes (other than any holder that is (i) a
broker-dealer that acquired Senior Notes as a result of market-making
activities or other trading activities or (ii) an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who exchange their
Senior Notes for Exchange Notes pursuant to the Exchange Offer may offer for
resale, resell and otherwise transfer such Exchange Notes without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such holders' business
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and such holders have no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. Any holder who tenders Senior Notes in the Exchange Offer
with the intention to participate, or for the purpose of participating, in a
distribution of the Exchange Notes or who is an affiliate of the Company may
not rely upon such interpretations by the staff of the Commission and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Failure to comply with such requirements in such
instance may result in such holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the Company. The staff of the
Commission has not considered the Exchange Offer in the context of a no-action
letter, and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer. Each broker-
dealer that receives Exchange Notes for its own account in exchange for Senior
Notes, where such Senior Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. The Company has
agreed that, for a period not to exceed 180 days after the Expiration Date, it
will furnish additional copies of this Prospectus, as amended or supplemented,
to any broker-dealer that reasonably requests such documents for use in
connection with any such resale. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Senior Notes may be
withdrawn at any time prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "--Exchange Agent" prior to
the Expiration Date. Any such notice of withdrawal must specify the name of
the person who tendered the Senior Notes to be withdrawn, the aggregate
principal amount of Senior Notes to be withdrawn, and (if certificates for
such Senior Notes have been tendered) the name of the registered holder of the
Senior Notes as set forth on the Senior Notes, if different from that of the
person who tendered such Senior Notes. If certificates for Senior Notes have
been delivered or otherwise identified to the Exchange Agent, the notice of
withdrawal must specify the certificate number on the particular Senior Notes
to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Senior Notes
tendered for the account of an Eligible Institution. If Senior Notes have been
tendered pursuant to the procedures for book-entry transfer set forth in "--
Procedures for Tendering Senior Notes," the notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawal
of Senior Notes and must otherwise comply with the procedures of DTC.
Withdrawals of tenders of Senior Notes may not be rescinded. Senior Notes
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time prior to the
Expiration Date by following any of the procedures described above under "--
Procedures for Tendering Senior Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all
parties. Neither the Company, any affiliates of the Company, the Exchange
Agent or any other person shall be under any duty to give any notification of
any defects or irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Senior Notes which
have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will accrue at the rate of 11% per annum and
will be payable in cash semi-annually on June 1 and December 1, of each year,
commencing December 1, 1997.
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CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer or any extension
of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Senior Notes for any Exchange Notes, and may, at
any time and from time to time, terminate the Exchange Offer or waive any
conditions to or amend the Exchange Offer in any respect (whether or not any
Senior Notes have theretofore been accepted for exchange), if the Exchange
Offer is determined by the Company, in its sole and absolute discretion, to
violate applicable law or any applicable interpretation of the staff of the
Commission.
If such waiver or amendment constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders of the Senior
Notes, and the Company will extend the Exchange Offer to the extent required
by Rule 14e-1 under the Exchange Act.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The exchange of the Senior Notes for the Exchange Notes will not be a
taxable exchange for federal income tax purposes, and holders of Senior Notes
should not recognize any taxable gain or loss or any interest income as a
result of such exchange.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
BY FACSIMILE
(212) 780-0592
Attention: Customer Service
Confirm by telephone: (800) 548-6565
BY MAIL
United States Trust Company of New York
P.O. Box 843
Cooper Station
New York, New York 10276
Attention: Corporate Trust Services
BY HAND BEFORE 4:30 P.M.
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
BY OVERNIGHT COURIER AND BY HAND AFTER 4:30 P.M.
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail. Additional solicitation may be
made personally or by telephone or other means by officers, directors or
employees of the Company.
32
<PAGE>
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company
has agreed to pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Senior Notes, and in handling or tendering for
their customers.
Holders who tender their Senior Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that if Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Senior Notes tendered, or if a transfer tax
is imposed for any reason other than the exchange of Senior Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
33
<PAGE>
HISTORY OF THE COMPANY
ITC/\DeltaCom was incorporated in Delaware in March 1997 as a wholly owned
subsidiary of ITC Holding to acquire and operate ITC Holding's Retail Services
and Carriers' Carrier Services businesses. The Company acquired such
businesses on July 25, 1997 in the Reorganization.
BACKGROUND
ITC Holding has provided operator and directory assistance services since
March 1992 through InterQuest. Carriers' Carrier Services have been offered
since late 1992 through Interstate FiberNet, a partnership originally formed
by ITC Holding (with a 49% interest) and SCANA (with a 51% interest). In
August 1994, ITC Holding acquired SCANA's interest in Interstate FiberNet
through Transmission II. Also in August 1994, ITC Holding and SCANA formed a
second partnership, Gulf States FiberNet, to construct and operate a fiber
optic route primarily between Atlanta, Georgia and Shreveport, Louisiana with
several supplemental spur routes. In the Gulf States Acquisition, ITC Holding
acquired SCANA's 64% partnership interest in Gulf States FiberNet and the
Georgia Fiber Assets, which included one customer contract representing $3.5
million in annual revenues through August 2001, the term of the contract.
Following the Gulf States Acquisition, ITC Holding contributed the remaining
64% interest in Gulf States FiberNet to Gulf States Transmission and the
Georgia Fiber Assets to Transmission. Members of the Company's management have
been managing the businesses of both Interstate FiberNet and Gulf States
FiberNet since their inception.
In January 1996, as a result of the DeltaCom Acquisition, ITC Holding
entered the retail long distance business and acquired several fiber optic
routes within the state of Alabama that complemented the existing networks
operated by Interstate FiberNet and Gulf States FiberNet. DeltaCom, a provider
of telecommunications services since its inception in 1982, provides long
distance services to mid-sized businesses primarily in the state of Alabama.
In July 1996, DeltaCom purchased substantially all of the assets of ViperNet,
which provides Internet access, Web-hosting and Web page development services
to business customers.
The aggregate consideration paid by ITC Holding in the DeltaCom Acquisition
was approximately $71.4 million (of which $6.0 million consisted of ITC
Holding common stock). To finance the DeltaCom Acquisition and to refinance
existing DeltaCom debt, ITC Holding incurred approximately $74.0 million of
indebtedness, which was pushed down to the Company (the DeltaCom
Indebtedness). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Effects of Accounting Standards." The
aggregate consideration paid by ITC Holding in the Gulf States Acquisition was
approximately $27.9 million, of which $10.0 million consisted of the SCANA
Note, which has been assumed by a subsidiary of the Company, and $17.9 million
consisted of ITC Holding preferred stock. If the Gulf States FiberNet business
achieves a specified performance target for 1997, SCANA will be entitled to
receive additional ITC Holding preferred stock. In connection with the Gulf
States Acquisition, Gulf States Transmission borrowed $41.6 million under the
Bridge Facility to refinance a project loan incurred by Gulf States FiberNet.
SENIOR NOTE OFFERING
On June 3, 1997, the Company completed the sale of $200.0 million principal
amount of Senior Notes in a private offering. The net proceeds to the Company
from the sale of the Senior Notes were approximately $192.7 million, after
deducting the estimated underwriting discounts and commissions and other
expenses payable by the Company. Approximately $62.7 million of such net
proceeds are held by the Trustee as security for and to fund the first six
interest payments on the Senior Notes and the Exchange Notes. The remaining
net proceeds from the sale of the Senior Notes were released to the Company
upon consummation of the Reorganization.
REORGANIZATION
On July 25, 1997, upon receipt of certain regulatory approvals and certain
other consents, ITC Holding contributed to the Company in the Reorganization
the businesses of Interstate FiberNet, Gulf States FiberNet, DeltaCom and
InterQuest. As a result of the Reorganization, the Company became the sole
stockholder of Interstate FiberNet, Inc. (formerly Transmission, Transmission
II, InterQuest and Interstate FiberNet), and Interstate FiberNet, Inc. became
the sole stockholder of Gulf States FiberNet and DeltaCom.
34
<PAGE>
The following chart reflects the organizational structure of the Company
following the Reorganization:
-----------------------------------------------------------
ITC/\DeltaCom, Inc.
-----------------------------------------------------------
-----------------------------------------------------------
Interstate FiberNet, Inc.
(formerly Transmission, Transmission II, InterQuest and
Interstate FiberNet)
-----------------------------------------------------------
---------------------------
---------------------------- ----------------------
Gulf States Transmission
Systems, Inc. DeltaCom, Inc.
---------------------------- ----------------------
In connection with the Reorganization, approximately $31.0 million of the
DeltaCom Indebtedness was forgiven by ITC Holding and contributed to the
Company as additional equity. Following the Reorganization, the Company repaid
the remaining $43.0 million of the DeltaCom Indebtedness, accrued interest on
all $74.0 million of such indebtedness and the $41.6 million of indebtedness
outstanding under the Bridge Facility and accrued interest thereon with a
portion of the net proceeds from the Offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain obligations of the Company
under the Registration Rights Agreement. The Company will not receive any
proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive, in exchange, an equal number of Senior
Notes in like principal amount. The form and terms of the Exchange Notes will
be identical in all material respects to the form and terms of the Senior
Notes, except as otherwise described herein under "The Exchange Offer--Terms
of the Exchange Offer."
The net proceeds to the Company from the sale of the Senior Notes were
approximately $192.7 million, after deducting the estimated underwriting
discounts and commissions and other expenses payable by the Company.
Approximately $62.7 million of such net proceeds are held by the Trustee as
security for and to fund the first six scheduled interest payments on the
Senior Notes and the Exchange Notes. The remaining net proceeds from the
Offering were released to the Company upon consummation of the Reorganization.
The Company applied approximately $94.3 million of such net proceeds to repay
outstanding indebtedness (plus accrued interest) of the Company and
approximately $5.3 million of such net proceeds to repay advances from ITC
Holding used by the Company for capital expenditures. The Company has applied
or intends to apply the remaining net proceeds released to the Company to fund
market expansion activities of the Company's telecommunications business,
including development and construction costs of the Company's fiber optic
network and its regional sales offices; and for additional working capital and
other general corporate purposes, including the funding of cash flow deficits
(after capital expenditures). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The indebtedness that was repaid with the net proceeds from the Offering
consisted of (i) $43.0 million of the DeltaCom Indebtedness (plus accrued
interest on all $74.0 million of the DeltaCom Indebtedness, which was
approximately $9.5 million at July 25, 1997), (ii) $41.6 million of
indebtedness (plus accrued interest, which was approximately $.2 million at
July 25, 1997) under the Bridge Facility, and (iii) as of July 25, 1997, $5.3
million advanced by ITC Holding for general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Liquidity and Capital Resources."
35
<PAGE>
As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances in
areas such as wireline and wireless services, network construction and
infrastructure and Internet access. The Company has no definitive agreement
with respect to any acquisition, although from time to time it has discussions
with other companies and assesses opportunities on an on-going basis. A
portion of the net proceeds from the Offering may be used to fund any such
acquisitions, joint ventures and strategic alliances. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth, as of June 30, 1997, (i) the capitalization
of the Company on a historical combined basis and (ii) the pro forma
consolidated as adjusted capitalization of the Company as adjusted for the
Reorganization and the use of the net proceeds from the Offering. This table
should be read in conjunction with "Use of Proceeds," "Selected Financial and
Operating Data," "Pro Forma Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements and notes thereto, and the other financial data included elsewhere
in this Offering Memorandum.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------
ADJUSTMENTS PRO FORMA
HISTORICAL FOR THE CONSOLIDATED
COMBINED REORGANIZATION AS ADJUSTED
------------ -------------- ------------
<S> <C> <C> <C>
Advances from ITC Holding..... $ 79,886,220 $(79,886,220) $ --
------------ ------------ ------------
Long-term debt and capital
lease obligations:
Capital lease obligations,
including current portion
of $563,153................ 3,542,360 -- 3,542,360
Senior Notes and Exchange
Notes...................... 200,000,000 -- 200,000,000
Gulf States Transmission,
including current portion
of $41,600,000............. 41,600,000 (41,600,000) --
Georgia Fiber Assets,
including current portion
of $1,992,818.............. 9,964,091 -- 9,964,091
Other, including current
portion of $282,563........ 922,675 -- 922,675
------------ ------------ ------------
Total long-term debt and
capital lease obligations,
including current portion
(a)....................... $256,029,126 $(41,600,000) $214,429,126
------------ ------------ ------------
Total stockholder's equity
(b).......................... 33,450,572 30,669,828 64,120,400
------------ ------------ ------------
Total capitalization.......... $369,365,918 $(90,816,392) $278,549,526
============ ============ ============
</TABLE>
- --------
(a) The pro forma combined and the pro forma consolidated as adjusted
capitalization of the Company exclude any potential borrowings under the
Credit Facility. See "Description of Certain Indebtedness--Credit
Facility."
(b) Pro forma consolidated as adjusted stockholder's equity includes (i) ITC
Holding's forgiveness and contribution of $30,999,900 of the DeltaCom
Indebtedness to the Company in connection with the Reorganization, and
(ii) the write-off of $330,072 of debt issuance costs related to the
Bridge Facility which was repaid with a portion of the proceeds from the
Offering. See "Pro Forma Financial Data."
36
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data for the
Company. The selected historical statements of operations data for each of the
years ended December 31, 1994, 1995 and 1996, and the selected historical
balance sheet data for the years then ended, have been derived from the
combined financial statements that have been audited by Arthur Andersen LLP,
independent public accountants. The selected historical statement of
operations data for the six months ended June 30, 1996 and 1997 have been
derived from the Company's unaudited combined financial statements and
include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the data for such
periods. Operating results for interim periods are not necessarily indicative
of results for the full fiscal year. The selected historical financial and
operating data should be read in conjunction with "Use of Proceeds," "Pro
Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the financial statements and notes
thereto, and other financial and operating data included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- -------------------------
(COMBINED) (COMBINED)
1992(A)(B) 1993(A) 1994(A)(C) 1995 1996(D) 1996 1997(E)(F)
----------- ----------- ----------- ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenues...... $ -- $ 636,913 $ 4,945,902 $ 5,750,587 $ 66,518,585 $28,574,799 $ 53,365,061
Operating expenses:
Cost of service........ -- 578,206 2,484,744 3,149,231 38,756,287 16,129,463 25,302,747
Selling, operations
and administration
expense............... -- 235,627 948,230 1,626,678 18,876,572 8,206,621 16,961,324
Depreciation and
amortization.......... -- 47,068 738,052 1,267,882 6,438,074 2,832,017 8,273,232
---------- ---------- ----------- ----------- ------------ ----------- ------------
Total operating
expenses............ -- 860,901 4,171,026 6,043,791 64,070,933 27,168,101 50,537,303
Operating income
(loss)................. -- (223,988) 774,876 (293,204) 2,447,652 1,406,698 2,827,758
Equity in losses of
unconsolidated
subsidiaries........... (25,819) 360,257 (96,920) (258,242) (1,589,812) (1,088,404) --
Interest expense........ -- -- (273,759) (297,228) (6,172,421) (2,762,757) (7,561,591)
Interest and other
income
(other expense)........ -- (826) 82,348 41,734 171,514 107,216 883,388
---------- ---------- ----------- ----------- ------------ ----------- ------------
Income (loss) before
taxes, preacquisition
earnings (losses) and
extraordinary item..... (25,819) 135,443 486,545 (806,940) (5,143,067) (2,337,247) (3,850,445)
Income tax (provision)
benefit................ 15,672 (54,582) (113,248) 302,567 1,233,318 671,467 1,005,809
Preacquisition
(earnings) losses...... -- -- (236,300) -- -- -- 74,132
Extraordinary item (net
of tax benefit)........ -- -- -- -- -- -- (507,515)
---------- ---------- ----------- ----------- ------------ ----------- ------------
Net income (loss)....... $ (10,147) $ 80,861 $ 136,997 $ (504,373) $ (3,909,749) $(1,665,780) $ (3,278,019)
========== ========== =========== =========== ============ =========== ============
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
(deficit).............. $ -- $ 382,562 $ 254,988 $ (242,136) $ 3,415,088 $ 68,175,664
Property and equipment,
net.................... -- 5,204,153 8,486,996 9,386,444 31,880,556 115,852,080
Total assets............ 2,118,761 6,294,266 20,062,286 20,922,337 113,207,979 402,015,721
Long-term debt, advances
from ITC Holding, and
capital lease
obligations, including
current portions....... -- 797,288 4,013,977 3,143,977 75,442,971 335,915,346
Stockholder's equity.... 2,105,681 4,737,090 13,761,409 14,307,036 19,256,526 33,450,572
OTHER FINANCIAL DATA:
Capital expenditures.... $ -- $ 531,187 $ 3,703,835 $ 1,805,742 $ 6,172,660 $ 2,279,913 $ 12,357,471
EBITDA(g)............... -- (176,920) 1,512,928 974,678 8,885,726 4,238,715 11,100,990
Cash flows from
operations............. (25,819) 33,667 978,775 1,437,317 8,188,618 2,448,698 9,409,779
Ratio of earnings to
fixed charges(h)....... N/A N/A 1.85x -- -- -- --
</TABLE>
(footnotes on following page)
37
<PAGE>
(a) Through August 17, 1994, the Company owned a 49% interest in Interstate
FiberNet and accounted for this investment under the equity method. On
August 17, 1994, the Company purchased the remaining 51% interest in
Interstate FiberNet from SCANA. Therefore, Interstate FiberNet's revenues
and expenses have been included in the combined statement of operations
data effective January 1, 1994, with the preacquisition earnings
attributable to SCANA deducted to determine combined net income for 1994.
See note 5 to the combined financial statements.
(b) Includes operations of InterQuest from March 1992 (date of inception).
(c) On August 17, 1994, the Company entered into the Gulf States FiberNet
partnership with SCANA. The Company obtained a 36% general partnership
interest, and the investment was accounted for under the equity method.
See note 5 to the combined financial statements.
(d) On January 29, 1996, ITC Holding purchased DeltaCom. DeltaCom's results of
operations are included in the historical statement of operations data
since the date of acquisition. See note 13 to the combined financial
statements.
(e) On March 27, 1997, the Company purchased the remaining 64% partnership
interest in Gulf States FiberNet from SCANA. Therefore, Gulf States
FiberNet's revenues and expenses have been included in the combined
statement of operations data effective January 1, 1997 with the
preacquisition losses attributable to SCANA deducted to determine the
combined net loss for the six months ended June 30, 1997. See note 16 to
the combined financial statements.
(f) On March 27, 1997, the Company purchased the Georgia Fiber Assets from
SCANA. The results of operations for the Georgia Fiber Assets are included
in the combined statements of operations beginning April 1, 1997. See note
16 to the combined financial statements.
(g) EBITDA represents earnings before extraordinary item, preacquisition
(earnings) losses, equity in losses of unconsolidated subsidiaries, net
interest, income taxes, depreciation and amortization. EBITDA is provided
because it is a measure commonly used in the industry. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity. EBITDA
is not necessarily comparable with similarly titled measures for other
companies.
(h) Earnings consist of income before income taxes, plus fixed charges. Fixed
charges consist of interest charges and amortization of debt issuance
costs (including those reflected as an extraordinary item) and the portion
of rent expense under operating leases representing interest (estimated to
be one-third of such expense). Earnings were insufficient to cover fixed
charges for the years ended December 31, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 by $.8 million, $5.1 million, $2.3 million
and $3.8 million, respectively.
38
<PAGE>
PRO FORMA FINANCIAL DATA
As discussed in note 1 to the combined financial statements, the historical
combined financial statements include the financial statements of the
following wholly owned subsidiaries of ITC Holding prior to the
Reorganization: Transmission, Transmission II, Gulf States Transmission,
InterQuest and DeltaCom. The historical combined financial statements include
the results of DeltaCom's operations effective as of the date of acquisition,
January 29, 1996. The Company's historical combined financial statements also
include the results of operations of Interstate FiberNet, a partnership
between Transmission and Transmission II, as well as Gulf States
Transmission's 36% equity interest in the results of operations of Gulf States
FiberNet.
The pro forma adjustments to the statements of operations for the year ended
December 31, 1996 and for the six months ended June 30, 1997 reflect (i) the
DeltaCom Acquisition, with respect to the year ended December 31, 1996, (ii)
the Gulf States Acquisition, (iii) the Reorganization and (iv) the Offering
and the use of the net proceeds therefrom, as if each of such transactions had
occurred on January 1, 1996. The pro forma adjustments to the balance sheet
reflect (i) the Reorganization, including ITC Holding's forgiveness and
contribution of approximately $31.0 million of DeltaCom Indebtedness to the
Company as additional equity and (ii) the release and use of the net proceeds
from the Offering, as if each of such transactions had occurred on June 30,
1997.
The pro forma financial and operating information does not purport to
represent what the Company's consolidated results of operations would have
been if these transactions had in fact occurred on these dates, nor does it
purport to indicate the future consolidated financial position or consolidated
results of future operations of the Company. The pro forma adjustments are
based on currently available information and certain assumptions that
management believes to be reasonable.
39
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GEORGIA
HISTORICAL GULF STATES FIBER PRO FORMA PRO FORMA
COMBINED DELTACOM(A) FIBERNET ASSETS ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues...... $66,518,585 $5,256,931 $10,056,544 $3,542,302 $ -- $ 85,374,362
Cost of services........ 38,756,287 2,963,383 867,558 -- -- 42,587,228
----------- ---------- ----------- ---------- ------------ ------------
Gross margin............ 27,762,298 2,293,548 9,188,986 3,542,302 -- 42,787,134
Operating expenses:
Selling, operations
and administration.... 18,876,572 1,343,761 2,785,596 860,240 -- 23,866,169
Depreciation
and amortization...... 6,438,074 290,226 6,620,382 1,063,408 200,671 (b) 14,612,761
----------- ---------- ----------- ---------- ------------ ------------
Total operating
expenses ............. 25,314,646 1,633,987 9,405,978 1,923,648 200,671 38,478,930
Operating income
(loss)................ 2,447,652 659,561 (216,992) 1,618,654 (200,671) 4,308,204
Other income (expense):
Equity in losses of
unconsolidated
subsidiary............ (1,589,812) -- -- -- 1,589,812 (c) --
Interest expense....... (6,172,421) (143,883) (4,345,001) -- (15,605,484)(d) (26,266,789)
Interest and
other income.......... 171,514 12,334 145,851 -- 3,388,252 (e) 3,717,951
----------- ---------- ----------- ---------- ------------ ------------
Total other income
(expense)............. (7,590,719) (131,549) (4,199,150) -- (10,627,420) (22,548,838)
Income (loss) before
taxes.................. (5,143,067) 528,012 (4,416,142) 1,618,654 (10,828,091) (18,240,634)
Income tax
(provision) benefit.... 1,233,318 (200,645) 1,678,134 (615,089) 4,071,414 (f) 6,167,132
----------- ---------- ----------- ---------- ------------ ------------
Net income (loss)....... $(3,909,749) $ 327,367 $(2,738,008) $1,003,565 $ (6,756,677) $(12,073,502)
=========== ========== =========== ========== ============ ============
</TABLE>
- --------
(a) Represents the operations of DeltaCom from January 1, 1996 to January 29,
1996, the date it was acquired by ITC Holding.
(b) Reflects one month of additional goodwill amortization resulting from the
DeltaCom Acquisition ($113,844), as well as additional goodwill
amortization resulting from the Gulf States Acquisition ($86,827). See
notes 13 and 16, respectively, to the combined financial statements. The
goodwill amounts will be amortized over 40 years.
(c) Reflects the elimination of Gulf States Transmission's 36% share of Gulf
States FiberNet's results of operations for 1996.
(d) Reflects (i) additional interest expense of $1,096,050 related to the
$10.0 million SCANA Note issued by ITC Holding in connection with the Gulf
States Acquisition and assumed by Interstate FiberNet, Inc.; (ii) one
month of additional interest expense of $530,065 related to the DeltaCom
Indebtedness; (iii) interest expense of $22,000,000 related to the Notes;
(iv) the amortization of $735,000 of debt issuance costs relating to the
Offering; (v) the elimination of $9,789,687 of interest expense related to
the DeltaCom Indebtedness and the Gulf States FiberNet debt, $84.6 million
of which was repaid with a portion of the proceeds from the Offering and
approximately $31.0 million of which was forgiven by ITC Holding and
contributed to equity in connection with the Reorganization; and (vi) the
write-off of $1,034,056 of debt issuance costs related to Gulf States
FiberNet's existing debt and the Bridge Facility, which was repaid with a
portion of the net proceeds from the Offering.
(e) Reflects the estimated interest income that would have been earned on the
approximately $62.7 million of Offering proceeds placed in a pledged
account (reflected as restricted cash on the pro forma balance sheet) to
secure and fund the first six scheduled payments of interest (including
.5% interest per annum in the event that the Exchange Offer is not
consummated on or before December 3, 1997) on the Senior Notes and the
Exchange Notes (at an average interest rate of 6.15% per annum). Under the
terms of the Indenture, the amounts placed in the pledged account are
required to be invested in Pledged Securities, which secure the Senior
Notes and the Exchange Notes.
(f) Reflects the income tax effects of the pro forma adjustments above and
includes the additional income tax benefits from additional interest
expense and goodwill amortization as well as the net losses of Gulf States
FiberNet.
40
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
GEORGIA
HISTORICAL FIBER PRO FORMA PRO FORMA
COMBINED ASSETS ADJUSTMENTS CONSOLIDATED
----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Operating revenues....... $53,365,061 $ 885,450 $ -- $54,250,511
Cost of services......... 25,302,747 -- -- 25,302,747
----------- --------- ----------- -----------
Gross margin............. 28,062,314 885,450 -- 28,947,764
Operating Expenses:
Selling, operations, and
administrative......... 16,961,324 248,225 -- 17,209,549
Depreciation &
amortization........... 8,273,232 334,034 26,775 (a) 8,634,041
----------- --------- ----------- -----------
Total operating
expenses............... 25,234,556 582,259 26,775 25,843,590
Operating income......... 2,827,758 303,191 (26,775) 3,104,174
Other income (expense):
Interest expense........ (7,561,591) -- (4,828,407)(b) (12,389,998)
Interest and other
income (expense)....... 883,388 -- 1,814,223 (c) 2,697,611
----------- --------- ----------- -----------
Total other income
(expense).............. (6,678,203) -- (3,014,184) (9,692,387)
Income before taxes,
preacquisition losses
and extraordinary item.. (3,850,445) 303,191 (3,040,959) (6,588,213)
Income tax (provision)
benefit ................ 1,005,809 (115,213) 1,155,564 (d) 2,046,160
----------- --------- ----------- -----------
Income (loss) before
preacquisition losses
and extraordinary item.. (2,844,636) 187,978 (1,885,395) (4,542,053)
Preacquisition losses.... 74,132 -- (74,132) --
----------- --------- ----------- -----------
Net income (loss) from
continuing
operations(e)........... $(2,770,504) $ 187,978 $(1,959,527) $(4,542,053)
=========== ========= =========== ===========
</TABLE>
- --------
(a) Reflects additional goodwill amortization resulting from the Gulf States
Acquisition. See note 16 to the combined financial statements. The
goodwill will be amortized over 40 years.
(b) Reflects (i) additional interest expense of $274,013 related to the $10.0
million SCANA Note issued by ITC Holding in connection with the Gulf
States Acquisition and assumed by Interstate FiberNet, Inc.; (ii) interest
expense of $9,166,667 related to the Notes; (iii) the amortization of
$304,167 of debt issuance costs relating to the Offering; (iv) the
elimination of $5,246,512 of interest expense related to the DeltaCom
Indebtedness and the Gulf States FiberNet debt, $84.6 million of which was
repaid with a portion of the net proceeds from the Offering and
approximately $31.0 million of which was forgiven by ITC Holding and
contributed to equity in connection with the Reorganization; and (v) the
write-off of $330,072 of debt issuance costs related to the Bridge
Facility, which was repaid with a portion of the net proceeds from the
Offering.
(c) Reflects the estimated interest income that would have been earned on the
approximately $62.7 million of Offering proceeds placed in a pledged
account (reflected as restricted cash on the pro forma balance sheet) to
secure and fund the first six scheduled payments of interest (including
.5% interest per annum in the event that the Exchange Offer is not
consummated on or before December 3, 1997) on the Senior Notes and the
Exchange Notes (at an average interest rate of 6.15% per annum). Under the
terms of the Indenture, the amounts placed in the pledged account are
required to be invested in Pledged Securities, which secure the Senior
Notes and the Exchange Notes.
(d) Reflects the income tax effects of the pro forma adjustments above and
includes the additional income tax benefits from additional interest
expense and goodwill amortization.
(e) In March 1997, the Company incurred an extraordinary loss on the early
retirement of debt totalling $507,515, net of tax. Including this
extraordinary loss, the pro forma consolidated net loss for the six months
ended June 30, 1997 would be $5,049,568.
41
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
HISTORICAL FOR THE PRO FORMA CONSOLIDATED
COMBINED REORGANIZATION ELIMINATIONS BALANCE SHEET
------------ --------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............. $ 5,478,614 $31,029,025 (a) $ -- $ 36,507,639
Current restricted
assets.................. 194,775,128 (176,085,802)(a) -- 18,689,326
Accounts receivable, net
of allowance for
uncollectible accounts.. 17,487,268 -- -- 17,487,268
Other current assets.... 3,006,700 -- -- 3,006,700
Long-term restricted
assets.................. -- 44,018,820 (a) -- 44,018,820
Investments............. 5,000 33,941,775 (b) (33,941,775)(d) 5,000
Intangible assets, net.. 65,397,003 930,708 (c) -- 66,327,711
Property, plant, and
equipment, net.......... 115,852,080 -- -- 115,852,080
Other long-term assets.. 13,928 -- -- 13,928
------------ ------------ ------------ ------------
Total assets........... $402,015,721 $(66,165,474) $(33,941,775) $301,908,472
============ ============ ============ ============
LIABILITIES AND
STOCKHOLDER'S EQUITY
Accounts payable........ $ 10,794,956 $ -- $ -- $ 10,794,956
Accrued interest expense
payable to ITC Holding.. 9,011,106 (9,011,106)(a) -- --
Other accrued
liabilities............. 8,441,230 (279,751)(a) -- 8,161,479
Current portion of long-
term debt and capital
lease obligations....... 44,438,534 (41,600,000)(a) -- 2,838,534
Advances from ITC
Holding................. 79,886,220 (79,886,220)(a)(b) -- --
Long-term debt and
capital lease
obligations............. 211,590,592 -- -- 211,590,592
Deferred income taxes... 4,402,511 -- -- 4,402,511
Common stock............ 150,826 -- (826)(d) 150,000
Additional paid-in
capital................. 40,814,227 64,941,675 (b) (40,814,227)(d) 64,941,675
Accumulated deficit..... (7,514,481) (330,072)(c) 6,873,278 (d) (971,275)
------------ ------------ ------------ ------------
Total liabilities and
stockholder's equity... $402,015,721 $(66,165,474) $(33,941,775) $301,908,472
============ ============ ============ ============
</TABLE>
- ----
(a) Reflects the release of $132,066,982 in net proceeds from the Offering
(excluding $62,708,146 (including $18,689,326 current portion) which has
been invested in certain U.S. government securities and is held by the
trustee in a pledged account to secure and fund the first six scheduled
interest payments on the Senior Notes and the Exchange Notes under the
terms of the Indenture) less: (i) the repayment of $48,886,320 of advances
from ITC Holding (the DeltaCom Indebtedness) and related interest of
$9,011,106; (ii) the repayment of indebtedness under the Bridge Facility
of $41,600,000 and related interest of $279,751; and (iii) estimated
$1,260,780 payment of remaining debt issuance costs.
(b) Reflects ITC Holding's contribution to the Company of its investments in
the historical combined subsidiaries and its forgiveness and contribution
of $30,999,900 of DeltaCom Indebtedness in connection with the
Reorganization.
(c) Reflects the estimated payment of $1,260,780 additional debt issuance
costs from the Offering, partially offset by the writeoff of $330,072 of
debt issuance costs related to the Bridge Facility.
(d) Reflects the Reorganization and corresponding consolidation entry to
eliminate the Company's investment in its subsidiaries. See note 1 to the
combined financial statements.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the financial
statements and the notes thereto and the other financial data appearing
elsewhere in this Prospectus. The Company has included EBITDA data in the
following analysis because it is a measure commonly used in the industry.
EBITDA represents earnings before extraordinary item, preacquisition
(earnings) losses, equity in losses of unconsolidated subsidiaries, net
interest, income taxes, depreciation and amortization. EBITDA is not a measure
of financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
performance or to cash flows as a measure of liquidity. EBITDA is not
necessarily comparable with similarly titled measures for other companies.
Unless otherwise indicated, dollar amounts have been rounded to the nearest
hundred thousand.
OVERVIEW
Company Background. ITC/\DeltaCom was incorporated in March 1997 as a wholly
owned subsidiary of ITC Holding to acquire and operate ITC Holding's Retail
Services and Carriers' Carrier Services businesses.
ITC Holding has provided operator and directory assistance services since
March 1992 through InterQuest. Carriers' Carrier Services have been offered
since late 1992 through Interstate FiberNet, a partnership originally formed
by ITC Holding (with a 49% interest) and SCANA (with a 51% interest). In
August 1994, ITC Holding acquired SCANA's interest in Interstate FiberNet.
Also in August 1994, ITC Holding formed a second partnership with SCANA, Gulf
States FiberNet, to construct and operate a fiber optic route primarily
between Atlanta, Georgia and Shreveport, Louisiana with several supplemental
spur routes. In the Gulf States Acquisition, ITC Holding acquired SCANA's 64%
partnership interest in Gulf States FiberNet and the Georgia Fiber Assets,
which included one customer contract representing $3.5 million in annual
revenues through August 2001, the term of the contract. Members of the
Company's management have been managing the businesses of both Interstate
FiberNet and Gulf States FiberNet since their inception. In 1995, the Company
began offering SS7 Services to its Carriers' Carrier customers.
In January 1996, as a result of the DeltaCom Acquisition, ITC Holding
entered the retail long distance business and acquired several fiber optic
routes within the State of Alabama that complemented the existing networks
operated by Interstate FiberNet and Gulf States FiberNet. DeltaCom, a provider
of telecommunications services since its inception in 1982, provides long
distance services to mid-sized businesses primarily in the State of Alabama.
The aggregate consideration paid by ITC Holding in the DeltaCom Acquisition
was approximately $71.4 million, consisting of approximately $65.4 million in
cash and $6.0 million of ITC Holding common stock. Concurrently with its
acquisition of DeltaCom, ITC Holding advanced $8.6 million to DeltaCom to
repay DeltaCom's outstanding debt. The DeltaCom Acquisition has been accounted
for under the purchase method. To finance the DeltaCom Acquisition and to
refinance DeltaCom's existing debt, ITC Holding incurred approximately $74.0
million of indebtedness, which was pushed down to DeltaCom (the DeltaCom
Indebtedness). See "--Effects of Accounting Standards."
The aggregate consideration paid by ITC Holding in the Gulf States
Acquisition was approximately $27.9 million, consisting of the $10.0 million
SCANA Note, which was assumed by Interstate FiberNet, Inc., and $17.9 million
of ITC Holding preferred stock. Under an earn-out provision, SCANA will be
entitled to receive additional preferred stock of ITC Holding if the Gulf
States FiberNet business achieves a specified performance target for 1997. See
"Description of Certain Indebtedness--SCANA Note." The Company accounted for
the Gulf States Acquisition under the purchase method. Of the purchase price,
approximately $17.0 million was allocated to the Gulf States FiberNet
partnership interest and $10.9 million was allocated to the Georgia Fiber
Assets.
In connection with the Reorganization, approximately $31.0 million of the
DeltaCom Indebtedness was forgiven by ITC Holding and contributed to the
Company as additional equity. Following the Reorganization,
43
<PAGE>
the Company repaid the remaining $43.0 million of the DeltaCom Indebtedness,
accrued interest on all $74.0 million of such indebtedness and the $41.6
million of indebtedness outstanding under the Bridge Facility and accrued
interest thereon. See "History of the Company--Reorganization," "Use of
Proceeds" and "--Liquidity and Capital Resources."
Revenues. The Company derives revenues primarily from two business segments:
(i) Retail Services, which encompass the retail sale of long distance, data,
Internet services and the sale and installation of customer premise equipment
to mid-sized and major regional business customers and certain switched
services telecommunications companies, and (ii) Carriers' Carrier Services,
which encompass the sale of long-haul private line services on a wholesale
basis to other telecommunications companies, using the Company's owned and
managed fiber optic network.
The Company currently offers a wide range of Retail Services, including
retail long distance services such as traditional switched and dedicated long
distance, 800/888 calling, calling card and operator services, ATM and frame
relay, high capacity broadband private line, as well as Internet, Intranet and
Web page hosting and development services, and customer premise equipment
installation and repair. Since January 1996, the Company has expanded its
retail long distance operations into the following markets: Pensacola,
Florida; Atlanta, Georgia; Charlotte, North Carolina; Greenville, South
Carolina; and New Orleans and Baton Rouge, Louisiana. As ofJune 30, 1997, the
Company provided Retail Services to over 6,600 business customers and
approximately 7,100 residential customers. Such residential customers
represented less than 5% of the Company's revenues for the year ended 1996 and
the six months ended June 30, 1997.
In July 1997, the Company began offering local exchange services on a
limited, resale basis in Birmingham and Montgomery, Alabama, and commenced
general sales of such services in those markets in August 1997. Also in August
1997, the Company initiated a limited offering in Birmingham and Montgomery of
facilities-based local exchange services, and expects that general marketing
of such services will commence in September 1997. Although the Company's local
exchange services offerings in such markets are in the very early stages,
initial expressions of customer interest in such services have been positive,
consistent with management's expectations. However, there can be no assurance
that demand for the Company's local services will match such preliminary
indications of customer interest. The Company expects to offer local exchange
services as part of its Retail Services in a total of six to nine markets
(including Birmingham and Montgomery) by the end of 1997, initially by
reselling the services of incumbent local exchange carriers and, where market
conditions warrant, by using its own local switching facilities.
In connection with offering local exchange services, the Company has entered
into the Interconnection Agreement with BellSouth to (i) resell BellSouth's
local exchange services and (ii) interconnect the Company's network with
BellSouth's network for the purpose of gaining immediate access to all of
BellSouth's unbundled network elements. This agreement will allow the Company
to enter new markets with minimal capital expenditures and to offer local
exchange service to its current customer base. The Interconnection Agreement
currently allows the Company to provide local service on a resale basis or by
purchasing all unbundled network elements required to provide local service on
a facilities basis, without using Company-owned facilities. The terms of the
Interconnection Agreement, including interim pricing terms agreed to by the
Company and BellSouth, have been approved by state regulatory authorities in
most states, although they remain subject to review and modification by such
authorities. In addition, the Interconnection Agreement does not resolve all
operational issues, particularly those relating to the collocation of the
Company's equipment with that of BellSouth. The Company and BellSouth are
continuing to negotiate to resolve such issues. The Company expects that the
Interconnection Agreement will provide a foundation for it to provide local
service on a reasonable commercial basis, but there can be no assurance of
this and important issues remain unsettled as a result of legal and regulatory
developments and related matters. The Interconnection Agreement expires in
1999, and there can be no assurance that the Company will be able to renew it
under favorable terms, or at all.
The Company's strategy is ultimately to offer facilities-based local service
in certain established markets by collocating its equipment with that of
BellSouth which will enable the Company to purchase fewer unbundled network
elements. The Company expects that it will be able to begin providing local
service to such markets in the fourth quarter of 1997 by using its own
facilities and network, as supplemented by BellSouth's unbundled
44
<PAGE>
network elements. In August 1997, the Company began the process of arranging
for collocation of its equipment with BellSouth in certain markets, primarily
in Alabama, in which the Company has an existing base of long distance
customers. The Company and BellSouth are negotiating the terms of an agreement
with respect to such equipment collocations. In addition, BellSouth has been
experiencing certain central office space limitations, resulting in delays in
completing arrangements for physical collocation of Company equipment. There
can be no assurance that the Company and BellSouth will enter into a
collocation agreement on terms acceptable to the Company or at all, nor can
there be any assurance that BellSouth's space limitations will be resolved to
the Company's satisfaction, in a timely manner, or at all. In the event that
collocation is not possible, the Company plans to provide facilities-based
local service primarily by purchasing unbundled network elements.
The Company anticipates that an increasing portion of its revenue will be
derived from local services, primarily those provided pursuant to the
Interconnection Agreement with BellSouth and similar agreements with other
local exchange carriers. Management expects that gross margin associated with
local Retail Services will be slightly better than gross margin associated
with long distance Retail Services, but that, in general, gross margin
associated with Retail Services will be lower than that associated with
Carriers' Carrier Services. There can be no assurance that the Company will be
able to enter into additional interconnection agreements on terms acceptable
to the Company or at all, or that the incumbent local exchange carriers will
provide the operational support required for the Company to provide local
services to end users. See "Risk Factors--Dependence on Incumbent Local
Exchange Carriers," "--Regulation," "Business--Services and Facilities," and
"--Regulation."
As the Company begins to offer local service on a facilities rather than
resale basis, it will begin to sell switched access and termination services
to carriers terminating calls to its local end user customers, and originating
switched access to long distance companies where the end users choose a
carrier other than the Company for that service. Certain incumbent local
exchange companies, including BellSouth, have taken the position that when a
carrier seeking to provide local service obtains all necessary elements (loops
and switches) from the incumbent local exchange carrier in a combined form,
the incumbent local exchange carrier retains the right to receive the access
revenues associated with service to the customers served on that basis.
Although a recent Eighth Circuit Court of Appeals decision appears to reject
this position, further legal challenges are likely and important issues
related to this form of interconnection remain open.
The Company provides Carriers' Carrier Services using its owned and managed
fiber optic network, which reaches over 60 POPs in ten southern states
(Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina,
South Carolina, Tennessee and Texas). Of the network's approximately 5,400
route miles, approximately 2,500 are Company-owned and operated and
approximately 2,900 are owned and operated by three public utilities, Duke
Power Company, Florida Power & Light Company and Entergy Technology Company,
with which the Company has marketing and management arrangements. The
Company's arrangement with Entergy is exclusive. In addition, the Company has
a buy-sell agreement with Carolinas Fibernet, LLC, which manages fiber optic
facilities in North Carolina and South Carolina. This agreement enables the
parties to buy and sell capacity on each other's networks and allows the
Company to provide customers with access to POPs throughout those states. The
Company expects to add approximately 700 owned and operated route miles to its
fiber network by the end of 1997 and approximately 100 owned and operated
route miles in early 1998 through long-term dark fiber leases. In addition, as
part of its strategy, the Company intends to continue to evaluate the
potential expansion of its network through a combination of new construction,
long-term dark fiber leases and fiber swap transactions, depending on the
extent of capital required over the economic life of the fiber assets to be
deployed. To the extent that the Company elects to expand its network through
long-term leases in lieu of construction or fiber swap transactions, the
Company expects such leases to have a negative effect on EBITDA; however, the
Company expects that any such expansion of its network would provide
opportunities to generate additional revenues, which would partly offset such
negative effects.
The Company derives commission revenues from the marketing, sale and
management of capacity on the utility-owned portions of the Company's network.
Negligible incremental costs are associated with these
45
<PAGE>
commissions, because the Company uses the same marketing and sales force in
servicing the utility-owned portions of the network as it does for the
portions owned by the Company. In 1996, the Company's commission revenues from
these arrangements amounted to approximately $170,000 because, although the
utility-owned portions owned by Duke Power Company began generating revenues
in late 1995, the portions owned by Florida Power & Light Company and Entergy
Technology Company began generating revenues in late 1996. For the six months
ended June 30, 1997, the Company's commission revenues from these arrangements
amounted to approximately $451,000. The Company expects commissions associated
with the utility-owned portions of the network, which will become fully
operational in the current year, to continue to increase in 1997.
The Company provides long-haul services to its carrier customers on a "take
or pay" long-term basis, on an individual circuit basis, or on a month-to-
month basis after the initial term of the "take or pay" or individual circuit
contract. As of June 30, 1997, the Company had remaining future long-term
contract commitments totaling approximately $75.8 million. These contracts
expire on various dates through 2006 and are expected to generate
approximately $56.0 million in revenues to the Company through 2001, of which
approximately $14.5 million are expected to be realized in 1998. No single
Carriers' Carrier Services customer or Retail Services customer represented
over 10% of the Company's total revenues for the six months ended June 30,
1997.
Although the Company expects that a majority of its revenue growth will come
from its Retail Services business, the Company does not expect its Retail
Services to obtain a significant share of the market for telecommunications
services in the southern United States. The customer contracts for Retail
Services generally provide for payment in arrears based on minutes of use for
switched services and payment in advance for private line services. The
contracts generally also provide that the customer may terminate the affected
services without penalty in the event of certain outages in service, and for
certain other defined causes. To date, no customers have terminated any
services under these provisions. The contracts also typically provide that the
customer must use at least a minimum dollar amount of switched long distance
services per month for the term of the contract. During the past several
years, market prices for many telecommunications services segments have been
declining, which the Company believes will likely continue. In response to
these and other competitive pressures, the Company recently modified certain
of its retail contracts to extend to certain customers lower rates over longer
terms as a means of maintaining and developing the Company's customer base. In
the future, in response to competitive considerations, the Company may decide
to modify certain other retail customer contracts in a similar manner,
emphasizing lower pricing and longer commitment periods. A substantial portion
of the Company's total revenues are from retail long distance services.
Revenue per minute from such services has been declining and is expected to
continue to decline. This decline will have a negative effect on the Company's
gross margin which may not be offset completely by savings from decreases in
the Company's cost of services.
Operating Expenses. The Company's principal operating expenses consist of
cost of services, selling, operations and administration expenses, and
depreciation and amortization. Cost of services related to Retail Services
consists primarily of access charges and local facility charges paid to local
exchange carriers, as well as wholesale carrier origination, termination and
interexchange facility charges paid to other interexchange carriers. Cost of
services related to Carriers' Carrier Services are substantially all fixed
costs attributable to (i) the leasing of dark fiber under long-term operating
leases, (ii) the leasing of capacity outside the Company's owned or managed
network (off-net capacity) to meet customer requirements, (iii) labor
associated with operator services and (iv) network costs associated with the
provision of SS7 Services. The Company purchases off-net capacity to provide
Carriers' Carrier Services in cases where the Company plans to construct its
own network to replace the off-net portion of certain fiber routes. The
Company also purchases off-net capacity in connection with an existing
customer contract, pursuant to which the Company is the exclusive provider of
network capacity to such customer. Although the Company is able to
substantially meet the requirements of such customer on the Company's network,
the Company purchases off-net capacity to fill such customer's requirements
that cannot be met on the Company's network. Selling, operations and
administration expenses consist of expenses of selling and marketing, field
personnel engaged in direct network maintenance and monitoring, customer
service and corporate administration. Depreciation and amortization include
depreciation of the Company's telecommunications network and equipment and
amortization of goodwill and other intangible assets related to acquisitions,
primarily the DeltaCom Acquisition.
46
<PAGE>
As the Company continues to expand into new geographic markets, add new
sales offices and facilities and enlarge its current product offerings to
include local telephone and other services, cost of services and selling,
operations and administration expenses are expected to increase substantially.
Therefore, the Company expects to incur increasing operating losses over the
next few years. Although the Company anticipates that it will continue to
generate positive cash flow from operations, it expects that such cash flows
will be more than offset by capital expenditures during the next several years
as it implements its business plan. The Company also expects that the addition
of local service to its bundle of telecommunications services will have an
adverse impact on its gross margin, because the gross margin on the resale of
local services through incumbent local exchange carrier facilities will be
lower than the gross margin on the Company's existing businesses. As the
Company increasingly uses incumbent local exchange carrier unbundled network
elements instead of resold services, the Company expects gross margin on local
service to improve. Such improvement is expected to result from reduced access
charges and efficiencies realized through increased reliance on the Company's
owned network. Such improved margins, however, could be offset by competitive
market pressures to reduce prices for Retail Services, as discussed above.
There can be no assurance that growth in the Company's revenues or customer
base will continue or that the Company will be able to achieve or sustain
profitability or positive net cash flows.
High Leverage. At June 30, 1997, on a pro forma basis, giving effect to the
Reorganization, as well as the forgiveness of, or repayment in full of certain
indebtedness with a portion of the net proceeds from the Offering, the Company
would have had $214.4 million of indebtedness and its stockholder's equity
would have been $64.1 million. On a pro forma basis, the Company's earnings
would have been insufficient to cover its fixed charges for the year ended
December 31, 1996 and the six months ended June 30, 1997 by $18.2 million and
$6.6 million, respectively, and its EBITDA less capital expenditures and
interest expense would have been negative $14.8 million and negative $13.0
million, respectively.
Although the Company's liquidity has improved, the Company's level of
indebtedness and debt service obligations has significantly increased as a
result of the Offering. The successful implementation of the Company's
strategy, including expansion of its network and obtaining and retaining a
significant number of customers, and significant and sustained growth in the
Company's cash flow are necessary for the Company to be able to meet its debt
service requirements. There can be no assurance that the Company will
successfully implement its strategy or that the Company will be able to
generate sufficient cash flow from operating activities to improve its
earnings before fixed charges, or to meet its debt service obligations and
working capital requirements. The ability of the Company to meet its
obligations will be dependent upon the future performance of the Company,
which will be subject to prevailing economic conditions and to financial,
business and other factors. See "Risk Factors--Significant Capital
Requirements; Uncertainty of Additional Financing" and "--High Leverage;
Ability to Service Debt; Restrictive Covenants," "--Liquidity and Capital
Resources," "Description of Certain Indebtedness" and "Description of the
Exchange Notes."
47
<PAGE>
CERTAIN PRO FORMA RESULTS OF OPERATIONS
The following table sets forth certain summary unaudited pro forma financial
data for the years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997. The pro forma data reflect the results of
operations for such periods related to (i) Retail Services, consisting of
certain historical data for DeltaCom as if the DeltaCom Acquisition had
occurred as of the beginning of each period presented, and (ii) Carriers'
Carrier Services, consisting of certain pro forma combined data for Interstate
FiberNet, InterQuest, Gulf States FiberNet and the Georgia Fiber Assets as if
the Gulf States Acquisition had occurred as of the beginning of each period
presented. The information set forth below does not purport to represent what
the Company's financial position or results of operations would have been if
these acquisitions had actually occurred as of such dates, or to project the
Company's financial position or results of operations for any future date or
period. The information presented below should be read in conjunction with the
financial statements and the notes thereto included elsewhere in this
Prospectus.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------- -------------------------------------------
1994 1995 1996 1996 1997
--------------------- --------------------- --------------------- --------------------- ---------------------
% OF % OF % OF % OF % OF
REVENUES REVENUES REVENUES REVENUES REVENUES
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Retail Services... $53,777,565 86% $56,271,011 77% $65,176,807 76% $31,106,856 79% $39,920,414 74%
Carriers' Carrier
Services......... 8,582,444 14% 16,837,906 23% 20,197,555 24% 8,495,298 21% 14,330,097 26%
----------- ----------- ----------- ----------- -----------
Total........... $62,360,009 $73,108,917 $85,374,362 $39,602,154 $54,250,511
=========== =========== =========== =========== ===========
Gross Margin
Retail Services... $20,608,785 38% $23,915,653 43% $25,820,210 40% $13,140,448 42% $16,392,403 41%
Carriers' Carrier
Services......... 5,728,170 67% 12,521,873 74% 16,966,924 84% 7,152,759 84% 12,555,361 88%
----------- ----------- ----------- ----------- -----------
Total........... $26,336,955 42% $36,437,526 50% $42,787,134 50% $20,293,207 51% $28,947,764 53%
=========== =========== =========== =========== ===========
EBITDA
Retail Services... $ 9,999,787 19% $10,069,786 18% $ 7,426,297 11% $ 4,441,728 14% $ 3,221,943 8%
Carriers' Carrier
Services......... 3,958,559 46% 8,735,909 52% 11,494,668 57% 4,311,693 51% 8,516,272 59%
----------- ----------- ----------- ----------- -----------
Total(a)........ $13,958,346 22% $18,805,695 26% $18,920,965 22% $ 8,753,421 22% $11,738,215 22%
=========== =========== =========== =========== ===========
Net Income (Loss)
from Continuing
Operations
Retail Services... $(1,441,323) (3)% $(1,405,651) (3)% (3,701,538) (6)% $(1,049,660) (3)% $(2,235,487) (6)%
Carrier's Carrier
Services......... 793,759 9% (462,146) (3)% (1,805,472) (9)% (1,246,039) (15)% 33,544 --%
----------- ----------- ----------- ----------- -----------
Total(b)........ $ (647,564) 1% $(1,867,797) (3)% $(5,507,010) (6)% $(2,295,699) (6)% $(2,201,943) (4)%
=========== =========== =========== =========== ===========
</TABLE>
- --------
(a) Excludes interest income that would have been earned during the periods
presented on the $62.7 million of Offering proceeds invested in Pledged
Securities and held by the Trustee to fund and secure the first six
interest payments on the Notes.
(b) Excludes net interest related to the Offering and use of the net proceeds
therefrom totaling $6,566,492 and $2,340,110 for the year ended December
31, 1996 and the six months ended June 30, 1997, respectively.
PRO FORMA SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO PRO FORMA SIX MONTHS
ENDED JUNE 30, 1997
Revenues
Pro forma revenues increased 37% from $39.6 million for the six months ended
June 30, 1996 to $54.3 million for the six months ended June 30, 1997. Retail
Services operations' pro forma revenues increased $8.8 million
48
<PAGE>
from $31.1 million for the six months ended June 30, 1996 to $39.9 million for
the six months ended June 30, 1997. Of this increase, $7.0 million was
attributable to long distance services, $.9 million to sales of customer
premise equipment and $.9 million to Internet sales and services. The growth
in long distance services was primarily the result of an increase in minutes
from new and existing customers, partially offset by a decrease in revenues
per minute due to lower prices. Pro forma revenues from Carriers' Carrier
operations contributed $5.8 million of this increase, increasing from $8.5
million for the six months ended June 30, 1996 to $14.3 million for the six
months ended June 30, 1997. Revenues from Carriers' Carrier Services increased
due to increased demand for Carriers' Carrier Services from new and existing
customers.
Gross Margin
Pro forma gross margin increased from $20.3 million for the six months ended
June 30, 1996 to $28.9 million for the six months ended June 30, 1997. Pro
forma gross margin for Carriers' Carrier Services as a percentage of Carrier's
Carrier Services revenues increased from 84% for the six months ended June 30,
1996 to 88% for the six months ended June 30, 1997, primarily due to
additional revenues. Retail Services pro forma gross margin as a percentage of
Retail Services revenues was 42% and 41%, respectively, for the six month
periods ended June 30, 1996 and 1997. The Company anticipates that increased
competition, particularly with respect to pricing, in the long distance market
will likely adversely affect the Company's gross margin on long distance
services as a percentage of revenues. Management expects that the Company will
increasingly utilize its fiber optic network in the deployment of the
Company's switched network design, favorably affecting the Company's gross
margin on the Retail Services segment. As the Company increases the volume of
traffic it either originates or terminates on its own network, it expects to
be able to use more effectively its switched network to reduce per-minute
costs. The Company expects that the provision of local telecommunications
service through the resale of incumbent local exchange carrier facilities will
adversely affect its gross margin. As the Company begins to utilize incumbent
local exchange carrier unbundled network elements instead of reselling local
services, the Company expects gross margin on local services to improve.
EBITDA
Pro forma EBITDA increased $2.9 million from $8.8 million for the six months
ended June 30, 1996 to $11.7 million for the six months ended June 30, 1997,
an increase of 33%. For Carriers' Carrier Services, pro forma EBITDA increased
as a percentage of Carrier's Carrier Services revenues from 51% for the six
months ended June 30, 1996 to 59% for the six months ended June 30, 1997,
primarily due to increased revenues. Pro forma EBITDA related to Retail
Services decreased $1.2 million, from $4.4 million for the six months ended
June 30, 1996 to $3.2 million for the six months ended June 30, 1997. This
decrease was attributable to the costs associated with new sales offices
opened since March 31, 1996 and employment of additional support personnel to
better position this segment for growth and expansion. The Company expects
that EBITDA for Retail Services will continue to decline at least through
1998, as the Company expands its offering of local services and opens
additional sales offices.
Net Income (Loss) From Continuing Operations
Pro forma net loss decreased $.1 million from $2.3 million for the six
months ended June 30, 1996 to a loss of $2.2 million for the six months ended
June 30, 1997. The pro forma net loss from Retail Services increased from $1.0
million for the six months ended June 30, 1996 to a loss of $2.2 million for
the six months ended June 30, 1997. This additional loss resulted from
increased costs associated with new sales offices opened since March 31, 1996,
and the employment of additional support personnel to better position this
segment for growth and expansion. Carriers' Carrier Services had a net loss of
$1.2 million for the six months ended June 30, 1996 and net income of less
than $.1 million for the six months ended June 30, 1997. This increase in net
income is primarily attributable to increased revenues and gross margins.
49
<PAGE>
PRO FORMA YEAR ENDED DECEMBER 31, 1995 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1996
Revenues
Pro forma revenues increased 17% from $73.1 million in 1995 to $85.4 million
in 1996. Of this increase, $8.9 million was attributable to Retail Services,
which increased $7.6 million from long distance services and $1.3 million from
Internet services and sales of customer premise equipment. The growth in long
distance services was primarily the result of an increase in minutes from new
and existing customers, which was partially offset by a decrease in revenues
per minute (because of lower prices). The Company also opened six additional
sales offices during the first half of 1996 in the following new markets: New
Orleans, Baton Rouge, Atlanta, Greenville, Charlotte and Pensacola. Carriers'
Carrier Services accounted for $3.4 million of the total revenues increase.
Pro forma revenues for this segment in 1995 included a $3.3 million
nonrecurring payment from a major customer related to the initial construction
of the Gulf States FiberNet fiber optic route. Excluding the effect of this
nonrecurring payment, pro forma revenues attributable to Carriers' Carrier
Services increased 49%, or $6.6 million, to $20.2 million in 1996. Of this
increase, $5.7 million was due to services provided on new network capacity,
primarily the Gulf States FiberNet portions of the network, which were fully
operational for all of 1996, after being operational for only approximately
six months in 1995. The balance of the increase was attributable to increased
demand over existing portions of the Company's network. Gulf States FiberNet
represented $10.1 million and the Georgia Fiber Assets customer contract
represented $3.5 million of the total $20.2 million of Carriers' Carrier
Services pro forma revenues in 1996. For 1995, excluding the effect of the
$3.3 million nonrecurring payment, Gulf States FiberNet represented $4.3
million and the Georgia Fiber Assets customer contract represented $3.5
million of Carriers' Carrier Services pro forma revenues of $13.6 million.
Gross Margin
Pro forma gross margin increased from $36.4 million in 1995 to $42.8 million
in 1996. For Carriers' Carrier Services, pro forma gross margin as a
percentage of revenues increased from 74% in 1995 to 84% in 1996, primarily
because most Carriers' Carrier Services are long-haul private line services
which have low associated variable cost of services. For Retail Services, pro
forma gross margin as a percentage of revenues decreased from 43% in 1995 to
40% in 1996, primarily because of an increase in the number of wholesale
switched minutes sold to other telecommunications companies as a percentage of
total switched minutes in 1996 compared to 1995. The gross margin on these
wholesale services is lower than the gross margin on retail switched services.
In addition, in 1996, the Company modified certain of its retail contracts to
extend to certain customers lower rates over longer terms as a means of
maintaining and developing the Company's customer base.
EBITDA
Pro forma EBITDA increased $.1 million from $18.8 million in 1995 to $18.9
million in 1996. Pro forma EBITDA related to Retail Services decreased $2.7
million from $10.1 million in 1995 to $7.4 million in 1996, principally
because of costs incurred to open six new sales offices during 1996 and the
addition of management and infrastructure after the DeltaCom Acquisition to
position this segment for growth and expansion. EBITDA related to Carriers'
Carrier Services increased from $8.7 million in 1995 to $11.5 million in 1996
on a $3.4 million increase in revenues because the long-haul portion of the
Carriers' Carrier business has low associated variable costs. EBITDA and
revenues for 1995 include a $3.3 million nonrecurring payment related to the
initial construction of the Gulf States FiberNet fiber optic route.
Net Income (Loss) From Continuing Operations
Pro forma net loss increased $3.6 million from $1.9 million in 1995 to $5.5
million in 1996. Of this increase, $2.3 million was attributable to Retail
Services primarily due to costs incurred to open six new sales offices during
1996 and addition of management and infrastructure to position this segment
for growth and expansion. Pro forma net loss from Carriers' Carrier Services
increased $1.3 million from $.5 million in 1995 to $1.8 million in 1996. This
increased net loss was primarily attributable to increased depreciation and
amortization expense and increased interest expense.
50
<PAGE>
PRO FORMA YEAR ENDED DECEMBER 31, 1994 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1995
Revenues
Pro forma revenues increased 17% from $62.4 million in 1994 to $73.1 million
in 1995. Revenues from Retail Services accounted for $2.5 million of the $10.7
million total increase, due to an increase of $1.8 million attributable to
long distance services and $.7 million attributable to sales of customer
premise equipment. Revenues from Carriers' Carrier Services contributed $8.3
million to the total increase, including a $3.3 million nonrecurring payment
from a major customer related to the initial construction of the Gulf States
FiberNet fiber optic route. Excluding the effect of this nonrecurring payment,
$4.2 million of the $5.0 million increase in revenues attributable to
Carriers' Carrier Services consisted of revenues generated from the newly
constructed Gulf States FiberNet route, which began operations in June 1995.
The remaining $.8 million was attributable to increased sales on existing
network routes and the sale of newly introduced SS7 Services.
Gross Margin
Pro forma gross margin as a percentage of revenues increased from 42% in
1994 to 50% in 1995. Pro forma gross margin as a percentage of revenues
generated by Retail Services increased from 38% in 1994 to 43% in 1995. This
improvement was primarily a result of (i) reductions in the cost of intrastate
switched access and (ii) newly renegotiated favorable contract terms resulting
in higher revenues to the Company for off-net originating and terminating
interstate services. As a result of the increased revenues derived from
Carriers' Carrier Services, pro forma gross margin as percentage of revenues
generated by this business segment increased from 67% in 1994 to 75% in 1995.
EBITDA
Pro forma EBITDA increased 34% from $14.0 million in 1994 to $18.8 million
in 1995. Pro forma EBITDA related to Retail Services increased slightly from
$10.0 million in 1994 to $10.1 million in 1995. Increases in pro forma 1995
gross margin for Retail Services were partially offset by approximately $1.0
million of costs related to personnel additions to the Company's human
resources, marketing, customer service and information services departments
and approximately $.6 million of costs related to management services.
Although pro forma revenues related to Carriers' Carrier Services increased
$8.3 million in 1995 compared to 1994, pro forma EBITDA for Carriers' Carrier
Services only increased $4.7 million from $4.0 million in 1994 to $8.7 million
in 1995. The Carriers' Carrier Services revenues increase was offset in part
by (i) a $1.5 million increase in cost of services related primarily to
network costs associated with the initiation of SS7 Services, a network
management contract for a large enhanced specialized mobile radio customer and
off-net lease expense incurred in the sale of certain long-haul private lines
and (ii) a $2.0 million increase in selling, operations and administration
expense related to the hiring of additional senior management and key
operations personnel to position the Company for future growth. Also included
in this $2.0 million increase is the opening of a fully staffed network
operation center to monitor the entire fiber optic network 24 hours a day,
seven days a week.
Net Income (Loss) From Continuing Operations
Pro forma net loss increased $1.3 million from $.6 million in 1994 to $1.9
million in 1995. This increased loss was attributable to the loss from
Carriers' Carrier Services which increased $1.3 million to a net loss of $.5
million in 1995 as compared to net income of $.8 million in 1994. This loss
was attributable to (i) an increase in selling, operations and administration
expense related to the hiring of additional management and key operations
personnel to position the Company for future growth and (ii) an increase in
depreciation and amortization expense and interest expense which resulted
primarily from the operations of the Gulf States FiberNet routes which
commenced in August 1994.
51
<PAGE>
HISTORICAL RESULTS OF OPERATIONS
The following tables set forth certain historical financial data for the
years ended December 31, 1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 for the Carriers' Carrier Services business and for the year
ended December 31, 1996 and the six months ended June 30, 1996 and 1997 for
the Retail Services business.
The comparability of the historical financial data for the six months ended
June 30, 1996 and 1997 has been affected by the DeltaCom Acquisition and the
Gulf States Acquisition. The historical financial statements for the six
months ended June 30, 1996 include the results of operations for DeltaCom
since its acquisition on January 29, 1996. For the six months ended June 30,
1996, the Company's 36% interest in Gulf States FiberNet's results of
operations is reflected using the equity method. Due to the Gulf States
Acquisition on March 27, 1997, the results of operations for the six months
ended June 30, 1997 reflect the total revenues and expenses from January 1,
1997 attributable to Gulf States FiberNet with the preacquisition losses
attributable to SCANA from January 1, 1997 deducted to determine combined net
loss. The results of operations for the six months ended June 30, 1997 also
reflect the revenues and expenses of Georgia Fiber since April 1, 1997.
HISTORICAL RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
CARRIERS' CARRIER SERVICES
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------ ----------------------------------
1994 % 1995 % 1996 % 1996 % 1997 %
---------- ---- ---------- ---- ---------- ---- ----------- ---- ----------- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $4,945,902 100% $5,750,587 100% $6,598,709 100% $2,724,874 100% $13,444,647 100%
Cost of services........ 2,484,744 50% 3,149,231 55% 2,363,073 36% 1,126,438 41% 1,774,736 13%
---------- ---------- ---------- ---------- -----------
Gross margin........... 2,461,158 50% 2,601,356 45% 4,235,636 64% 1,598,436 59% 11,669,911 87%
Selling, operations and
administration
expense................ 948,230 19% 1,626,678 28% 1,826,420 28% 851,662 31% 3,790,864 28%
Depreciation and
amortization........... 738,052 15% 1,267,882 22% 1,656,685 25% 759,366 28% 5,315,500 40%
---------- ---------- ---------- ---------- -----------
Total operating ex-
penses................. 1,686,282 34% 2,894,560 50% 3,483,105 53% 1,611,028 59% 9,106,364 68%
---------- ---------- ---------- ---------- -----------
Operating income
(loss)................. $ 774,876 16% $ (293,204) (5)% $ 752,531 11% $ (12,592) 0% $ 2,563,547 19%
========== ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
RETAIL SERVICES
--------------------------------------------------
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------- ---------------------------------
1996 % 1996 % 1997 %
----------- ---- ----------- ---- ----------- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $59,919,876 100% $25,849,925 100% $39,920,414 100%
Cost of services............ 36,393,214 61% 15,003,025 58% 23,528,011 59%
----------- ----------- -----------
Gross margin............... 23,526,662 39% 10,846,900 42% 16,392,403 41%
Selling, operations and ad-
ministration expense....... 17,050,152 28% 7,354,959 28% 13,170,460 33%
Depreciation and amortiza-
tion....................... 4,781,389 8% 2,072,651 8% 2,957,732 7%
----------- ----------- -----------
Total operating expenses... 21,831,541 36% 9,427,610 36% 16,128,192 40%
----------- ----------- -----------
Operating income............ $ 1,695,121 3% $ 1,419,290 5% $ 264,211 1%
=========== =========== ===========
</TABLE>
HISTORICAL SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH HISTORICAL SIX MONTHS
ENDED JUNE 30, 1996
Revenues
Revenue for the six months ended June 30, 1997 increased from $28.6 million
for the six months ended June 30, 1996 to $53.4 million for the six months
ended June 30, 1997. Revenues from Retail Services increased $14.1 million
from $25.8 million for the six months ended June 30, 1996 to $39.9 million for
the six months
52
<PAGE>
ended June 30, 1997. Results for the six months ended June 30, 1996 reflect
only five months of Retail Services revenues because the DeltaCom Acquisition
occurred on January 29, 1996. Revenues from Carriers' Carrier Services
increased from $2.7 million for the six months ended June 30, 1996 to $13.4
million for the six months ended June 30, 1997. Of the $10.7 million increase,
$8.8 million was attributable to revenues generated during the six months
ended June 30, 1997 by Gulf States FiberNet. Excluding revenues attributable
to Gulf States FiberNet during the six months ended June 30, 1997, Carriers'
Carrier Services increased $1.9 million, of which $.9 million was attributable
to revenue from the Georgia Fiber Assets acquired March 27, 1997.
Cost of Services
Cost of services increased $9.2 million from $16.1 million for the six
months ended June 30, 1996 to $25.3 million for the six months ended June 30,
1997. Cost of services for Retail Services' operations increased $8.5 million
to $23.5 million for the six months ended June 30, 1997 from $15.0 million for
the six months ended June 30, 1996, which reflect only five months of cost of
services attributable to Retail Services operations. Cost of services for
Retail Services' operations as a percentage of revenue increased to 59% for
the six months ended June 30, 1997 compared to 58% for the six months ended
June 30, 1996. This increase was attributable to the cost of new facilities in
order to service expanded retail markets, and the impact of increased minutes
of usage at lower prices per minute. Cost of services attributable to
Carriers' Carrier Services increased $.7 million from $1.1 million for the six
months ended June 30, 1996 to $1.8 million for the six months ended June 30,
1997. Cost of services for Carriers' Carrier Services as a percentage of
revenue decreased to 13% for the six months ended June 30, 1997 compared to
41% for the six months ended June 30, 1996, due to increases in revenue from
long-haul private line services, which have low associated variable costs.
Selling, Operations and Administration Expense
Selling, operations and administration expense increased $8.8 million from
$8.2 million (29% as a percentage of revenue) for the six months ended June
30, 1996 to $17.0 million (32% as a percentage of revenue) for the six months
ended June 30, 1997. Selling, operations and administration expense
attributable to Retail Services increased $5.8 million from $7.4 million (or
28% of Retail Services revenues) for the six months ended June 30, 1996 to
$13.2 million (or 33% of Retail Services revenues) for the six months ended
June 30, 1997. This increase resulted from employment of additional sales,
information services and provisioning personnel to support the Company's
geographical market and product expansion as the Company prepared to offer
local service and expand into new markets. Results for the six months ended
June 30, 1996 reflect only five months of selling, operations and
administration expense attributable to Retail Services. Selling, operations
and administration expense attributable to Carriers' Carrier Services
increased $2.9 million from $.9 million (or 31% of Carriers' Carrier Services
revenues) for the six months ended June 30, 1996 to $3.8 million (or 28% of
Carriers' Carrier Services revenues) for the six months ended June 30, 1997.
Of the $2.9 million increase, $1.8 million was attributable to the acquisition
of Gulf States FiberNet. The remaining $1.1 million of this increase was
attributable to increased costs of administrative personnel employed to
support expansion of the business.
Depreciation and Amortization
Depreciation and amortization expense increased $5.5 million from $2.8
million for the six months ended June 30, 1996 to $8.3 million for the six
months ended June 30, 1997. Retail Services accounted for $.9 million of the
increase, which was primarily related to installation of new central office
equipment. Depreciation and amortization for Carriers' Carrier Services
operations accounted for $4.6 million of the increase and was primarily
related to the acquisition of Gulf States FiberNet.
Interest Expense
Interest expense increased from $2.8 million for the six months ended June
30, 1996 to $7.6 million for the six months ended June 30, 1997. Of this $4.8
million increase, $2.2 million was attributable to the acquisition of Gulf
States FiberNet, $1.8 million was attributable to the Senior Notes, $.5
million was attributable to the DeltaCom Indebtedness, and the balance was
attributable to the SCANA Note.
53
<PAGE>
Income Taxes
The Company is included in the consolidated federal income tax returns of
its parent, ITC Holding, which results in the Company receiving benefits for
certain of its net operating losses. The benefit received as a percentage of
taxable income was 26% and 29% for the six month periods ended June 30, 1997
and 1996, respectively.
EBITDA
EBITDA increased from $4.2 million for the six months ended June 30, 1996 to
$11.1 million for the six months ended June 30, 1997. Carriers' Carrier
Services accounted for $7.1 million of the increase. EBITDA attributable to
Retail Services for the six months ended June 30, 1996 was $3.5 million,
compared to $3.2 million for the six months ended June 30, 1997. EBITDA
attributable to Retail Services decreased from 14% of revenues for the six
months ended June 30, 1996 to 8% for the six months ended June 30, 1997,
primarily due to increased costs associated with the expansion of new sales
offices and the employment of additional support personnel to position this
segment for growth and expansion. The Company expects that EBITDA for Retail
Services will continue to decline through at least 1998 as the Company opens
additional sales offices and prepares to offer local service.
HISTORICAL YEAR ENDED DECEMBER 31, 1995 COMPARED WITH HISTORICAL YEAR ENDED
DECEMBER 31, 1996
Revenues
Revenues increased from $5.8 million in 1995 to $66.5 million in 1996. The
$60.7 million increase was primarily attributable to revenues of $59.9 million
generated by DeltaCom since it was acquired on January 29, 1996. Revenues from
Carriers' Carrier Services increased approximately $800,000 in 1996 (15%),
primarily due to the growth in new SS7 Services and directory assistance
products and growth in demand for Carriers' Carrier Services.
Cost of Services
Cost of services increased from $3.1 million in 1995 to $38.8 million in
1996. DeltaCom's operations accounted for $36.4 million of this increase.
Carriers' Carrier Services accounted for a decrease of $700,000 primarily due
to intersegment eliminations related to its utilization of DeltaCom's network
infrastructure.
Selling, Operations and Administration Expense
Selling, operations and administration expense increased from $1.6 million
in 1995 to $18.9 million in 1996. DeltaCom's operations accounted for $17.1
million of the increase. Carriers' Carrier Services accounted for $200,000 of
the increase.
Depreciation and Amortization
Depreciation and amortization expense increased from $1.3 million in 1995 to
$6.4 million in 1996. Of this $5.1 million increase, $4.8 million was
attributable to DeltaCom, including $1.3 million of intangible amortization on
$54.6 million of intangibles pushed down to the Company. See "--Effects of
Accounting Standards." Carriers' Carrier Services accounted for $300,000 of
the increase as a result of additional capital expenditures made for the
provision of SS7 Services, capital expenditures associated with the Company's
network management systems required to support the various management and
marketing agreements with various utilities, and small electronic overbuilds
on existing network segments.
Other Income (Expense)
Other expense increased from $200,000 in 1995 to $1.4 million in 1996. The
Company's share of Gulf States FiberNet's partnership losses accounted for
$1.3 million of this increase, which was partially offset by a
54
<PAGE>
$100,000 increase in other interest and miscellaneous income. Gulf States
FiberNet began full operations in late 1995 and, accordingly, the effect of a
full year of operations was not reflected until 1996. Gulf States FiberNet
recorded a pretax loss of $4.4 million in 1996, compared to a pretax loss of
$700,000 in 1995. As of December 31, 1995 and 1996, the Company owned 36% of
Gulf States FiberNet and recorded losses of $300,000 and $1.6 million,
respectively, from such interest.
Interest Expense
Interest expense increased from $300,000 in 1995 to $6.2 million in 1996.
The increase was primarily attributable to the increase in the Company's
aggregate indebtedness resulting from the $74.0 million of DeltaCom
Indebtedness. See "--Effects of Accounting Standards." The Company incurred
interest expense of $5.8 million related to such indebtedness in 1996.
EBITDA
EBITDA increased from $1.0 million in 1995 to $8.9 million in 1996. DeltaCom
accounted for $6.5 million and Carriers' Carrier Services accounted for $1.4
million of the increase. The increased EBITDA attributable to Carriers'
Carrier Services is a result of an increase in revenues with minimal increases
in associated variable costs.
HISTORICAL YEAR ENDED DECEMBER 31, 1994 COMPARED WITH HISTORICAL YEAR ENDED
DECEMBER 31, 1995
Revenues
Revenues increased from $4.9 million in 1994 to $5.8 million in 1995. The
increase was primarily attributable to additional capacity sales on the
Atlanta-to-Columbus fiber route and the introduction of SS7 Services in early
1995. Revenues from operator services remained stable between years at
approximately $2.5 million.
Cost of Services
Cost of services increased from $2.5 million in 1994 to $3.1 million in
1995, primarily as a result of network costs associated with SS7 Services in
1995 and the network management contract for a large enhanced specialized
mobile radio customer.
Selling, Operations and Administration Expense
Selling, operations and administration expense increased from $900,000 in
1994 to $1.6 million in 1995. The increase principally reflected higher
management and personnel costs resulting from the hiring of additional senior
management and a team of key operations personnel in order to position the
Company for future growth.
Depreciation and Amortization
Depreciation and amortization expense increased from $700,000 in 1994 to
$1.3 million in 1995. The $600,000 increase in depreciation and amortization
resulted from additional depreciation on capital assets related to the
establishment of the network operations center that operates 24 hours a day,
seven days a week, several minor spur routes, the initiation of SS7 Services,
and ongoing capital expenditures for Carriers' Carrier Services.
Other Income (Expense)
Other expense increased from less than $100,000 in 1994 to $200,000 in 1995.
The Company's share of the partnership losses related to Gulf States FiberNet
accounted for this increase. Gulf States FiberNet was in the construction
phase during 1994 and incurred a pretax loss of $300,000 in 1994, compared to
a pretax loss of $700,000 in 1995. As of December 31, 1994 and 1995, the
Company owned 36% of Gulf States FiberNet and recorded equity in partnership
losses of $100,000 and $300,000, respectively. The equity in partnership
losses was partially offset by other miscellaneous income in both years.
55
<PAGE>
EBITDA
EBITDA decreased from $1.5 million in 1994 to $1.0 million in 1995. The
decrease in EBITDA primarily reflected increased selling, operations and
administration expense incurred in connection with the hiring of additional
senior management, as discussed above, and additional expense related to the
Company's initiation of SS7 Services.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated positive cash flow from operations
from its existing lines of business, but has required equity infusions and
advances from ITC Holding to finance a significant portion of its investing
and financing activities. Cash flow from operations totaled $979,000, $1.4
million and $8.2 million for 1994, 1995 and 1996, respectively, and $9.4
million for the six months ended June 30, 1997. The components of cash flow
from operations consisting of net loss adjusted for depreciation,
amortization, deferred income taxes, equity in losses of investee,
preacquisition losses, extraordinary item--loss on extinguishment of debt and
other totaled $1.4 million, $1.5 million and $4.7 million for 1994, 1995 and
1996, respectively, and $5.7 million for the six months ended June 30, 1997.
Changes in working capital used $443,000 and $42,000 in 1994 and 1995,
respectively, and provided $3.5 million and $3.7 million for 1996 and the six
months ended June 30, 1997, respectively. Such changes were primarily due to
an increase in accounts receivable in 1994, which resulted from increased
earned and unearned revenue, increases in income tax receivables and prepaid
expenses in 1995, and, during 1996, an increase in accrued interest, accounts
payable and unearned revenue, partially offset by an increase in accounts
receivable. The increase in 1996 in accrued interest, accounts payable and
accounts receivable resulted primarily from the DeltaCom Acquisition. Such
changes were primarily due to increases in unearned revenue, accrued
liabilities and income tax refunds receivable, offset by increases in accounts
receivable for the six months ended June 30, 1997. Of this increase in
accounts receivable and unearned revenue, $2.3 million and $1.3 million,
respectively, resulted from the Gulf States Acquisition, with the remaining
increase in accounts receivable attributable to increased earned and unearned
revenue in the Carriers' Carrier Services and Retail Services.
Cash used for investing activities was $10.7 million, $1.5 million and $72.7
million for the years ended December 31, 1994, 1995 and 1996, respectively,
and $11.8 million for the six months ended June 30, 1997. The cash used in
1996 was primarily attributable to the investment of $63.5 million, net of
cash received, in connection with the DeltaCom Acquisition in January 1996.
The Company made capital expenditures of $3.7 million, $1.8 million and $6.2
million for the years ended December 31, 1994, 1995 and 1996, respectively,
and $12.4 million for the six months ended June 30, 1997. Of the $6.2 million
of capital expenditures in 1996, $4.1 million related to Retail Services and
$2.1 million related to Carriers' Carrier Services. In addition, the Company
contributed an additional $2.4 million to Gulf States FiberNet in 1996 to meet
debt service requirements and to fund additional capital requirements of that
business. Of the $12.4 million of capital expenditures for the six months
ended June 30, 1997, $5.7 million related to Carriers' Carrier Services and
$6.7 million related to Retail Services.
Cash provided by financing activities was $10.1 million, $200,000, and $65.1
million for the years ended December 31, 1994, 1995 and 1996, respectively,
and $201.3 million for the six months ended June 30, 1997. Net cash provided
by financing activities for the six months ended June 30, 1997 consisted
primarily of net proceeds of $194.3 million from the sale of the Senior Notes
and $8.2 million of advances received from ITC Holding. For 1996, most of the
cash provided by financing activities was attributable to the DeltaCom
Indebtedness, which was advanced to the Company by ITC Holding from funds
borrowed under a bank facility. See "--Effects of Accounting Standards."
ITC Holding partially financed the DeltaCom Acquisition and the Gulf States
Acquisition with debt, which consists of the following: (i) a $74.0 million
term loan under a bank facility incurred in connection with the DeltaCom
Acquisition and pushed down to the Company (the DeltaCom Indebtedness); (ii) a
$41.6 million Bridge Facility incurred in connection with the Gulf States
Acquisition, which required the refinancing of Gulf
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States FiberNet's existing project facility; and (iii) the $10.0 million SCANA
Note issued in connection with the Gulf States Acquisition and assumed by the
Company.
Upon consummation of the Reorganization on July 25, 1997, approximately
$62.7 million of the $192.7 million of net proceeds from the sale of the
Senior Notes in the Offering were used to purchase U.S. government securities
that are being held by the Trustee in a pledged account as security for and to
fund the first six scheduled interest payments on the Senior Notes and
Exchange Notes. The balance of the net proceeds from the Offering,
approximately $131.6 million, was released to the Company. A portion of the
released proceeds was applied on July 25, 1997 as follows: (i) to repay
approximately $48.3 million of indebtedness to ITC Holding (together with
approximately $9.5 million of accrued interest) associated with the DeltaCom
Acquisition and advances used by the Company for capital expenditures; and
(ii) to repay approximately $41.6 million of indebtedness incurred under the
Bridge Facility (together with approximately $.2 million of accrued interest).
The Company intends to use the remaining approximately $32.2 million of such
net proceeds (i) to fund market expansion activities of the Company's
telecommunications business, including development and construction costs of
the Company's fiber optic network and its regional sales offices; and (ii) for
additional working capital and other general corporate purposes, including the
funding of cash flow deficits (after capital expenditures). Pending such uses,
the Company has invested such amounts in U.S. government securities. In
connection with the Reorganization, $31.0 million of the DeltaCom Indebtedness
was forgiven by ITC Holding and contributed to the Company as additional
equity.
In January 1995, Gulf States FiberNet entered into an interest rate swap
agreement with a $47.5 million principal amount. The agreement swapped the
applicable three-month LIBOR rate selected under Gulf States FiberNet's
project facility with a fixed rate of 8.25%. As of June 30, 1997, Gulf States
FiberNet would have been required to pay $2,142,916 to terminate the interest
rate swap. Gulf States FiberNet made payments totaling $553,320, $1,261,000
and $540,997 for the years ended December 1995 and 1996 and the six months
ended June 30, 1997, respectively, in connection with this interest rate swap
agreement. Although the related debt (the Bridge Facility) has been repaid,
the Company does not currently intend to terminate this interest rate swap
agreement since the Company plans to draw upon its variable rate Credit
Facility to fund capital expenditures and operating losses in accordance with
its expansion plans. The interest rate swap agreement expires in December
2002.
To achieve its business plan, the Company will need significant financing
for capital expenditure and working capital requirements, including repayment
of indebtedness and operating losses. Expansion of the Company's network,
operations and services will require significant capital expenditures. The
Company currently estimates that its aggregate capital requirements will total
approximately $104 million in 1997 and 1998, of which a total of approximately
$50 million is expected to be incurred in 1997 (including $12.4 million of
capital expenditures made as of June 30, 1997) and approximately $54 million
is expected to be incurred in 1998. The Company expects to make substantial
capital expenditures thereafter. Capital expenditures will be primarily for:
(i) addition of facilities-based local telephone service to its bundle of
integrated telecommunications services, including acquisition and installation
of switches and related equipment, (ii) market expansion, (iii) continued
development and construction of its fiber optic network (including
transmission equipment) and (iv) infrastructure enhancements, principally for
information systems. At June 30, 1997, the Company had entered into agreements
with vendors to purchase approximately $11.5 million of equipment and
services, and, for the six months ended June 30, 1997, had made capital
expenditures of $12.4 million. The actual amount and timing of the Company's
capital requirements may differ materially from the foregoing estimate as a
result of regulatory, technological and competitive developments (including
market developments and new opportunities) in the Company's industry. See
"Risk Factors--Significant Capital Requirements; Uncertainty of Additional
Financing."
In September 1997, Interstate FiberNet, Inc., a wholly owned subsidiary of
the Company, entered into the Credit Agreement with NationsBank for a five-
year $100 million term and revolving credit facility to be used for working
capital and other corporate purposes, including refinancing existing
indebtedness, capital expenditures and permitted acquisitions. The Credit
Facility consists of a $50 million multi-draw term facility
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and a $50 million revolving credit facility, and contains restrictions on the
Company and its subsidiaries and requires Interstate FiberNet, Inc. to comply
with certain financial tests and to maintain certain financial ratios. The
Credit Facility is guaranteed by the Company, DeltaCom and Gulf States
Transmission and is secured by a first priority lien on all current and future
assets of Interstate FiberNet, Inc. and its subsidiaries and a first priority
pledge of the stock of the Company's subsidiaries. See "Risk Factors--High
Leverage; Ability to Service Debt; Restructure Covenants" and "Description of
Certain Indebtedness--Credit Facility."
The Company will be dependent on additional capital to fund its growth, as
well as to fund continued operating losses and working capital. The Company
believes that the net proceeds from the Offering, together with cash flow from
operations and available borrowings under the Credit Facility, will provide
sufficient funds to enable the Company to expand its business as currently
planned through the maturity of the Credit Facility in 2002, after which the
Company will need to seek additional financing to fund capital expenditures
and working capital. Because the Credit Facility will mature in 2002, the
Company may not have a ready source of liquidity after 2002. In the event that
the Company's plans or assumptions change or prove to be inaccurate, the
foregoing sources of funds may prove to be insufficient to fund the Company's
currently planned growth and operations. In addition, if the Company
successfully completes any acquisitions, the Company may be required to seek
additional capital sooner than currently anticipated. Additional sources may
include equity and debt financings and other financing arrangements, such as
vendor financing. There can be no assurance that the Company will be able to
generate sufficient cash flow from operations or that additional financing
arrangements will be available, or if available, that they can be concluded on
terms acceptable to the Company. Failure to generate or obtain sufficient
funds would result in delay or abandonment of some or all of the Company's
development and expansion plans, which could have a material adverse effect on
the Company's ability to service its debt, including the Senior Notes and the
Exchange Notes.
At June 30, 1997, on a pro forma basis, giving effect to the Reorganization,
including the forgiveness of, or repayment in full of certain indebtedness
with a portion of the net proceeds from the Offering, the Company would have
had $214.4 million of indebtedness and its stockholder's equity would have
been $64.1 million. On a pro forma basis, the Company's earnings would have
been insufficient to cover its fixed charges for the year ended December 31,
1996, and the six months ended June 30, 1997 by $18.2 million and $6.6
million, respectively, and its EBITDA less capital expenditures and interest
expense would have been negative $14.8 million and negative $13.0 million,
respectively.
Although the Company's liquidity has improved, the Company's level of
indebtedness and debt service obligations has significantly increased as a
result of the Offering. The successful implementation of the Company's
strategy, including expansion of its network and obtaining and retaining a
significant number of customers, and significant and sustained growth in the
Company's cash flow are necessary for the Company to be able to meet its debt
service requirements. There can be no assurance that the Company will
successfully implement its strategy or that the Company will be able to
generate sufficient cash flow from operating activities to improve its
earnings before fixed charges, or to meet its debt service obligations and
working capital requirements. The ability of the Company to meet its
obligations will be dependent upon the future performance of the Company,
which will be subject to prevailing economic conditions and to financial,
business and other factors. See "Risk Factors--Significant Capital
Requirements; Uncertainty of Additional Financing" and
"--High Leverage; Ability to Service Debt; Restrictive Covenants,"
"Description of Certain Indebtedness" and "Description of the Exchange Notes."
EFFECTS OF ACCOUNTING STANDARDS
SFAS No. 121 and SFAS No. 123. Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed Of, issued by the Financial Accounting
Standards Board, requires the Company to review for impairment, and
potentially write down, the carrying values of long-lived assets and certain
identifiable intangibles (including goodwill) to be held and used by the
Company whenever events or changes in circumstances indicate that the carrying
amount of any
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such asset may not be recoverable. The Company adopted SFAS No. 121, effective
January 1, 1996, with no material impact on the combined financial statements.
SFAS No. 123, Accounting for Stock-Based Compensation, establishes a fair
market value based method for financial accounting and reporting stock-based
employee compensation plans. Companies may elect to adopt the measurement
criteria of SFAS No. 123 for accounting purposes, thereby recognizing
compensation expense in results of operations on a prospective basis, or to
disclose the pro forma effects of the new measurement criteria. The Company
has elected to disclose the pro forma effects of the new measurement criteria.
See note 9 to the combined financial statements.
"Push Down" of Assets and Liabilities Related to the Acquisitions. ITC
Holding financed the cash purchase price for the DeltaCom Acquisition of
approximately $65.4 million and related debt refinancing of approximately $8.6
million principally with debt. The DeltaCom Acquisition was accounted for
under the purchase method of accounting. In accordance with applicable
accounting requirements of the Securities and Exchange Commission, purchase
transactions that result in one entity becoming substantially wholly owned by
the acquiror establish a new basis of accounting for the purchased assets and
liabilities. Thus, the purchase price for the DeltaCom Acquisition has been
allocated to the underlying assets purchased and liabilities assumed based on
their estimated fair market values at January 29, 1996, the acquisition date.
Because the DeltaCom Acquisition was recorded as a purchase, generally
accepted accounting principles require that the purchase price paid and the
debt incurred by ITC Holding for the DeltaCom Acquisition (and the related
assets) be "pushed down" to establish a new accounting basis in DeltaCom's
financial statements so that the basis of accounting for the purchased assets
and liabilities is the same between ITC Holding and DeltaCom. This accounting
treatment is also required because the Company used a portion of the proceeds
of the Offering to repay a significant portion of the debt incurred by ITC
Holding to finance the DeltaCom Acquisition. Similarly, the purchase price and
debt associated with the Gulf States Acquisition was also "pushed down" to the
financial statements of Interstate FiberNet and Gulf States Transmission.
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's combined operations.
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BUSINESS
The Company provides retail long distance services to mid-sized and major
regional businesses in the southern United States and is a leading regional
provider of Carriers' Carrier Services. The Company intends to become a
leading regional provider of integrated telecommunications services to mid-
sized and major regional businesses in the southern United States by offering
such customers a broad range of telecommunications services, including local
exchange and long distance data and voice, Internet and operator services, and
the sale and servicing of customer premise equipment, in a single package
tailored to the business customer's specific needs. In 1996, the Company had
pro forma revenues of approximately $85.4 million, EBITDA of approximately
$18.9 million and net losses from continuing operations of approximately $12.1
million. For the six months ended June 30, 1997, the Company had pro forma
revenues of approximately $54.3 million, EBITDA of approximately $11.7 million
and net losses from continuing operations of approximately $4.5 million.
The Company provides Carriers' Carrier Services to other telecommunications
carriers, including AT&T, MCI, Sprint, WorldCom, Cable & Wireless, LCI,
Frontier and IXC. The Company's fiber optic network reaches over 60 POPs in
ten southern states (Alabama, Arkansas, Florida, Georgia, Louisiana,
Mississippi, North Carolina, South Carolina, Tennessee and Texas) and extends
approximately 5,400 route miles, of which approximately 2,500 miles are
Company-owned and approximately 2,900 miles are owned and operated by three
public utilities (Duke Power Company, Florida Power & Light Company and
Entergy Technology Company) and managed and marketed by the Company. The
Company expects to add approximately 700 route miles to its fiber network by
the end of 1997 and approximately 100 owned and operated route miles in early
1998 through long-term dark fiber leases. In 1996, the Company's Carriers'
Carrier Services business generated pro forma revenues of approximately $20.2
million, EBITDA of approximately $11.5 million and net losses from continuing
operations of approximately $1.8 million. For the six months ended June 30,
1997, the Company's Carriers' Carrier Services business generated pro forma
revenues of approximately $14.3 million, EBITDA of approximately $8.5 million
and net income from continuing operations of less than $.1 million. As of
June 30, 1997, on a pro forma basis, the Company had remaining future long-
term contract commitments totaling approximately $75.8 million. These
contracts expire on various dates through 2006 and are expected to generate
approximately $56.0 million in revenues to the Company through 2001, of which
approximately $14.5 million are expected to be realized in 1998.
The Company currently provides a variety of Retail Services, including
retail long distance services such as traditional switched and dedicated long
distance, 800/888 calling, calling card and operator services, ATM and frame
relay, high capacity broadband private line services, as well as Internet,
Intranet and Web page hosting and development services, and customer premise
equipment installation and repair. As of June 30, 1997, the Company provided
services to over 6,600 business customers. The Company currently offers Retail
Services, other than local exchange services (which are provided in two
markets), in 12 metropolitan areas in Alabama, Florida, Georgia, Louisiana,
North Carolina and South Carolina and intends to provide a full range of
Retail Services (including local exchange services) in approximately 15
additional metropolitan areas throughout the southern United States over the
next five years. In 1996, the Retail Services business generated pro forma
revenues of approximately $65.2 million, EBITDA of approximately $7.4 million
and net losses from continuing operations of approximately $3.7 million. For
the six months ended June 30, 1997, the Retail Services business generated pro
forma revenues of approximately $39.9 million, EBITDA of approximately $3.2
million and net losses from continuing operations of approximately $2.2
million.
In July 1997, the Company began offering local services on a limited, resale
basis in Birmingham and Montgomery, Alabama, and commenced general sales of
such services in those markets in August 1997. Also in August 1997, the
Company initiated a limited offering in Birmingham and Montgomery of
facilities-based local services, and expects that general marketing of such
services will commence in September 1997. Although the Company's local
exchange services offerings in such markets are in the very early stages,
initial expressions of customer interest in such services have been positive,
consistent with management's expectations. However, there can be no assurance
that demand for the Company's local services will match such preliminary
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indications of customer interest. The Company expects to offer local exchange
services as part of its Retail Services in six to nine markets (including
Birmingham and Montgomery) by the end of 1997, initially by reselling the
services of incumbent local exchange carriers and, where market conditions
warrant, by using its own local switching facilities.
In connection with offering local exchange services, the Company has entered
into the Interconnection Agreement with BellSouth to (i) resell BellSouth's
local exchange services and (ii) interconnect the Company's network with
BellSouth's network for the purpose of gaining immediate access to all of
BellSouth's unbundled network elements. This agreement will allow the Company
to enter new markets with minimal capital expenditures and to offer local
exchange service to its current customer base. The Interconnection Agreement
currently allows the Company to provide local service on a resale basis or by
purchasing all unbundled network elements required to provide local service on
a facilities basis, without using Company-owned facilities. The terms of the
Interconnection Agreement, including interim pricing terms agreed to by the
Company and BellSouth, have been approved by state regulatory authorities in
most states, although they remain subject to review and modification by such
authorities. In addition, the Interconnection Agreement does not resolve all
operational issues, particularly those relating to the collocation of the
Company's equipment with that of BellSouth. The Company and BellSouth are
continuing to negotiate to resolve such issues. The Company expects that the
Interconnection Agreement will provide a foundation for it to provide local
service on a reasonable commercial basis, but there can be no assurance of this
and important issues remain unsettled as a result of legal and regulatory
developments and related matters. The Interconnection Agreement expires in
1999, and there can be no assurance that the Company will be able to renew it
under favorable terms, or at all.
ITC/\DeltaCom was incorporated in Delaware. The Company's principal executive
offices are located at 206 West Ninth Street, West Point, Georgia 31833, and
its telephone number is (706) 645-8990.
INDUSTRY OVERVIEW
The long distance and local telecommunications markets are currently
undergoing substantial changes, including fundamental changes resulting from
the February 8, 1996 enactment of the Telecommunications Act, and the Company
believes that it is well positioned to take advantage of these developments.
Long Distance Services. Until 1984, AT&T largely monopolized local and long
distance telephone services in the United States. Technological developments
gradually enabled others to compete with AT&T in the long distance market. In
1984, largely as the result of a court decree, AT&T was required to divest its
local telephone systems but was permitted to retain its long distance
operations. Since 1984, competition in the long distance market has increased,
service levels have improved, product offerings have increased and prices for
long distance services have generally declined, all of which has resulted in
increased consumer demand and significant market growth for long distance
services. The increase in competition among long distance providers has also
resulted in a growing trend toward industry consolidation.
Local Services. The market for local exchange services consists of a number
of distinct service components. These service components are defined by
specific regulatory tariff classifications including: (i) local network
services, which generally include basic dial tone, enhanced calling features
and data services (dedicated point-to-point and frame relay service); (ii)
network access services, which consist of access provided by local exchange
carriers to long distance network carriers; (iii) short-haul long distance
network services, which include intraLATA long distance calls; and (iv) other
varied services, including the publication of "white page" and "yellow page"
telephone directories. Industry sources have estimated that the 1995 aggregate
revenues of all local exchange carriers approximated $95 billion. Until
recently, there was virtually no competition in the local exchange markets.
Since 1984, several factors have served to promote competition in the local
exchange market, including: (i) rapidly growing customer demand for an
alternative to the local exchange carrier monopoly, spurred partly by the
development of competitive activities in the long distance market; (ii)
advances in the technology for
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transmission of data and video, which require significant capacity and
reliability levels; (iii) the development of fiber optics and digital
electronic technology, which reduced network construction costs while
increasing transmission speeds, capacity and reliability as compared to
copper-based networks; (iv) the significant access charges interexchange
carriers are required to pay to local exchange carriers to access the local
exchange carriers' networks; and (v) a willingness on the part of legislators
to enact and regulators to enforce legislation and regulations permitting and
promoting competition in the local exchange market. In particular, the
Telecommunications Act requires all local exchange carriers to "unbundle"
their local network offerings and allow other providers of telecommunications
services to interconnect with their facilities and equipment. Most
significantly, the incumbent local exchange carriers will be required to
complete local calls originated by the Company's customers and switched by the
Company and to deliver inbound local calls to the Company for termination to
its customers, assuring customers of unimpaired local calling ability. The
Company expects to obtain access to incumbent carrier local "loop" facilities
(the transmission lines connecting customers' premises to the public telephone
network) on an unbundled basis at reasonable rates. In addition, local
exchange carriers are obligated to provide local number portability and
dialing parity upon request and make their local services available for resale
by competitors. Local exchange carriers also are required to allow competitors
non-discriminatory access to local exchange carrier pole attachments, conduit
space and other rights-of-way. Moreover, states may not erect "barriers to
entry" of local competition, although they may regulate such competition. The
Company believes that, as a result of continued regulatory and technological
changes and competitive trends, competitive local telecommunications companies
have substantial opportunities for growth.
BUSINESS STRATEGY
The Company's objectives are to maintain its leadership position in the
provision of Carriers' Carrier Services and to become a leading provider of
Retail Services in the southern United States. The Company intends to increase
its market share in existing markets and expand into new markets by: (i)
aggressively expanding its customer base and increasing its telecommunications
services, including reselling services and facilities of the incumbent local
exchange carriers; (ii) leveraging the Company's extensive network in its
Retail Services and Carriers' Carrier Services businesses; (iii) concurrently
constructing or obtaining access to additional network infrastructure to serve
its customers more cost-effectively; and (iv) expanding its regional network
of sales offices. The principal elements of the Company's business strategy
include the following:
Providing Integrated Telecommunications Services to Existing Base of Mid-
sized and Major Regional Business Customers. By providing additional
telecommunications services such as local telephone service to its existing,
well-established base of long distance customers, the Company expects to be
able to increase revenues at relatively low incremental cost. The Company
believes that bundling a variety of telecommunications services and presenting
customers with one fully integrated monthly billing statement for all of those
services will allow it to penetrate its target markets rapidly and build
customer loyalty. The Company believes that there is substantial demand in its
target markets among mid-sized and major regional business customers for an
integrated package of telecommunications services that meets all of their
telecommunications needs.
Leveraging Its Extensive Fiber Optic Network. The Company intends to
leverage its extensive fiber optic network, which currently reaches over 60
POPs, by (i) continuing to provide switched and transport services to other
communications carriers throughout its region to enable such carriers to
diversify their routes and expand their networks; (ii) targeting customers
that need to transmit large amounts of data within the Company's service
region, such as banks and local and state governments; and (iii) offering
local exchange services to its business customers, which began on a limited
basis in the second half of 1997, as part of its integrated package of
telecommunications services. The Company intends initially to provide local
exchange services by reselling the services of incumbent local exchange
carriers and, in some established markets, using its own local switching
facilities. Over time, the Company expects to provide local services primarily
using the Company's own switching facilities and existing regional fiber optic
network, supplemented by unbundled facilities of incumbent local exchange
carriers or other competitive local exchange carriers. The configuration of
the Company's network enables the Company to expand its network by installing
additional remote local switches, which operate
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in conjunction with the Company's DMS-500 switches, to provide facilities-
based local services. Because remote local switches are less expensive to
purchase and install than DMS-500 switches, and can be installed more quickly
than DMS-500 switches, the Company believes that it will be able to enter new
markets at less expense than many of its competitors. At present, the Company
does not plan to construct intra-city local loop facilities.
Focusing on the Southern United States. The Company intends to continue to
focus on the southern United States in order to leverage its extensive
telecommunications network in the region. The Company believes that its
regional focus will enable it to take advantage of economies of scale in
management, network operations and sales and marketing. The regional
concentration of the Company's network also provides an opportunity for
improved margins because a high portion of its customers' telecommunications
traffic originates and terminates within the region. The Company also believes
that its regional focus will enable it to build on its long-standing customer
and business relationships in the region.
Building Market Share through Personalized Customer Service. The Company
believes that the key to revenue growth in its target markets is capturing and
retaining customers by emphasizing marketing, sales and customer service.
Management believes that customers prefer one company to be accountable for
their telecommunications services, and that a consultative, face-to-face sales
and service strategy is the most effective method of acquiring and maintaining
a high quality customer base. The Company seeks to obtain long-term
commitments from its business customers by responding rapidly and creatively
to their telecommunications needs. The Company currently operates 14 sales
offices in Alabama, Florida, Georgia, Louisiana, North Carolina and South
Carolina. Each sales office is staffed by personnel capable of marketing all
of the Company's products and providing comprehensive support to the Company's
customers.
Expanding Its Fiber Optic Network and Switching Facilities. The Company
expects to expand its fiber optic telecommunications network and switching
facilities to include additional markets within the southern United States.
The Company currently owns and operates approximately 2,500 route miles of
fiber optic network extending from Georgia to Texas, with an additional 700
owned and operated route miles expected to be added by the end of 1997 and
approximately 100 owned and operated route mile expected to be added in early
1998. The Company also markets and manages capacity on 2,900 additional
network route miles through its strategic relationships with public utilities.
In addition, the Company has a buy-sell agreement with Carolinas Fibernet,
LLC, which manages fiber optic facilities in North Carolina and South
Carolina. This agreement enables the parties to buy and sell capacity on each
other's networks and allows the Company to provide customers with access to
POPs throughout those states. The Company believes that, by continuing to
combine its owned network with the networks of public utilities and by adding
switching facilities throughout its network, it will be able to achieve
capital efficiencies and rapidly expand its network in a cost-effective
manner.
Leveraging Proven Management Team. The Company's management team consists of
experienced telecommunications managers who in the past have successfully
implemented a customer-focused long distance telecommunications strategy in
the southern United States. Members of the team include Andrew Walker, Chief
Executive Officer of the Company, Foster McDonald, President of the Company,
and Douglas Shumate, Chief Financial Officer of the Company. ITC Holding is
the Company's sole stockholder. The Company anticipates that ITC Holding's
experience and contacts in the telecommunications industry will enhance the
Company's development. See "Risk Factors--Control by ITC Holding Company;
Conflicts of Interest" and "Management."
SERVICES AND FACILITIES
Services
The Company currently provides two basic services: (i) Retail Services and
(ii) Carriers' Carrier Services.
Retail Services. Retail Services involve the provision of voice, data or
video telecommunications services to end users or resellers. The Company
currently provides several types of Retail Services, including basic long
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distance services (switched, dedicated, and calling card), dedicated Internet
access, data network solutions (frame relay, ATM, point-to-point), and the
sale and installation of customer premise equipment and, in two markets, local
exchange services. The Company intends to provide additional types of Retail
Services in the future and expand the markets in which it offers local
services as part of a bundled "one-stop" integrated telecommunications service
which will offer customers a wide range of switch-based value-added services.
The Company's customer-focused software and network architecture will permit
the Company to present its customers with one fully integrated monthly billing
statement for the entire package of Retail Services.
Set forth below are brief descriptions of the Company's Retail Services:
LOCAL SERVICES. The Company intends initially to provide local exchange
services by reselling the services of incumbent local exchange carriers
and, in some established markets, using its own local switching facilities.
Over time, the Company expects to provide local services primarily using
the Company's own switching facilities and existing regional fiber optic
network, supplemented by unbundled facilities of incumbent local exchange
carriers or other competitive local exchange carriers. In July 1997, the
Company began offering local services in Birmingham and Montgomery,
Alabama. The Company expects to offer local services as part of its Retail
Services in six to nine markets (including Birmingham and Montgomery) by
the end of 1997.
In connection with offering local services, the Company has entered into
the Interconnection Agreement with BellSouth to (i) resell BellSouth's
local exchange services and (ii) interconnect the Company's network with
BellSouth's network for the purpose of immediately gaining access to the
unbundled network elements necessary to provide local exchange services.
The Interconnection Agreement contains "most favored nation" provisions
which grant the Company the right to obtain the benefit of any arrangements
entered into during the term of the Interconnection Agreement between
BellSouth and any other carrier that materially differ from the rates,
terms or conditions of the Interconnection Agreement. Under the
Interconnection Agreement, each party may resell one or more unbundled
network elements of the other party at agreed upon prices set forth in the
Interconnection Agreement. In addition, each party is required to pay for
the interconnection trunks needed to terminate traffic into the other
party's local network, with the costs of certain two-way interconnection
trunks and ports to be shared by the Company and BellSouth.
The Interconnection Agreement has a term of two years beginning July 1,
1997, and requires the parties to negotiate renewal terms by July 1, 1998
for interconnection commencing July 1, 1999. In the event the parties fail
to agree on such terms, they have agreed to operate under the existing
terms, pending a determination of new terms by a state commission.
LONG DISTANCE. The Company offers a full range of retail long distance
services, including traditional switched and dedicated long distance,
800/888 calling, international, calling card and operator services.
DATA SERVICES. The Company provides high quality data services to its
customers primarily using frame relay switches distributed strategically
throughout the Company's network, enabling customers to use a single
network connection to communicate with multiple sites throughout the
Company's fiber optic network. The Company currently provides ATM services
on a resale basis. Beginning in late 1997 or early 1998, the Company
intends to offer ATM services on its own network, providing data services
to customers that need to transmit large amounts of data within the
Company's service region, such as banks and local and state governments.
The Company will continue to seek, through strategic business relationships
with other providers, to interconnect its fiber optic network with the
fiber optic networks of other companies. The Company anticipates increased
demand for data services in the future, and expects that in the future a
larger percentage of its revenues will be derived from the sale of
dedicated data services.
INTERNET ACCESS, INTRANET SERVICES AND WEB DEVELOPMENT. Since its
acquisition in 1996 of substantially all of the assets of ViperNet, an
Internet access provider and Web page developer for business customers, the
Company has provided dedicated (frame relay) Internet access and Intranet
services, electronic mail, Web page design and Web hosting services. The
Company expects that mid-sized and larger businesses will require faster
Internet access and larger bandwidth in the future, and intends to offer
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products that will meet that demand. The Company refers customers
requesting non-dedicated Internet access to MindSpring Enterprises, Inc.
("MindSpring"), an Internet service provider in which ITC Holding has a
substantial equity interest, and receives a fee per referred customer.
CUSTOMER PREMISE EQUIPMENT. The Company sells and installs customer
premise equipment such as telephones, office switchboard systems and, to a
lesser extent, private branch exchanges (PBX) for customers in the
Huntsville, Birmingham, Dothan and Montgomery, Alabama markets. The Company
intends to offer customer premise equipment sales and installation in
additional markets in the future, with the goals of (i) enhancing and
supporting the Company's sale of local and long distance services and
(ii) enhancing customer retention. The Company plans to form relationships
with local customer premise equipment installation companies in all of its
markets for the purpose of selling and installing customer premise
equipment not otherwise provided by the Company.
Carriers' Carrier Services. The Company's Carriers' Carrier Services are
used by customers, such as major telecommunications carriers and non-
facilities based carriers that have switches but do not own transmission
facilities, to transport their already-switched traffic between LATAs. Calls
being transmitted over a long-haul circuit for a customer are generally routed
by the customer through a switch to a receiving terminal in the Company's
network. The Company transmits the signals over a long-haul circuit to the
terminal where the signals are to exit the Company's network. The signals are
then routed by the customer through another switch and to the call recipient
through a local exchange carrier. The Company provides DS-1, DS-3 and OC-N
services. OC-N services are used by the Company's customers for very high
capacity inter-city connectivity and specialized high speed data networking.
The interface between the Company's network and the customer's facilities is
by either local exchange carrier or a direct connection between the Company's
network and the facilities of the customer. The Company typically bills the
customers a fixed monthly rate depending on the capacity and length of the
circuit, regardless of the amount the circuit is actually used.
Facilities
The Company owns or manages approximately 5,400 miles of a high quality
fiber optic network which covers portions of ten states in the southern United
States and extends to over 60 POPs. These POPs are located in almost all major
population centers in the areas covered by the fiber optic network and a
significant number of smaller cities where the Company's only competitor is
the incumbent local exchange carrier.
The Company owns approximately 2,500 miles of its fiber optic network, which
the Company has built or acquired since 1992. In addition, the Company has
strategic relationships with three public utilities, Duke Power Company,
Florida Power & Light Company and Entergy Technology Company, pursuant to
which the Company markets, sells and manages capacity on approximately 2,900
route miles of network owned and operated by the utilities.
In addition, the Company is able to purchase network capacity to certain
cities not covered by the Company's owned and managed network in North
Carolina and South Carolina pursuant to a buy-sell agreement with Carolinas
Fibernet, LLC, which manages fiber optic facilities in North Carolina and
South Carolina. This agreement enables the parties to buy and sell capacity on
each other's networks at pre-established prices which are generally favorable
to the prices for such capacity available in the open market. Under this
agreement, neither party is responsible for network maintenance charges
relating to the other party's network.
The Company expects to add approximately 700 owned and operated route miles
to its fiber network by the end of 1997 and approximately 100 owned and
operated route miles in early 1998 through long-term dark fiber leases. In
addition, as part of its strategy, the Company intends to continue to evaluate
the potential expansion of its network through a combination of new
construction, long-term dark fiber leases and fiber swap transactions,
depending on the extent of capital required over the economic life of the
fiber assets to be deployed.
The Company's decision to further expand its fiber optic network will be
based on various factors, including: (i) the number of its customers in a
market; (ii) the anticipated operating cost savings associated with
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such construction; and (iii) any strategic relationships with owners of
existing infrastructure (e.g., utilities and cable operators). Through its
strategic relationships with public utility companies, the Company believes
that it will be able to achieve capital efficiencies in constructing and
expanding its fiber optic network in a rapid and cost-effective manner. The
Company also believes that its fiber optic network, in combination with its
personalized approach to customer service, will create an attractive customer-
focused platform for the provision of local, long distance and enhanced
services.
The Company has implemented electronic redundancy throughout its network,
which enables traffic to be rerouted to another fiber in the same fiber sheath
in the event of a partial fiber cut or electronic failure. Approximately 40%
of the Company's owned and operated fiber optic network is also protected by
geographically diverse routing, a network design (also called a "self healing
ring") which enables traffic to be rerouted to an entirely different fiber
optic cable (assuming capacity is available) in the event of a total cable
cut. The Company is continuing to increase the geographic diversity of its
fiber optic network, and expects to have a substantial portion of its network
protected in this manner by the end of 1997.
The Company's switching facilities currently consist of Nortel DMS 500
switches in Birmingham, Alabama and Columbia, South Carolina and a Nortel DMS
250 switch in Arab, Alabama. The Arab switch is capable of handling long
distance switching and the Birmingham and Columbia DMS 500 switches are
capable of handling both local and long distance switching. These
installations enable the Company to market its Retail Services, including
local services, on a switch-based facilities basis in, among other markets,
Huntsville, Birmingham and Montgomery, Alabama; Greenville, Columbia and
Charleston, South Carolina and Atlanta, Georgia. The Company intends to
strategically place additional switches along its fiber network over the next
five years. The Company also intends to deploy a significant number of Nortel
Access Nodes in the majority of the markets which the Company intends to
serve. The additional switches and nodes will allow the Company to perform
local and long distance switching in its markets on a host/remote type
relationship to the applicable DMS 500 switch. The Nortel Access Nodes will be
connected to the Company's DMS 500 switching platform, utilizing the Company's
fiber network wherever possible. This networking design, together with the
Interconnection Agreement, will enable the Company to be a facilities-based
provider of local and long distance services in all of the markets that it
intends to enter. For those markets in which the Company intends to resell the
services of incumbent local exchange carriers, the Company's platform will be
BellSouth's Centrex product, known as MultiServ, which provides full feature
functionality, such as caller identification, call waiting, remote call
forwarding, call blocking, anonymous call rejection and conference calling.
The Company is a member of the Associated Communications Companies of
America (the "ACCA"), an 11-member trade association that negotiates with
carriers for bulk transmission capacity for its members. The collective buying
power of its members enables the ACCA to negotiate as if it were one of the
larger long distance providers in the United States.
The Company's data network currently consists of six Cascade 9000 frame
relay switches located in Atlanta and West Point, Georgia; Birmingham,
Montgomery and Arab, Alabama; and Columbia, South Carolina. The Company's data
network connects with BellSouth's and Intermedia Communications' frame relay
networks to provide nationwide connectivity for the Company's customers. The
data network currently serves over 105 customers connected to approximately
560 customer locations. The Company's Cascade frame relay switches have the
capability to provide ATM connectivity, and the Company has one ATM connection
to American Communication Services, Inc. for the Internet. The Company intends
to strategically locate additional frame relay and ATM switch sites over the
next five years, with approximately eight to ten frame relay switches being
added in 1997. These frame relay and ATM switches will be co-located with the
Company's DMS-500 switches at strategic network facility locations, and will
create a data backbone which will support the Company's data services.
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SALES AND MARKETING
Retail Services
The Company focuses its sales efforts on mid-sized and major regional
businesses in the southern United States. The Company believes that it can
effectively compete for business customers based upon service, product
diversity, price and reliability. The Company's sales force, composed of
direct sales personnel, technical consultants and technicians, markets the
Company's long distance and local communications services. The Company's
management believes that high quality employee training is a prerequisite for
superior customer service, and as a result each member of the Company's sales
force is required to complete the Company's intensive training program. The
Company's marketing strategy is built upon the belief that customers prefer to
hold one company accountable for all of their telecommunications services.
Each sales office provides technical assistance for its voice, data, Internet
and customer premise equipment as required. Customers are assured a single
point of contact, 24 hours a day, seven days a week.
Marketing to mid-sized and major regional businesses is currently conducted
by over 70 direct sales personnel (and over 120 other field personnel) located
in 14 sales offices in the southern United States. In the future, the Company
expects to significantly expand its direct sales force and open sales offices
in additional major and secondary population centers in the southern United
States. The Company's sales personnel make direct calls to prospective and
existing business customers, conduct analyses of business customers' usage
histories and service needs, and demonstrate how the Company's service package
will improve a customer's communications capabilities and costs. Sales
personnel locate potential business customers by several methods, including
customer referral, market research, telemarketing and other networking
alliances such as endorsement agreements with trade associations and local
chambers of commerce. The Company's sales personnel work closely with the
Company's network engineers and information systems consultants to design new
service products and applications. The Company's sales offices are also
primarily responsible for coordinating service and customer premise equipment
installation activities. Technicians survey customers' premises to assess
power and space requirements, and coordinate delivery, installation and
testing of equipment.
A primary element of the Company's Retail Services marketing strategy is to
enter into contracts with its customers. Those agreements generally provide
for payment in arrears based on minutes of use for switched services and in
advance for private line services. The agreements generally also provide that
the customer may terminate the affected service without penalty in the event
of substantial and prolonged outages arising from causes within the Company's
control, and for certain other defined causes. To date, no customers have been
terminated under these provisions. Generally, the agreements provide that the
customer must utilize at least a minimum dollar amount (measured by dollars or
minutes of use) of switched long distance services per month for the term of
the agreement.
In addition, the Company markets its business communication services through
advertisements, event sponsorships, trade journals, direct mail and trade
forums. Because the Company intends to distinguish its retail products largely
on the convenience of its single communications bundle and the benefits of the
Company's comprehensive, individualized and innovative customer support, the
Company believes that advertising will play a larger role in its marketing
strategy than it has in the past.
Carriers' Carrier Services
The Company has long-haul circuit contracts with major long distance
carriers, including AT&T, MCI, Sprint, WorldCom, Cable & Wireless, LCI,
Frontier and IXC. As of June 30, 1997, on a pro forma basis, the Company had
remaining future long term contract commitments totaling approximately $75.8
million. These contracts expire on various dates through 2006 and are expected
to generate approximately $56.0 million in revenues to the Company through
2001, of which $14.5 million are expected to be realized in 1998. The Company
also provides long-haul transmission to customers after contract expiration on
a month-to-month basis. The Company's long-haul contracts provide for fixed
monthly payments, generally in advance. Although sales
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volumes from particular customers vary from year to year, the Company has
historically enjoyed high customer retention and circuit renewal rates.
The Company believes that it can continue to compete effectively in the
wholesale, carrier-to-carrier market on the basis of price, reliability,
state-of-the-art technology, route diversity, ease of ordering and customer
service. The Company believes that demand for its Carriers' Carrier Services
will increase as the incumbent local exchange carriers begin competing in the
long distance market.
COMPETITION
The telecommunications industry is highly competitive. The Company competes
primarily on the basis of price, availability, transmission quality,
reliability, customer service and variety of product offerings. The ability of
the Company to compete effectively will depend on its ability to maintain high
quality services at prices generally equal to or below those charged by its
competitors. In particular, price competition in the retail and carrier's
carrier long distance markets has generally been intense and is expected to
increase. Many of the Company's competitors (such as AT&T, MCI, Sprint and
WorldCom on an interexchange basis and BellSouth on an intraLATA basis) have
substantially greater financial, personnel, technical, marketing and other
resources, larger numbers of established customers and more prominent name
recognition than the Company and utilize more extensive transmission networks
than the Company. In addition, IXC and Qwest Communications International Inc.
are constructing nationwide fiber optic systems, including routes through
portions of the southern United States. The Company will also increasingly
face competition in the long distance market from local exchange carriers,
switchless resellers and satellite carriers and may eventually compete with
public utilities and cable companies. In particular, Regional Bell Operating
Companies such as BellSouth are now allowed to provide interLATA long distance
services outside their home regions, as well as interLATA mobile services
within their regions. They will be allowed to provide interLATA long distance
services within their regions after meeting certain requirements of the
Telecommunications Act intended to foster opportunities for local telephone
competition. The Regional Bell Operating Companies already have extensive
fiber optic cable, switching, and other network facilities in their respective
regions that can be used for their long distance services. BellSouth and other
Regional Bell Operating Companies are already beginning to take steps toward
obtaining approval to provide in-region long distance services. Although the
FCC has not approved the first two of such applications to come before it,
there can be no assurance that such approvals will be delayed until local
competition is established. In addition, other new competitors may build
additional fiber capacity in the geographic areas served by the Company.
The Company's principal competitor for local exchange services will be the
incumbent local exchange carrier in the particular market, including BellSouth
in virtually all of the Company's initial market areas. The incumbent local
exchange carriers will enjoy substantial competitive advantages arising from
their historical monopoly position in the local telephone market, including
their preexisting customer relationship with all or virtually all end users.
Furthermore, the Company will be highly dependent on the competing incumbent
local exchange carrier for local network facilities and wholesale services
required in order for the Company to assemble its own local retail products.
The Company will also face competition from competitive local exchange
carriers, some of whom have already established local operations in the
Company's target markets. See "Risk Factors--Dependence on Incumbent Local
Exchange Carriers."
Large long distance carriers, such as AT&T, MCI and Sprint, have begun to
offer local services together with their long distance telecommunications
services in certain markets, and are expected to expand that activity as
opportunities created by the Telecommunications Act develop. In addition,
incumbent local exchange carriers are expected to compete in each other's
markets in some cases. For example, BellSouth has recently announced plans to
provide local services within its geographic region in competition with
independent telephone companies. Wireless telecommunications providers may
develop into effective substitutes for wireline local telephone service. For
example, AT&T recently announced plans to offer local services using a new
wireless technology. AT&T's proposed wireless system would link residential
and business telephones via radio waves to the AT&T network. If successful,
this new service could further enhance AT&T's ability to market, on a
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nationwide basis, "one-stop" telecommunications services. The Company also
competes with numerous direct marketers and telemarketers and equipment
vendors and installers with respect to certain portions of its business.
A continuing trend toward consolidation, mergers, acquisitions and strategic
alliances in the telecommunications industry could also increase the level of
competition faced by the Company or the Company's carrier customers. For
example, in December 1996, WorldCom, a national long distance carrier,
acquired MFS Communications Company, Inc., one of the largest competitive
local exchange carriers, and, in November 1996, British Telecommunications plc
announced its agreement to acquire MCI. In March 1997, BellSouth and IBM
announced an alliance to provide Internet and Intranet services to businesses
in the South. The telecommunications market is very dynamic, and additional
competitive changes are likely in the future.
REGULATION
Overview. The Company's services are subject to federal, state and local
regulation. The Company, through its wholly owned subsidiaries, holds various
federal and state regulatory authorizations. The FCC exercises jurisdiction
over telecommunications common carriers to the extent they provide, originate
or terminate interstate or international communications. The FCC also
establishes rules and has other authority over certain issues related to local
telephone competition. State regulatory commissions retain jurisdiction over
telecommunications carriers to the extent they provide, originate or terminate
intrastate communications. Local governments may require the Company to obtain
licenses, permits or franchises in order to use the public rights-of-way
necessary to install and operate its networks.
Federal Regulation. The Company is categorized as a non-dominant carrier by
the FCC, and as a result is subject to relatively limited regulation of its
interstate and international services. Certain general policies and rules
apply, as well as certain reporting requirements, but the Company's rates are
not reviewed. The Company has all the authority required by the FCC to conduct
its long distance business. As a non-dominant carrier, the Company may install
and operate additional wireline facilities for the transmission of domestic
interstate communications without prior FCC authorization.
The FCC also imposes prior approval requirements on transfers of control and
assignments of operating authorizations. The FCC has the authority generally
to condition, modify, cancel, terminate or revoke operating authority for
failure to comply with federal laws and/or the rules, regulations and policies
of the FCC. Fines or other penalties also may be imposed for such violations.
There can be no assurance that the FCC or third parties will not raise issues
with regard to the Company's compliance with applicable laws and regulations.
The FCC also regulates the interstate access rates charged by incumbent
local exchange carriers for the origination and termination of interstate long
distance traffic. Those access rates make up a significant portion of the cost
of providing long distance service. The FCC has recently announced changes to
its interstate access rules that will result in restructuring of the access
charge system and changes in access charge rate levels. These changes will
reduce per-minute access charges and substitute new per-line flat-rate monthly
charges. These actions are expected to reduce access rates, and hence the cost
of providing long distance service, especially to business customers. However,
the full impact of the FCC's new decisions will not be known until those
decisions are implemented over the next several years, during which time those
decisions may be revised. Long distance companies may be disadvantaged if they
have a disproportionate number of customers with multiple local telephone
lines but relatively limited long distance requirements. In addition, AT&T has
committed to reduce its long distance rates to reflect access cost reductions,
and other competitors of the Company are likely to make similar reductions. In
such event, the Company may need to reduce its rates in response to
competitive pressures. In a related proceeding, the FCC has adopted changes to
the methodology by which access has been used in part to subsidize universal
telephone service and other public policy goals.
The Telecommunications Act also gives the FCC a role in establishing rules
for the implementation of local telephone competition, working with the state
PUCs. The Telecommunications Act imposes a variety of new duties on incumbent
local exchange carriers in order to promote competition in local exchange and
access
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services, and the FCC has authority to develop rules to implement these
duties. Some smaller independent incumbent local exchange carriers may seek
suspension or modification of these obligations, and some companies serving
rural areas are exempt from them.
In that regard, on August 8, 1996, the FCC adopted the Interconnection
Decision (the "Decision") to implement the interconnection, resale and number
portability provisions of the Telecommunications Act. This Decision
establishes rules pursuant to which incumbent local exchange carriers
interconnect their networks with the networks of competitive local exchange
carriers at rates that are reasonable and non-discriminatory. The Decision
also establishes rules governing the rights of competitive local exchange
carriers to obtain and use elements of the incumbent local exchange carriers'
networks at cost-based rates either to supplement or substitute for
alternative local network facilities that the competitive local exchange
carrier would otherwise be required to install. The Decision sets rules
governing competitive local exchange carrier access to wholesale versions of
the incumbent local exchange carriers' retail local services for resale. The
incumbent local exchange carriers are required to establish administrative
support systems so that these services and functionalities can be made
available to other carriers on a nondiscriminatory basis. The Decision also
created rules to deal with reciprocal compensation for the transport and
termination of local telecommunications, non-discriminatory access to rights
of way, and related matters. A related FCC order adopted the same day
established rules implementing the Telecommunications Act with respect to
local and toll dialing parity among competitors; nondiscriminatory access to
telephone numbers, operator services, directory assistance and listings,
network information; and reform of numbering administration.
The FCC's rules were challenged in the federal courts by GTE, the Regional
Bell Operating Companies, large independent incumbent local exchange carriers
and state regulatory commissions. On October 15, 1996, the U.S. Court of
Appeals for the Eighth Circuit issued a stay of the implementation of certain
of the FCC's rules and on July 18, 1997, the Court issued its decision finding
that the FCC lacked statutory authority under the Telecommunications Act for
certain of its rules. In particular, the Court found that the FCC was not
empowered to establish the pricing standards governing unbundled local network
elements or wholesale local services of the incumbent local exchange carriers.
The Court also struck down other FCC rules, including one that would have
enabled new entrants to "pick and choose" from provisions of established
interconnection agreements between the incumbent local exchange carriers and
other carriers. The Court, however, rejected certain other objections to the
FCC rules brought by the incumbent local exchange carriers or the states,
including challenges to the FCC's definition of unbundled elements, and to the
FCC's rules allowing new competitors to create their own networks by combining
incumbent local exchange carrier network elements together without adding
additional facilities of their own. The overall impact of the Court's decision
is to materially reduce the role of the FCC in fostering local competition,
including its ability to take enforcement action if the Telecommunications Act
is violated, and increase the role of state utility commissions. The FCC has
indicated that it will ask the Supreme Court to review the Court's decision
and petitions for rehearing are pending concerning the decision's treatment of
unbundled elements. Meanwhile, certain state commissions have asserted that
they will be active in promoting local telephone competition using the
authority they have under the ruling, which may lessen the significance of the
reduced FCC role. At this time the impact of the Court's decision cannot be
evaluated and there can be no assurance that the Court decision and related
developments will not have a material adverse effect on the Company.
Furthermore, other FCC rules related to local telephone competition remain the
subject of legal challenges. For example, on August 22, 1997, the Eighth
Circuit Court issued a second order striking down certain FCC rules regarding
dialing parity for new competitors. There can be no assurance that these and
other pending decisions affecting local competition will not be adverse to
companies seeking to enter the local telephone market.
There can be no assurance that the FCC's remaining rules (including such
rules that may be reinstated by the Supreme Court, if any), together with
rules adopted by state public utility commissions, will be implemented in a
manner that will permit local telephone competition to develop to a
substantial extent and without significant delays. For example, many new
carriers, including the Company, have experienced problems with respect to the
operational support systems used by new carriers to order and receive network
elements and wholesale services
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from the incumbent local exchange carriers. These systems are necessary for
new carriers like the Company to provide local service to customers on a
timely and competitive basis. The FCC has recently created a task force to
examine problems that have slowed the development of local telephone
competition.
The Company has entered into the Interconnection Agreement with BellSouth.
The Interconnection Agreement currently allows the Company to provide local
service on a resale basis or by purchasing all unbundled network elements
required to provide local service on a facilities bases, without using
Company-owned facilities. The Company and BellSouth have agreed on interim
pricing terms for such resale and purchase of unbundled network elements. The
terms of the Interconnection Agreement, including the interim pricing terms,
are subject to the approval of the PUCs regulating the Company's markets. Such
approval has been received from the PUCs of Alabama, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and is
pending in Florida. In addition, the Interconnection Agreement does not
resolve all operational issues, particularly those relating to the collocation
of the Company's equipment with that of BellSouth. The Company and BellSouth
are continuing to negotiate to resolve such issues. The Company expects that
the Interconnection Agreement will provide a foundation for it to provide
local service on a reasonable commercial basis, but there can be no assurance
of this and important issues remain unsettled as a result of the Court
decision and related matters. See "Risk Factors--Dependence on Local Incumbent
Exchange Carriers."
The Company expects to negotiate similar interconnection agreements with
other incumbent local exchange carriers. However, other carriers who have
preceded the Company in the negotiation process with certain of these
incumbent local exchange carriers have expressed dissatisfaction with some of
the terms of their agreements, or with the operational support systems by
which they obtain the interconnection they require to provide local services
to end users.
As a general matter, no assurance is possible regarding how quickly or how
adequately the Company will be able to take advantage of the opportunities
created by the Telecommunications Act. The Company could be adversely affected
if the court decision reversing some of the new FCC rules, or problems in the
related arbitration and negotiation process, result in increasing the cost of
using incumbent local exchange carrier network elements or services, or if
such actions otherwise result in delays in the implementation of the
Telecommunications Act or impediments to the development of local telephone
competition.
The Telecommunications Act also imposes certain duties on non-incumbent
local exchange carriers, such as the Company. These duties include the
obligation to complete calls originated by competing carriers under reciprocal
arrangements or through mutual exchange of traffic without explicit payment;
the obligation to permit resale of their telecommunications services without
unreasonable restrictions or conditions; and the duty to provide dialing
parity, number portability, and access to rights of way. The Company does not
anticipate that these obligations will impose a material burden on its
operations. However, given that local telephone competition is still in its
infancy and implementation of the Telecommunications Act has just begun, there
can be no assurance in this regard.
The Telecommunications Act also establishes the foundation for substantial
additional competition to the Company's long distance operations through
elimination or modification of previous prohibitions on the provision of
interLATA long distance services by the Regional Bell Operating Companies and
GTE. The Regional Bell Operating Companies are now permitted to provide
interLATA long distance service outside those states in which they provide
local exchange service ("out-of-region long distance service") upon receipt of
any necessary state and/or federal regulatory approvals that are otherwise
applicable to the provision of intrastate and/or interstate long distance
service. They also are allowed to provide long distance services for their
cellular and other mobile services within the regions in which they also
provide local exchange service ("in-region service"). The Regional Bell
Operating Companies will be allowed to provide wireline in-region services
upon specific approval of the FCC and satisfaction of other conditions,
including a checklist of interconnection requirements. GTE is permitted to
enter the long distance market without regard to limitations by region. GTE is
also subject to the provisions of the Telecommunications Act that impose
interconnection and other requirements on local exchange carriers. BellSouth
and other Regional Bell Operating Companies have begun to take actions
directed towards obtaining authority from the FCC to offer in-region long
distance services in certain of the states
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in their respective regions. Although the FCC forced the withdrawal of the
first such request, and rejected the next two, others are anticipated soon,
including one or more applications from BellSouth to provide service in states
in its region. Furthermore, court actions are now pending challenging both the
terms under which the FCC has denied an in-region application, and the
underlying provisions of the Telecommunications Act that restrict in-region
service. There can be no assurance that the Regional Bell Operating Companies
will be prevented from offering in-region long distance service until local
competition is established.
The FCC has granted incumbent local exchange carriers certain flexibility in
pricing their interstate special and switched access services. Under this
pricing scheme, local exchange carriers may establish pricing zones based on
access traffic density and charge different prices for access provided in each
zone. The Company anticipates that the FCC will grant incumbent local exchange
carriers increasing pricing flexibility as the number of interconnection
agreements and competitors increases. In a pending rulemaking proceeding
scheduled for completion soon, the FCC is expected to announce new and more
specific policies regarding the conditions and timing under which incumbent
local exchange carriers will be eligible for such increased pricing
flexibility. There can be no assurance that such pricing flexibility will not
place the Company at a competitive disadvantage, either as a purchaser of
access for its long distance operations, or as a vendor of access to other
carriers or end user customers.
State Regulation. The Company is also subject to various state laws and
regulations. Most public utility commissions require providers such as the
Company to obtain authority from the commission prior to the initiation of
service. In most states, including Alabama, Georgia and Florida, the Company
also is required to file tariffs setting forth the terms, conditions and
prices for services that are classified as intrastate. The Company also is
required to update or amend its tariffs when it adjusts its rates or adds new
products, and is subject to various reporting and record-keeping requirements.
Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence by carriers of significant debt obligations.
Certificates of authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply
with state law and/or the rules, regulations and policies of state regulatory
authorities. Fines or other penalties also may be imposed for such violations.
There can be no assurance that state utilities commissions or third parties
will not raise issues with regard to the Company's compliance with applicable
laws or regulations.
The Company has all necessary authority to offer intrastate long distance
services in Alabama, Arkansas, California, Colorado, Connecticut, Delaware,
District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi,
Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York,
North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South
Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington,
West Virginia, Wisconsin and Wyoming. The Company is authorized to provide
intrastate long distance service in the states of Arizona and Pennsylvania
while certificates in those states are pending. Applications for authority to
provide intrastate long distance service are also pending in several other
states, including Maine, Minnesota and New Mexico. Applications will be filed,
in the near future, in the states of Alaska and Hawaii. The Company seeks
authority to provide long distance service in states outside of its target
markets to enhance its ability to attract business customers with offices, or
whose employees travel, outside of the Company's target markets.
The Company intends initially to provide local exchange services in its
region by reselling the retail local services of the respective incumbent
local exchange carrier in a given territory and, in some established markets,
using its own local switching facilities. The Company has obtained competitive
local exchange carrier certification in Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.
Many issues remain open regarding how new local telephone carriers will be
regulated at the state level. For example, although the Telecommunications Act
preempts the ability of states to forbid local service
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competition, the Telecommunications Act preserves the ability of states to
impose reasonable terms and conditions of service and other regulatory
requirements. However, these statutes and related questions arising from the
Telecommunications Act will be elaborated further through rules and policy
decisions made by PUCs in the process of addressing local service competition
issues.
The Company also will be heavily affected by state PUC decisions related to
the incumbent local exchange carriers, particularly in view of the July 18,
1997 decision of the Eighth Circuit Court of Appeals noted above which
recognizes a larger role for state utility commissions and a reduced role for
the FCC. For example, PUCs have significant responsibility under the
Telecommunications Act to oversee relationships between incumbent local
exchange carriers and their new competitors with respect to such competitors'
use of the incumbent local exchange carriers' network elements and wholesale
local services. PUCs arbitrate interconnection agreements between the
incumbent local exchange carriers and new competitors such as the Company when
necessary. PUCs are considering incumbent local exchange carrier pricing
issues in major proceedings now underway. PUCs will also determine how
competitors can take advantage of the terms and conditions of interconnection
agreements that incumbent local exchange carriers reach with other carriers.
It is too early to evaluate how these matters will be resolved, or their
impact on the ability of the Company to pursue its business plan.
States also regulate the intrastate carrier access services of the incumbent
local exchange carriers. The Company is required to pay such access charges to
originate and terminate its intrastate long distance traffic. The Company
could be adversely affected by high access charges, particularly to the extent
that the incumbent local exchange carriers do not incur the same level of
costs with respect to their own intrastate long distance services. A related
issue is use by certain incumbent local exchange carriers, with the approval
of PUCs, of extended local area calling that converts otherwise competitive
intrastate toll service to local service. States also are or will be
addressing various intraLATA dialing parity issues that may affect
competition. It is unclear whether state utility commissions will adopt
changes in their rules governing intrastate access charges similar to those
recently approved by the FCC for interstate access. The Company's business
could be adversely affected by such changes.
The Company also will be affected by how states regulate the retail prices
of the incumbent local exchange carriers with which it competes. The Company
believes that, as the degree of intrastate competition increases, the states
will offer the incumbent local exchange carriers increasing pricing
flexibility. This flexibility may present the incumbent local exchange
carriers with an opportunity to subsidize services that compete with the
Company's services with revenues generated from non-competitive services,
thereby allowing incumbent local exchange carriers to offer competitive
services at lower prices than they otherwise could. The Company cannot predict
the extent to which this may occur or its impact on the Company's business.
Local Government Authorizations. The Company is required to obtain street
use and construction permits and licenses and/or franchises to install and
expand its fiber optic networks using municipal rights-of-way. In some
municipalities where the Company has installed or anticipates constructing
networks, it will be required to pay license or franchise fees based on a
percentage of gross revenues or on a per linear foot basis. There can be no
assurance that, following the expiration of existing franchises, fees will
remain at their current levels. In many markets, the incumbent local exchange
carriers do not pay such franchise fees or pay fees that are substantially
less than those required to be paid by the Company, although the
Telecommunications Act requires that in the future such fees be applied in a
competitively neutral manner. To the extent that, notwithstanding the Act,
competitors do not pay the same level of fees as the Company, the Company
could be at a competitive disadvantage. Termination of the existing franchise
or license agreements prior to their expiration dates or a failure to renew
the franchise or license agreements and a requirement that the Company remove
its facilities or abandon its network in place could have a material adverse
effect on the Company.
General. The telecommunications market is in a period of substantial change
and uncertainty. As the Telecommunications Act and related FCC and state
actions are implemented, new issues are likely to arise that can affect the
Company and its business plan. No assurance can be given that future
regulatory developments will not have a materially adverse impact on the
Company.
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FACILITIES, REAL PROPERTY AND LEASES
The Company leases its corporate headquarters space in West Point, Georgia
from ITC Holding. The lease expires in 2005 and may be terminated by either
party on 90 days' notice. See "Certain Transactions--ITC Holding." The Company
also owns a switch site in Birmingham, Alabama and leases space for a network
operations center and a switch site in Arab, Alabama. In addition, the Company
intends to construct a multi-service facility in Anniston, Alabama to function
as a centralized switching control center for the Company's network and an
operator services center. Construction of the Anniston facility is expected to
commence by the end of 1997 and to be completed in the second quarter of 1998.
The Company operates sales offices in Atlanta (two offices), Georgia;
Pensacola, Florida; Columbia and Greenville, South Carolina; Charlotte, North
Carolina; New Orleans and Baton Rouge, Louisiana; and Huntsville, Mobile,
Auburn, Dothan, Florence, Montgomery and Birmingham, Alabama. The leases for
these offices expire between 1997 and 2001.
As part of its fiber optic network and switched service system, the Company
owns or leases rights-of-way, land, office space and towers throughout the
southern United States.
The Company owns land and microwave transmission towers at various locations
in Alabama.
The Company expects to lease or purchase additional office space and
switching and other network facilities in connection with the planned
expansion of its telecommunications network system.
The Company believes that all of its properties are well maintained.
EMPLOYEES
As of June 30, 1997, the Company had over 500 full-time employees, none of
whom was represented by a union or covered by a collective bargaining
agreement. The Company believes that its relationship with its employees is
good. In connection with the construction and maintenance of its fiber optic
network and the conduct of its other business operations, the Company uses
third party contractors, some of whose employees may be represented by unions
or covered by collective bargaining agreements.
LEGAL PROCEEDINGS
In May 1997, the U.S. District Court for the Middle District of Alabama,
Southern Division returned a verdict against DeltaCom in Digitel Corporation
v. DeltaCom, Inc., Richard A. Wilkins, John A.R. Smith, and Edward L.
Blackwell, awarding plaintiff $265,000 in damages. Plaintiff in this action
alleged that certain of its former employees violated the non-solicitation
agreements they had entered into with plaintiff as part of their employment.
Plaintiff further alleged that DeltaCom, as the current employer of these
former employees, shares liability for their alleged violations. DeltaCom is
indemnified by the former stockholders of DeltaCom against both the attorney's
fees incurred in defending the action and the judgment resulting from the
action.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth, as of June 30, 1997, certain information
concerning the directors and executive officers of the Company. The Board of
Directors (the "Board") currently consists of nine directors, divided into
three classes of directors serving staggered three-year terms. Directors and
executive officers of the Company are elected to serve until they resign or
are removed, or are otherwise disqualified to serve, or until their successors
are elected and qualified. Directors of the Company are elected at the annual
meeting of stockholders. Executive officers of the Company generally are
appointed at the Board's first meeting after each annual meeting of
stockholders.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY TERM AS DIRECTOR EXPIRES
---- --- ------------------------ ------------------------
<S> <C> <C> <C>
Campbell B. Lanier, III......... 46 Chairman, Director 2000
Andrew M. Walker................ 55 Chief Executive Officer, Director 2000
Foster O. McDonald.............. 35 President
Douglas A. Shumate.............. 32 Senior Vice President-Chief
Financial Officer
Steven D. Moses................. 47 Senior Vice President-Network
Services
J. Thomas Mullis................ 53 Senior Vice President-General
Counsel, Secretary
Roger F. Woodward............... 44 Senior Vice President-Sales,
Marketing and Customer Support
Sara L. Plunkett................ 47 Vice President-Finance, Treasurer
Donald W. Burton................ 53 Director 1998
Malcolm C. Davenport, V......... 44 Director 1998
Robert A. Dolson (1)............ 51 Director 1999
O. Gene Gabbard (1)(2).......... 57 Director 1999
William T. Parr (2)............. 60 Director 1998
William H. Scott, III (2)....... 49 Director 1999
William B. Timmerman............ 50 Director 2000
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Campbell B. Lanier, III has been Chairman of the Company since March 1997.
Mr. Lanier serves as Chairman of the Board and Chief Executive Officer of ITC
Holding and has served as a director of ITC Holding since its inception in
1985 through a predecessor company. In addition, Mr. Lanier is an officer and
director of several ITC Holding subsidiaries. He also is a director of KNOLOGY
Holdings, Inc. ("KNOLOGY"), (a broadband telecommunications services company)
(formerly known as CyberNet Holding, Inc.), MindSpring (a company that
provides Internet services), National Vision Associates, Ltd. (a full service
optical retailer) and K&G Men's Centers (a discount retailer of men's
clothing), Vice Chairman of the Board of AvData Systems, Inc. ("AvData") (a
company providing data communications networks) and Chairman of the Board of
InterCel, Inc. ("InterCel") (a wireless telecommunications services company in
which ITC Holding has a substantial equity interest) and is a Managing
Director of South Atlantic Private Equity Fund IV, Limited Partnership. Since
1989, he has served as a director of the United States Telephone Association.
He served as Chairman of the Board of AvData from 1988 to 1990.
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<PAGE>
Andrew M. Walker has been Chief Executive Officer of the Company since March
1997. He served as President and Chief Executive Officer of the managing
partner of each of Interstate FiberNet and Gulf States FiberNet from November
1994 until March 1997. Mr. Walker has served as a director of KNOLOGY since
July 1996, and he served as Chief Executive Officer and President of KNOLOGY
from July 1996 to February 1997. Mr. Walker worked for MCI from 1990 to 1994
as Vice President Carrier Services. From 1986 to 1990, Mr. Walker served as a
Division President for Telecom*USA, Inc. ("Telecom*USA"). Prior to 1986, Mr.
Walker held different positions with the Christian Broadcasting Network, M/A-
Com and Comsat Laboratories ("Comsat").
Foster O. McDonald has been President of the Company since March 1997. He
served as President of DeltaCom from January 1991 until March 1997. From
February 1996 until March 1997, Mr. McDonald also served as Chief Executive
Officer of DeltaCom. From May 1984 through December 1990, Mr. McDonald served
as Vice President and General Manager of DeltaCom. He also serves as a
director of Brindlee Mountain Telephone Company.
Douglas A. Shumate has been Senior Vice President and Chief Financial
Officer of the Company since March 1997. He served as Chief Financial Officer
of the Managing Partners of each of Interstate FiberNet and Gulf States
FiberNet from January 1995 until March 1997. From May 1991 to January 1995, he
served as Vice President-Finance and Chief Financial Officer of Interstate
Telephone Company ("Interstate Telephone"), a local telephone service provider
and wholly owned subsidiary of ITC Holding. From December 1986 through April
1991, Mr. Shumate was employed as a C.P.A. at Arthur Andersen LLP.
Steven D. Moses has been Senior Vice President-Network Services of the
Company since March 1997. He served as Vice President of Interstate FiberNet
from January 1992 until April 1995 and Chief Operating Officer of Interstate
FiberNet from April 1995 until March 1997. From May 1991 to January 1992, Mr.
Moses served as Director--Special Projects of Interstate Telephone and Valley
Telephone Company ("Valley Telephone") (a local telephone service provider and
a wholly owned subsidiary of ITC Holding).
J. Thomas Mullis has been Senior Vice President, General Counsel and
Secretary of the Company since March 1997. Mr. Mullis served as General
Counsel and Secretary of DeltaCom from May 1985 to March 1997 and as Executive
Vice President of DeltaCom from January 1994 to November 1996. From November
1996 to March 1997, he also served as Senior Vice President of DeltaCom. From
January 1990 to December 1993, Mr. Mullis served as President, General Counsel
and Secretary of both Southern Interexchange Services, Inc. (a switched
services carrier) and Southern Interexchange Facilities, Inc. (a private line
carriers' carrier).
Roger F. Woodward has been Senior Vice President--Sales, Marketing and
Customer Support of the Company since March 1997. Mr. Woodward served as
Senior Vice President-Sales of DeltaCom from October 1996 until March 1997.
From March 1990 until July 1996, Mr. Woodward served in a variety of
positions, including Regional Sales Director and Vice President-Sales, with
Allnet Communications, Inc., which was acquired by Frontier in August 1995.
Sara L. Plunkett has been Vice President--Finance and Treasurer for the
Company since March 1997. She served as Vice President--Finance of DeltaCom
from October 1996 until March 1997. From May 1989 through October 1996, she
served as Chief Financial Officer of DeltaCom.
Donald W. Burton has been a director of the Company since March 1997. He has
served as the Managing General Partner of South Atlantic Venture Funds since
1983 and as the General Partner of The Burton Partnership, Limited Partnership
since 1979. Since 1981, he has served as President of South Atlantic Capital
Corporation. Mr. Burton serves as director of InterCel, MTL, Inc. (a bulk
transportation service company), the Heritage Group of Mutual Funds and
several private companies.
Malcolm C. Davenport, V has been a director of the Company since March 1997.
He has operated his own C.P.A. and law practices since 1979 and 1983,
respectively. Mr. Davenport also serves as a director of ITC
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<PAGE>
Holding and several of its subsidiaries, Spintek Gaming Technologies, Inc. (a
gaming technology provider) and American Artists Film Corporation (a motion
picture production company).
Robert A. Dolson has been a director of the Company since March 1997. He has
served as President and Chairman of Continental Water Company (a holding
company for regulated water utilities) since 1982 and 1989, respectively. He
has served as President and Chairman of National Enterprises, Inc. (the parent
company of Continental Water Company) since 1984 and 1989, respectively. He
has served as a director of ITC Holding since December 1993. He also serves as
a director of several private companies.
O. Gene Gabbard has been a director of the Company since March 1997. He has
worked independently as an entrepreneur and consultant since February 1993.
Mr. Gabbard currently serves as Chairman of the Board of KNOLOGY and as a
director of ITC Holding, InterCel, MindSpring, KNOLOGY and InterServ Services
Corporation (a marketing company). He also currently serves as a director of
Masada Security, Inc. (a security system monitoring services company), and of
two telecommunications technology companies, Dynatech Corporation and Adtran,
Inc. and is a Managing Director of South Atlantic Private Equity Fund IV,
Limited Partnership. From August 1990 through January 1993, he served as
Executive Vice President and Chief Financial Officer of MCI. He served in
various senior executive capacities, including Chairman of the Board,
President and Chief Executive Officer of Telecom*USA, Inc. from December 1988
until Telecom's merger with MCI in August 1990. From July 1984 to December
1988, he was Chairman and/or President of SouthernNet, Inc. ("SouthernNet"), a
long distance telecommunications company which was the predecessor to
Telecom*USA.
William T. Parr has been a director of the Company since March 1997. Mr.
Parr has served as Vice Chairman of J. Smith Lanier & Co. (an insurance
placement company) since 1980. He currently serves as a director of ITC
Holding and several of its subsidiaries, including ITC Services Co., Inc. (a
management services company), Valley Telephone, InterCall, Inc. (a conference
calling service provider) and Globe Telecommunications, Inc. ("Globe") (a non-
regulated telecommunications provider). He also serves as a director of AvData
and J. Smith Lanier & Co.
William H. Scott, III has been a director of the Company since March 1997.
Mr. Scott has served as President of ITC Holding since December 1991 and has
been a director of ITC Holding since May 1989. Mr. Scott is a director of
InterCel, AvData, KNOLOGY and MindSpring. From 1989 to 1991, he served as
Executive Vice President of ITC Holding. From 1985 to 1989, Mr. Scott was an
officer and director of Async. Between 1984 and 1988, Mr. Scott held several
offices with SouthernNet, including Chief Operating Officer, Chief Financial
Officer, and Vice President-Administration. He was a director of SouthernNet
from 1984 to 1987.
William B. Timmerman has been a director of the Company since March 1997.
Since 1978 he has served in a variety of management positions at SCANA
Corporation (a diversified utility company), including Chief Executive
Officer, President, Senior Vice President, Executive Vice President and Chief
Financial Officer. Mr. Timmerman is also director of SCANA Corporation, ITC
Holding, InterCel and Liberty Corporation (a life insurance company).
COMMITTEES OF THE BOARD OF DIRECTORS
The Board currently has two committees, the Audit Committee and the
Compensation Committee. The Audit Committee, among other things, recommends
the firm to be appointed as independent accountants to audit the Company's
financial statements, discusses the scope and results of the audit with the
independent accountants, reviews with management and the independent
accountants the Company's interim and year-end operating results, considers
the adequacy of the internal accounting controls and audit procedures of the
Company and reviews the non-audit services to be performed by the independent
accountants. The current members of the Audit Committee are Messrs. Dolson and
Gabbard.
The Compensation Committee reviews and recommends the compensation
arrangements for management of the Company and administers the Company's stock
option plans. The current members of the Compensation Committee are Messrs.
Gabbard, Parr and Scott.
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<PAGE>
DIRECTOR COMPENSATION
Directors of the Company who are also employees of the Company receive no
directors' fees. Non-employee directors receive directors' fees of $750 for
each Board meeting attended in person, $200 for each Board meeting attended by
telephone and $200 for each Board committee meeting attended (whether in
person or by telephone conference). In addition, directors are reimbursed for
their reasonable out-of-pocket travel expenditures incurred. Directors of the
Company are also eligible to receive grants of stock options under the
Company's Director Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Gabbard, Parr
and Scott.
INCENTIVE COMPENSATION PLANS
1997 Stock Option Plan. The Company's 1997 Stock Option Plan (the "Stock
Option Plan") provides for the grant of options that are intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), to employees of the Company, its subsidiaries
and its parent corporation, ITC Holding, as well as the grant of non-
qualifying options to any other individual whose participation in the Stock
Option Plan is determined to be in the best interests of the Company. The
Stock Option Plan authorizes the issuance of up to 1,500,000 shares of Class A
Common Stock pursuant to options granted under the Stock Option Plan (subject
to anti-dilution adjustments in the event of a stock split, recapitalization
or similar transaction). The maximum number of shares subject to options that
may be awarded under the Stock Option Plan to any person is 500,000 shares.
The Compensation Committee of the Board of Directors will administer the Stock
Option Plan and will grant options to purchase Class A Common Stock.
The option exercise price for incentive stock options granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
Class A Common Stock on the date of grant of the option (or 110% in the case
of an incentive stock option granted to an optionee beneficially owning more
than 10% of the outstanding Class A Common Stock). The option exercise price
for non-incentive stock options granted under the Stock Option Plan may not be
less than the par value of the Class A Common Stock on the date of grant of
the option. The maximum option term is ten years (or five years in the case of
an incentive stock option granted to an optionee beneficially owning more than
10% of the outstanding Class A Common Stock). Options may be exercised at any
time after grant, except as otherwise provided in the particular option
agreement. There is also a $100,000 limit on the value of Class A Common Stock
(determined at the time of grant) covered by incentive stock options that
become exercisable by an optionee in any year. Options granted will become
exercisable with respect to 50% of the shares subject to the options on the
second anniversary of the date of grant and with respect to 25% of the shares
subject to the options on each of the third and fourth anniversaries of the
date of grant.
The Board of Directors may amend or terminate the Stock Option Plan with
respect to shares of Class A Common Stock as to which options have not been
granted.
At July 31, 1997, options to purchase 894,254 shares of Class A Common Stock
were outstanding pursuant to the Stock Option Plan.
Directors Stock Option Plan. The Company's 1997 Directors Stock Option Plan
(the "Directors Plan") provides for the "formula" grant of options that are
not intended to qualify as "incentive stock options" under Section 422 of the
Code to directors of the Company who are not officers or employees of the
Company, ITC Holding or any subsidiary of the Company (each an "Eligible
Director"). The Directors Plan authorizes the issuance of up to 150,000 shares
of Class A Common Stock pursuant to options granted under the Directors Plan
(subject to anti-dilution adjustments in the event of a stock split,
recapitalization or similar transaction). The option exercise price for
options granted under the Directors Plan will be 100% of the fair market value
of the shares of Class A Common Stock on the date of grant of the option.
Under the Directors Plan, each Eligible Director will be granted an option to
purchase 10,000 shares of Class A Common Stock upon such person's
78
<PAGE>
initial election or appointment to serve as a director. Options granted will
become exercisable with respect to 50% of the shares subject to the options on
the second anniversary of the date of grant and with respect to 25% of the
shares subject to the options on each of the third and fourth anniversaries of
the date of grant. The options will expire ten years and 30 days after the
date of grant. The Board of Directors may amend or terminate the Directors
Plan with respect to shares of Class A Common Stock as to which options have
not been granted.
At July 31, 1997, stock options to purchase 60,000 shares of Class A Common
Stock were outstanding pursuant to the Directors Plan.
EXECUTIVE COMPENSATION
During 1997 Messrs. Walker, McDonald, Mullis, Woodward and Moses (the "Named
Executive Officers") expect to earn salaries at annual rates of $150,000,
$135,000, $131,472, $125,000 and $110,000, respectively. If certain
performance goals are met, Messrs. Walker, McDonald, Mullis, Woodward and
Moses expect to earn bonuses of $90,000, $75,000, $35,855, $50,000 and
$61,111, respectively.
On March 24, 1997, the Company granted Messrs. Walker, McDonald, Mullis,
Woodward and Moses options to purchase 125,000, 75,000, 40,000, 50,000 and
50,000 shares of Class A Common Stock, respectively. Each of the Named
Executive Officers has been granted certain options to purchase shares of
common stock of ITC Holding under ITC Holding's incentive stock option plan.
These options will continue to vest according to the schedule set forth in
each Named Executive Officer's respective stock option agreement unless such
Named Executive Officer's employment with the Company is terminated (and such
employee is not employed by ITC Holding or another subsidiary thereof), in
which case options that have not vested at that time will terminate.
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<PAGE>
CERTAIN TRANSACTIONS
The Company has adopted a policy requiring that any material transactions
between the Company and persons or entities affiliated with officers,
directors or principal stockholders of the Company be on terms no less
favorable to the Company than reasonably could have been obtained in arm's-
length transactions with independent third parties.
ITC HOLDING
The following is a summary of certain transactions and relationships between
the Company and ITC Holding, its other wholly owned subsidiaries, or entities
in which ITC Holding holds more than 10% of the equity interests, and among
the Company and its directors, executive officers and stockholders and its
associated entities.
The Company, through Interstate FiberNet, Inc. (and formerly through
Interstate FiberNet, a Georgia general partnership), sells capacity on its
fiber optic network to several ITC Holding subsidiaries and affiliates,
including InterCel and InterCel PCS Services, Inc. (collectively, "PowerTel"),
Globe, InterCall, KNOLOGY and MindSpring. Together, these entities paid
Interstate FiberNet approximately $422,000, $316,000 and $243,000 for such
capacity for the years ended December 31, 1996, 1995 and 1994 and $456,000 for
the six months ended June 30, 1997, respectively.
Since 1996, the Company, through DeltaCom, has provided long distance and
carrier switched long distance service to several ITC Holding subsidiaries and
affiliates, including KNOLOGY , InterCall, Interstate Telephone, Valley
Telephone, PowerTel and MindSpring. Together, these entities paid DeltaCom
approximately $1.4 million for the year ended December 31, 1996 and $1,755,000
for the six months ended June 30, 1997. Since 1996, DeltaCom has also earned
commissions by serving as agent for certain interexchange carriers doing
business with PowerTel, InterCall and MindSpring. Under these agreements,
DeltaCom contracts with the interexchange carrier and rebills the appropriate
access charges plus a margin to PowerTel, InterCall and MindSpring. Together,
PowerTel, InterCall and MindSpring paid DeltaCom commissions totaling
approximately $514,000 for the year ended December 31, 1996, and $462,000 for
the six months ended June 30, 1997.
In 1995, the Company, through Interstate FiberNet and Gulfstates FiberNet,
constructed a fiber route on behalf of KNOLOGY. KNOLOGY reimbursed the Company
for approximately $62,000 worth of construction expenses. The Company also
provided certain engineering and construction-related management services,
estimated to have a value of $50,000, to KNOLOGY in 1995. The Company did not
charge KNOLOGY for these services.
In addition to his responsibilities with the Company, Mr. Walker also served
as President and Chief Executive Officer of KNOLOGY for the period from July
15, 1996 through February 20, 1997. He served in this capacity at the request
of KNOLOGY and ITC Holding and received no compensation from KNOLOGY. The
Company estimates the value of services provided to be approximately $20,000.
In 1996, Interstate FiberNet provided certain engineering and construction-
related management services to PowerTel. Interstate FiberNet charged
approximately $57,000 for these services.
In 1995, the Company provided certain network optimization services for
InterCall. InterCall paid $24,000 for such services.
The Company, through Interstate FiberNet, Inc. (and formerly through
InterQuest), provides directory assistance and operator service to PowerTel,
Interstate Telephone and Valley Telephone. Revenues recorded by the Company
for these services were approximately $433,000, $245,000 and $202,000 for the
years ended December 31, 1996, 1995 and 1994, respectively, and $451,000 for
the six months ended June 30, 1997.
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Since 1996, DeltaCom has purchased feature group access from Interstate
Telephone and Valley Telephone. Access fees paid by DeltaCom to these
entities, in the aggregate, totaled approximately $401,000 in 1996 and $87,000
for the six months ended June 30, 1997.
Since 1995, InterCall has provided conference calling services to Interstate
FiberNet (and now to Interstate FiberNet, Inc.) and (beginning in 1996) to
DeltaCom. The Company paid approximately $80,000 and $1,000 for such services
for the years ended December 31, 1996 and 1995, respectively, and $35,000 for
the six months ended June 30, 1997.
ITC Holding, through certain of its subsidiaries, from time to time provides
the Company (and its subsidiaries) with administrative and staff services. The
amounts paid by the Company to ITC Holding and its affiliates for these
services for the years ended December 31, 1996, 1995 and 1994, were $19,000,
$5,000 and $148,000, respectively, and $65,000 for the six months ended June
30, 1997.
Since 1995, ITC Holding advanced funds to InterQuest at a variable rate
equal to the rate paid by ITC Holding through its credit facility with First
Union and CoBank, plus .5%. For the years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997, InterQuest recorded interest expenses to
ITC Holding of approximately $123,000, $97,000 and $40,000, respectively. For
the year ended December 31, 1996 and for the six months ended June 30, 1997,
DeltaCom advanced excess funds from its operations to ITC Holding at an annual
interest rate of 8.25% and DeltaCom recorded interest income of approximately
$78,000 and $7,000, respectively. The advance is repayable on demand.
The Company has leased office space in West Point, Georgia from ITC Holding
since January 1995. Under its lease, the Company pays ITC Holding rent in the
amount of approximately $2,500 per month. The lease may be terminated by
either party on 90 days' notice. In 1996, the Company paid ITC Holding an
additional $7,000 in tax reimbursement payments for 1995 and 1996.
In 1996, InterQuest purchased certain switching equipment located in West
Point, Georgia from Globe for approximately $120,000. During the six months
ended June 30, 1997, DeltaCom sold equipment to KNOLOGY for $204,000.
Certain officers and directors of the Company hold or have held positions in
ITC Holding and various subsidiaries of ITC Holding. See "Management--
Directors and Executive Officers." In addition, certain Company officers and
directors have ownership interests in ITC Holding. See "Principal
Stockholders--Stock of ITC Holding Held By Directors and Management."
SCANA
In March 1997, in the Gulf States Acquisition, ITC Holding acquired SCANA's
64% partnership interest in Gulf States FiberNet and the Georgia Fiber Assets.
The purchase price of approximately $27.9 million was paid in the form of the
SCANA Note in the aggregate principal amount of approximately $10.0 million
and 588,411 shares of Series A Convertible Preferred Stock of ITC Holding. See
"Description of Certain Indebtedness--SCANA Note." In addition, pursuant to an
earn-out provision, no later than April 30, 1998, ITC Holding must issue to
SCANA that number of shares of Series A Convertible Preferred Stock that in
aggregate value equal 35.7% of the product of (a) 64%, multiplied by (b)(i)
six, multiplied by (ii) the amount (if any) by which the earnings before
interest, taxes, depreciation and amortization of the Gulf States FiberNet
business for the fiscal year ended December 31, 1997 exceeds $11,265,696.
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PRINCIPAL STOCKHOLDERS
All of the Company's issued and outstanding capital stock is owned by ITC
Holding.
STOCK OF ITC HOLDING HELD BY DIRECTORS AND MANAGEMENT
The following table sets forth information as of July 31, 1997 concerning
beneficial ownership of the common stock of ITC Holding by (i) each director
of the Company, (ii) each executive officer and (iii) all directors and
executive officers of the Company as a group. The information in the table is
based on information from the named persons regarding ownership of ITC Holding
common stock. Unless otherwise indicated, each of the stockholders listed
below has sole voting and investment power with respect to the shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(A)(B) OF CLASS
- ------------------------ --------------- --------
<S> <C> <C>
Donald W. Burton(c).................................. 520,952 6.1%
Malcolm C. Davenport, V(d)........................... 168,478 2.0
Robert A. Dolson(e).................................. 875,135 10.2
O. Gene Gabbard...................................... 44,215 *
Campbell B. Lanier, III(f)........................... 2,374,621 27.7
Foster O. McDonald(g)................................ 76,598 *
Steven O. Moses...................................... 19,022 *
J. Thomas Mullis..................................... -- *
William T. Parr...................................... 55,335 *
Sara L. Plunkett..................................... -- *
William H. Scott, III(h)............................. 338,673 3.9
Douglas A. Shumate................................... 27,798 *
William B. Timmerman(i).............................. 774,616 9.1
Andrew M. Walker..................................... 16,800 *
Roger F. Woodward.................................... -- *
All executive officers and directors as a group (15
persons)............................................ 5,293,243 60.5
</TABLE>
- --------
* Less than one percent.
(a) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any shares of
common stock if such person has or shares voting power or investment power
with respect to such security, or has the right to acquire beneficial
ownership at any time within 60 days from July 31, 1997. As used herein,
"voting power" is the power to vote or direct the voting of shares and
"investment power" is the power to dispose or direct the disposition of
shares.
(b) Includes the following shares that the individuals named below have the
right to purchase within 60 days from July 31, 1997 pursuant to options:
<TABLE>
<S> <C>
Donald W. Burton..................................................... 1,480
O. Gene Gabbard...................................................... 1,480
Campbell B. Lanier, III.............................................. 91,372
Steven D. Moses...................................................... 17,102
William H. Scott, III................................................ 120,836
Douglas A. Shumate................................................... 22,452
Andrew M. Walker..................................................... 8,400
-------
Total.............................................................. 263,122
=======
</TABLE>
(c) Includes 26,978 shares held of record by The Burton Partnership, Limited
Partnership, of which Mr. Burton is the sole general partner; 47,337
shares held of record by South Atlantic Venture Fund II, Limited
Partnership, of which South Atlantic Venture Partners II, Limited
Partnership is the sole general partner, of which Mr. Burton is the
managing general partner; 245,157 shares held of record by South Atlantic
Venture Fund III, Limited Partnership, of which South Atlantic Venture
Partners III, Limited Partnership is the sole general partner, of which
Mr. Burton is the managing partner, 78,754 shares held of record by South
Atlantic Venture Fund IV, L.P., of which Mr. Burton is a general partner,
and 121,246 shares held of record by South Atlantic Venture Fund IV (QP),
L.P., of which Mr. Burton is a general partner. Also includes 1,480
unexercised but vested options held of record by South Atlantic Venture
Fund II, Limited Partnership.
(d) Includes 149,970 shares held of record by the Malcolm C. Davenport, V
Family Trust, of which Mr. Davenport is co-trustee.
(e) Represents 875,135 shares held of record by National Enterprises, Inc., of
which Mr. Dolson is President.
(f) Includes 40 shares in the aggregate held of record by Mr. Lanier's wife;
13,000 shares held of record by the Lanier Family Foundation, of which Mr.
Lanier is co-trustee; and 25,000 shares held of record by the Campbell
Lanier, Jr. Irrevocable Life Insurance Trust, of which Mr. Lanier is co-
trustee.
(g) Represents 76,598 shares held of record by three McDonald family trusts,
of which Mr. McDonald is trustee.
(h) Includes 800 shares in the aggregate held of record by members of Mr.
Scott's immediate family; 13,000 shares held of record by the Lanier
Family Foundation, of which Mr. Scott is co-trustee; 25,000 shares held by
the Campbell Lanier, Jr. Irrevocable Life Insurance Trust, of which Mr.
Scott is co-trustee; 65,000 shares held of record by Campbell B. Lanier,
III Charitable Remainder Trust, of which Mr. Scott is trustee; 3,608
shares held in trust for Mr. Scott's minor daughter, of which Mr. Scott's
wife is co-trustee; and 625 shares held of record by the Campbell B.
Lanier, IV 2503(c) Trust, of which Mr. Scott is trustee.
(i) Represents 774,616 shares held of record by SCANA, of which Mr. Timmerman
is Chief Executive Officer.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SCANA NOTE
The SCANA Note has been assumed by Interstate FiberNet, Inc., which became a
wholly owned subsidiary of the Company as part of the Reorganization. See
"History of the Company--Reorganization." The SCANA Note, which has a
principal balance of approximately $10.0 million, has a maturity date of March
31, 2002. Interest accrues on the SCANA Note at an annual rate of 11% and is
payable semiannually in arrears. Principal is payable semiannually, commencing
on September 30, 1997, in equal semiannual installments of $996,409. The SCANA
Note is unsecured.
CREDIT FACILITY
The Company's wholly owned subsidiary, Interstate FiberNet, Inc. (the
"Borrower") has entered into a credit agreement with NationsBank, as
administrative lender, and the lenders set forth therein (the "Credit
Agreement"). The Credit Agreement provides for a $100 million credit facility
to be used for working capital and other purposes, including refinancing
indebtedness of the Borrower existing at the closing of the Credit Facility,
capital expenditures and permitted acquisitions. The Borrower's obligations
under the Credit Facility are guaranteed by the Company and the Borrower's
subsidiaries and are secured by a first priority lien on all current and
future assets and properties of the Borrower and its subsidiaries, except for
certain contract rights and interests in real estate, and a first priority
pledge of the stock of the Borrower and its subsidiaries. The following
summary of the material provisions of the Credit Agreement does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, the Credit Agreement, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Certain capitalized
terms used in this description of the Credit Facility are defined at the end
of this section.
The Credit Facility will mature on September 15, 2002. The Credit Facility
includes a $50 million multi-draw term loan facility and a $50 million
revolving credit facility. The Borrower may draw down amounts under the term
loan facility until the second anniversary of the Credit Facility. The
aggregate amount of all advances under the term loan facility must equal $50
million before drawing down any amount over $10 million under the revolving
credit facility.
Amounts drawn under the Credit Facility will bear interest, at the
Borrower's option, at either the Base Rate or the LIBOR Rate, plus an
Applicable Margin. The Applicable Margin will be an annual rate which will
fluctuate based on the Borrower's Total Leverage Ratio and which will be
between 1.75% and .75% for Base Rate borrowings and between 2.75% and 1.75%
for LIBOR Rate borrowings. The Credit Agreement requires the Borrower to repay
indebtedness outstanding under the Credit Facility with the net cash proceeds
from sales of assets by the Company, the Borrower or the Borrower's
subsidiaries other than in the ordinary course of business and from certain
public or private issuances of equity or debt securities by the Company, the
Borrower or the Borrower's subsidiaries.
The Credit Agreement contains negative covenants limiting the ability of the
Borrower, the Borrower's current and future subsidiaries and the Company to
incur debt, create liens, pay dividends, make distributions or stock
repurchases, make investments or capital expenditures, change their business,
issue capital stock, engage in transactions with affiliates, sell assets,
engage in mergers and acquisitions and assume or make guaranties. In addition,
the Credit Agreement contains affirmative covenants, including covenants
requiring compliance with laws, maintenance of corporate existence, licenses,
properties and insurance, payment of taxes and performance of other material
obligations and the delivery of financial and other information.
The Credit Agreement restricts the Borrower from declaring and paying
dividends or distributions. However, the Borrower is permitted to pay
dividends to the Company to pay scheduled interest on the Senior Notes and the
Exchange Notes, commencing after the sixth scheduled interest payment, unless
at the time of such dividend or distribution an event of default (other than
an event of default resulting solely from the breach
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of a representation or warranty) under the Credit Agreement exists or would be
caused by such dividend or distribution; provided that, with respect to any
event of default (other than a payment default, a bankruptcy event with
respect to the Company, the Borrower, the Borrower's subsidiaries, any person
or entity liable for the performance of any of the obligations pursuant to the
Credit Agreement or any person or entity the property of which secures the
performance of any of the obligations pursuant to the Credit Agreement, or the
loss of a material license or fiber network), the Borrower will not be
prohibited from paying dividends to the Company to pay scheduled cash interest
due and payable on the Senior Notes and the Exchange Notes for more than 180
days.
The Credit Agreement also requires the Borrower to comply with certain
financial tests and to maintain certain financial ratios on a consolidated
basis. The Borrower must maintain (i) a Total Leverage Ratio no greater than
9.5:1.0 initially, with subsequent reductions; (ii) a Senior Leverage Ratio no
greater than 2.75:1.0 through June 30, 1999 and 2.25:1.0 thereafter; (iii) an
Interest Coverage Ratio no less than 3.75:1.0 through June 30, 2000 and
1.75:1.0 thereafter; (iv) capital expenditures no greater than $57,650,600
initially, with subsequent reductions; provided, that (A) to the extent that
less than such amount is used for any fiscal year, the limitation on capital
expenditures for the immediately succeeding fiscal year may be increased by
the amount of such unused amount, (B) during 1997 the Borrower may elect to
reduce its 1998 limitation by $8 million and increase its 1997 limitation by
$8 million, and (C) the amount of net cash proceeds from certain issuances of
equity securities may be used for capital expenditures in excess of the
foregoing limitations; and (v) a minimum Operating Cash Flow of no less than
$16,700,000 initially, with subsequent increases.
Failure to satisfy any of the financial covenants constitutes an event of
default under the Credit Facility, notwithstanding the ability of the Borrower
to meet its debt service obligations. The Credit Agreement also includes other
customary events of default, including, without limitation, a cross-default to
other indebtedness, material undischarged judgments, bankruptcy and a change
of control.
As used in this section:
"Annualized Operating Cash Flow" means Operating Cash Flow for the six-month
period most recently ended multiplied by two.
"Base Rate" means an annual interest rate equal to the lesser of (a) the
Highest Lawful Rate, and (b) the sum of the Applicable Margin plus the higher
of (i) a fluctuating annual rate as shall be in effect from time to time and
announced or published by NationsBank as its prime rate, and which may not
necessarily be the lowest interest rate charged by NationsBank and (ii) the
Federal Funds Rate in effect at such time plus 0.50%.
"Highest Lawful Rate" means at the particular time in question the maximum
rate of interest which, under applicable law, any of the lenders under the
Credit Agreement is then permitted to charge on the obligations pursuant to
the Credit Agreement.
"Interest Coverage Ratio" means, for the Borrower on a consolidated basis
for any period, the ratio of Annualized Operating Cash Flow to the aggregate
amount of interest due and payable by the Company, the Borrower and the
Borrower's subsidiaries with respect to Total Debt during such period net of
interest on the Senior Notes and the Exchange Notes funded by Pledged
Securities, interest income for such period, interest actually paid-in-kind,
any one-time facility fees paid in connection with the Credit Facility and in
connection with any pre-existing debt of the Company, the Borrower or the
Borrower's subsidiaries, and up to $9.5 million of accrued interest paid by
the Borrower to ITC Holding prior to the closing of the Credit Facility.
"LIBOR Rate" means an annual interest rate equal to the lesser of (a) the
Highest Lawful Rate and (b) the sum of (i) the Applicable Margin, plus (ii)
the annual rate (rounded upwards, if necessary, to the nearest 1/100th of one
percent) appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in U.S. dollars at approximately 11:00
a.m. (London time) two business days prior to the first day o f the
applicable interest period. If for any reason such rate is not available, the
term "LIBOR Rate" means the
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<PAGE>
annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of
one percent) appearing on Reuters Screen LIBO page as the London interbank
offered rate for deposits in U.S. dollars at approximately 11:00 a.m. (London
time) two business days prior to the first day of the applicable interest
period for a term comparable to such interest period; provided, however, if
more than one rate is specified on Reuters Screen LIBO Page, the applicable
rate shall be the arithmetic mean of all such rates.
"Operating Cash Flow" for any period means the consolidated net income
(loss) of the Company, the Borrower and the Borrower's subsidiaries for such
period plus the following amounts for such period, to the extent included in
the determination of such income (loss): depreciation expense, amortization
expense and other non-cash charges reducing income, net interest expense, and
income tax expense.
"Senior Leverage Ratio" means, for the Borrower on a consolidated basis at
any date, the ratio of Senior Debt (Total Debt minus the Senior Notes and the
Exchange Notes) to Annualized Operating Cash Flow.
"Total Debt" means the aggregate indebtedness of the Borrower for borrowed
money on a consolidated basis, net of cash balances in excess of $5 million
plus, except for purposes of calculating the Senior Leverage Ratio, the
balance of Pledged Securities securing the Senior Notes and the Exchange
Notes.
"Total Leverage Ratio" means at any date, for the Borrower on a consolidated
basis, the ratio of Total Debt on such date to Annualized Operating Cash Flow.
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DESCRIPTION OF THE EXCHANGE NOTES
The Senior Notes were, and the Exchange Notes will be, issued under the
Indenture, dated as of June 3, 1997, between the Company and United States
Trust Company of New York, trustee under the Indenture (the "Trustee"). A copy
of the Indenture is filed as an exhibit to the Registration Statement (of
which this Prospectus is a part). The following summary contains a description
of certain provisions of the Indenture, but does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all of
the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of
1939, as amended. For definitions of certain capitalized terms used in the
following summary, see "--Certain Definitions."
GENERAL
The terms of the Exchange Notes will be identical in all material respects
to the Senior Notes, except that (i) the Exchange Notes will have been
registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Senior Notes and (ii)
Holders of the Exchange Notes will not be entitled to certain rights of
Holders of Senior Notes under the Registration Rights Agreement.
The Exchange Notes will be unsecured (except to the extent described under
"--Security" below) unsubordinated obligations of the Company, initially
limited to $200,000,000 aggregate principal amount, and will mature on June 1,
2007. Each Exchange Note will bear interest at the rate of 11% per annum from
the Closing Date or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semiannually (to Holders of
record at the close of business on the May 15 or November 15 immediately
preceding the Interest Payment Date) on June 1 and December 1, of each year,
commencing December 1, 1997.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
(which initially will be the corporate trust office of the Trustee at 114 West
47th Street, New York, New York 10036-1532); provided that, at the option of
the Company, payment of interest may be made by check mailed to the Holders at
their addresses as they appear in the Security Register.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. See "--Book-Entry; Delivery and Form." No service charge
will be made for any registration of transfer or exchange of Exchange Notes,
but the Company may require payment of a sum sufficient to cover any transfer
tax or other similar governmental charge payable in connection therewith.
Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The Exchange
Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for all purposes under the Indenture.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after June 1, 2002 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed
by first class mail to each Holder's last address, as it appears in the
Security Register, at the following Redemption Prices (expressed in
percentages of principal amount), plus accrued and unpaid interest to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is prior to the Redemption Date to receive interest
due on an Interest Payment Date), if redeemed during the 12-month period
commencing June 1, of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002..................................................... 105.500%
2003..................................................... 102.750
2004 and thereafter...................................... 100.000
</TABLE>
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In addition, at any time prior to June 1, 2000, the Company may redeem up to
35% of the principal amount of the Senior Notes and the Exchange Notes with
the proceeds of one or more Public Equity Offerings following which a Public
Market occurs, at any time or from time to time in part, at a Redemption Price
(expressed as a percentage of principal amount) of 111%, plus accrued and
unpaid interest to the Redemption Date (subject to the rights of Holders of
record on the relevant Regular Record Date that is prior to the Redemption
Date to receive interest due on an Interest Payment Date); provided that at
least $130.0 million aggregate principal amount of Senior Notes and the
Exchange Notes remains outstanding after each such redemption.
If less than all of the Notes are to be redeemed at any time, the Trustee
will select the Notes, or portions thereof, for redemption in compliance with
the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as
the Trustee in its sole discretion shall deem to be fair and appropriate;
provided that no Note of $1,000 in principal amount or less shall be redeemed
in part. If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount thereof
to be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note.
SECURITY
The Indenture requires that a portion of the proceeds from the Offering
remain subject to the Pledge Agreement and be invested in Pledged Securities
in such amounts and maturities as will be sufficient upon receipt of scheduled
interest and principal payments of such securities, in the opinion of a
nationally recognized firm of independent public accountants selected by the
Company, to provide for payment in full of the first six scheduled interest
payments due on the Senior Notes and the Exchange Notes. Approximately $62.7
million of such proceeds are held by the Trustee as security for and to fund
the first six interest payments on the Senior Notes and the Exchange Notes.
The Pledged Securities are pledged to the Trustee for the benefit of the
Holders of the Senior Notes and the Exchange Notes pursuant to the Pledge
Agreement and are being held by the Trustee in the Pledge Account. Pursuant to
the Pledge Agreement, immediately prior to an Interest Payment Date, the
Company may either deposit with the Trustee from funds otherwise available to
the Company cash sufficient to pay the interest scheduled to be paid on such
date or the Company may direct the Trustee to release from the Pledge Account
proceeds sufficient to pay interest then due on the Senior Notes and the
Exchange Notes. A failure to pay interest on the Senior Notes or the Exchange
Notes in a timely manner through the first six scheduled interest payment
dates will constitute an immediate Event of Default under the Indenture, with
no grace or cure period. The Pledged Securities and Pledge Account will also
secure the repayment of the principal amount and premium on the Senior Notes
and the Exchange Notes.
Under the Pledge Agreement, once the Company makes the first six scheduled
interest payments on the Exchange Notes, all of the remaining Pledged
Securities, if any, will be released from the Pledge Account and thereafter
the Exchange Notes will be unsecured.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company entered into the Registration Rights Agreement with the
Placement Agents, for the benefit of the holders of Senior Notes, pursuant to
which the Company agreed to file the Registration Statement (of which this
Prospectus is a part) with the Commission. The Registration Rights Agreement
provides that the Company will, at its cost, use its best efforts to cause the
Registration Statement to be filed with the SEC not later than 60 days after
the Closing Date (as defined in the Purchase Agreement attached as an exhibit
to the Registration Statement of which this Prospectus is a part) and declared
effective under the Securities Act. Upon the effectiveness of the Registration
Statement, the Company will offer the Exchange Notes in exchange for surrender
of the Senior Notes. The Company has agreed to keep the Exchange Offer open
for not less than 20 days after the date notice of the Exchange Offer is
mailed to the holders of Senior Notes. For each Senior Note
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<PAGE>
surrendered to the Company pursuant to the Exchange Offer, the holder of such
Senior Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Senior Note. Under existing Commission
interpretations, the Exchange Notes would be freely transferable by holders
other than affiliates of the Company after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the ordinary course of
its business, that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and that it is not an
affiliate of the Company, as such terms are interpreted by the Commission;
provided that broker-dealers ("Participating Broker-Dealers") receiving
Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Notes. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to Exchange Notes with the
prospectus contained in the Registration Statement under certain
circumstances. Under the Registration Rights Agreement, the Company is
required to allow Participating Broker-Dealers and other persons, if any, with
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such Exchange Notes.
A holder of Senior Notes who wishes to exchange such Senior Notes for
Exchange Notes in the Exchange Offer will be required to represent that, among
other things, any Exchange Notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the commencement of
the Exchange Offer it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
the Exchange Notes and that it is not an "affiliate" of the Company, as
defined in Rule 405 of the Securities Act, or if it is an affiliate, that it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
The Company has filed the Registration Statement (of which this Prospectus
is a part) and will commence the Exchange Offer pursuant to the Registration
Rights Agreement. In the event that applicable interpretations of the staff of
the Commission do not permit the Company to effect the Exchange Offer, or
under certain other circumstances, the Company has agreed, at its cost, to use
its best efforts to file and cause to become effective a shelf registration
statement (the "Shelf Registration Statement") with respect to resales of the
Senior Notes and to keep the Shelf Registration Statement effective until the
expiration of the time period referred to in Rule 144(k) under the Securities
Act or such shorter period that will terminate when all Senior Notes covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. The Company has agreed, in the event a Shelf
Registration Statement is filed, among other things, to provide to each holder
for whom such Shelf Registration Statement was filed copies of the prospectus
which is a part of the Shelf Registration Statement, to notify each such
holder when the Shelf Registration Statement has become effective and to take
certain other actions as are required to permit unrestricted resales of the
Senior Notes. A holder selling such Senior Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
In the event the Exchange Offer is not consummated and a Shelf Registration
Statement is not declared effective on or prior to the date that is six months
after the Closing Date, the interest rate on the Senior Notes will be
increased by .5% per annum until the Exchange Offer is consummated or the
Shelf Registration is declared effective.
Senior Notes not tendered in the Exchange Offer shall accrue interest at the
rate of 11% per annum and be subject to all of the terms and conditions
specified in the Indenture and to the transfer restrictions described in
"Transfer Restrictions."
This summary of certain provisions of the Registration Rights Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Rights
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Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
RANKING
The Indebtedness evidenced by the Exchange Notes will rank pari passu in
right of payment with the Senior Notes and all other existing and future
unsubordinated indebtedness of the Company and senior in right of payment to
all existing and future subordinated indebtedness of the Company. After giving
pro forma effect to the Reorganization, as of June 30, 1997, the Company would
have had no indebtedness outstanding other than the Senior Notes and the
Exchange Notes. The Company is permitted to incur additional indebtedness to
finance the acquisition of equipment, inventory and network assets and up to
$100 million of other indebtedness and is permitted to secure any such
indebtedness. The Exchange Notes will be effectively subordinated to such
security interests to the extent of such security interests.
The Company is a holding company which conducts substantially all of its
business through subsidiaries. The Company's subsidiaries will have no direct
obligation to pay amounts due on the Senior Notes and the Exchange Notes and
will not guarantee the Senior Notes and the Exchange Notes. As a result, the
Senior Notes and, the Exchange Notes will be, effectively subordinated to all
existing and future indebtedness and other liabilities (including trade
payables) of the Company's subsidiaries. After giving pro forma effect to the
Reorganization, as of June 30, 1997, the Company's subsidiaries would have had
approximately $37.7 million of liabilities (excluding intercompany payables),
including approximately $14.4 million of indebtedness (including capital
leases). The Company will be dependent upon access to the cash flow or assets
of its subsidiaries to make payments on the Exchange Notes and the Company's
ability to obtain such access may be limited by law. See "Risk Factors--
Holding Company Structure; Priority of Secured Debt."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for
which no definition is provided.
"Acquired Assets" means (i) the Capital Stock of any Person that becomes a
Restricted Subsidiary after the Closing Date and (ii) the real or personal
property of any Person that becomes a Restricted Subsidiary after the Closing
Date.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary; provided that Indebtedness of
such Person which is redeemed, defeased, retired or otherwise repaid at the
time of or immediately upon consummation of the transactions by which such
Person becomes a Restricted Subsidiary or such Asset Acquisition (including
any Indebtedness of any Reorganization Subsidiary to be repaid with the
proceeds from the sale of the Notes upon consummation of the Reorganization)
shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such
period determined in conformity with GAAP; provided that the following items
shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income (or loss) of any Person (other than a
Restricted Subsidiary) in which any Person (other than the Company or any of
its Restricted Subsidiaries) has a joint interest and the net income (or loss)
of any Unrestricted Subsidiary, except (x) with respect to net income, to the
extent of the amount of dividends or other distributions actually paid to the
Company or any of its Restricted Subsidiaries by such other Person or such
Unrestricted Subsidiary during such period and (y) with respect to net losses,
to the extent of the amount of cash contributed by the Company or any
Restricted Subsidiary to such Person during such period; (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first
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paragraph of the "Limitation on Restricted Payments" covenant described below
(and in such case, except to the extent includable pursuant to clause (i)
above), the net income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or any of its Restricted Subsidiaries or all or substantially all of
the property and assets of such Person are acquired by the Company or any of
its Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary
to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described below, any amount paid or accrued as dividends on Preferred
Stock (other than accrued dividends which, pursuant to the terms of the
Preferred Stock, will not be payable prior to the first anniversary after the
Stated Maturity of the Notes) of the Company or any Restricted Subsidiary
owned by Persons other than the Company and any of its Restricted
Subsidiaries; and (vi) all extraordinary gains and extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of assets
of the Company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting
from write-ups of capital assets (excluding write-ups in connection with
accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other
like intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant described below.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries; provided that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company
or any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of
the Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or
a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and
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assets (other than the Capital Stock or other Investment in an Unrestricted
Subsidiary) of the Company or any of its Restricted Subsidiaries outside the
ordinary course of business of the Company or such Restricted Subsidiary and,
in each case, that is not governed by the provisions of the Indenture
applicable to mergers, consolidations and sales of all or substantially all of
the assets of the Company; provided that "Asset Sale" shall not include (a)
sales, transfers or other dispositions of inventory, receivables and other
current assets, (b) sales, transfers or other dispositions of assets with a
fair market value (as certified in an Officers' Certificate) not in excess of
$500,000 in any transaction or series of related transactions or (c) sales,
transfers or other dispositions of assets for consideration at least equal to
the fair market value of the assets sold, transferred or otherwise disposed of
to the extent the consideration received would satisfy clause (B) of the
"Limitation on Assets Sales" covenant described below, provided that after
giving pro forma effect to such exchange, the Consolidated Leverage Ratio
shall be no greater than the Consolidated Leverage Ratio immediately prior to
such exchange.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the
amount of such principal payment by (ii) the sum of all such principal
payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) prior to the occurrence of a
Public Market, a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of the
Company, on a fully diluted basis, than is held by the Existing Stockholders
on such date and (b) after the occurrence of a Public Market, a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than 35% of the total voting power of the Voting
Stock of the Company on a fully diluted basis and such ownership represents a
greater percentage of the total voting power of the Voting Stock of the
Company, on a fully diluted basis, than is held by the Existing Stockholders
on such date; or (ii) individuals who on the Closing Date constitute the Board
of Directors (together with any new directors whose election by the Board of
Directors or whose nomination by the Board of Directors for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were members of
the Board of Directors on the Closing Date or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued under
the Indenture.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum of the amounts for such
period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense to the extent such amount was deducted in
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calculating Adjusted Consolidated Net Income, (iii) income taxes, to the
extent such amount was deducted in calculating Adjusted Consolidated Net
Income (other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or sales of assets), (iv)
depreciation expense, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income, (v) amortization expense, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income, and (vi)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is,
or is required by GAAP to be, made), less all non-cash items increasing
Adjusted Consolidated Net Income, all as determined on a consolidated basis
for the Company and its Restricted Subsidiaries in conformity with GAAP;
provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted Subsidiary
multiplied by (B) the quotient of (1) the number of shares of outstanding
Common Stock of such Restricted Subsidiary not owned on the last day of such
period by the Company or any of its Restricted Subsidiaries divided by (2) the
total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of
the definition thereof (but only in the same proportion as the net income of
such Restricted Subsidiary is excluded from the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof)
and (ii) any premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Notes and the Reorganization,
all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company have been filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant described below (such four fiscal
quarter period being the "Four Quarter Period"); provided that, in making the
foregoing calculation, (A) pro forma effect shall be given to any Indebtedness
to be Incurred or repaid on the Transaction Date; (B) pro forma effect shall
be given to Asset Dispositions and Asset Acquisitions (including giving pro
forma effect to the application of proceeds of any Asset Disposition) that
occur from the beginning of the Four Quarter Period through the Transaction
Date (the "Reference Period"), as if they had occurred and such proceeds had
been applied on the first day of such Reference Period; (C) pro forma effect
shall be given to asset dispositions and asset acquisitions (including giving
pro forma effect to the application of proceeds of any asset disposition) that
have been made by any Person that has become a Restricted Subsidiary or has
been merged with or into the Company or any Restricted Subsidiary during such
Reference Period and that would have constituted Asset Dispositions or Asset
Acquisitions had such transactions occurred when such Person was a Restricted
Subsidiary as if such asset dispositions or asset acquisitions were Asset
Dispositions or Asset Acquisitions that occurred on the first day of such
Reference Period; provided that to the extent that clause (B) or (C) of this
sentence requires that pro forma effect be given to an Asset Acquisition or
Asset Disposition, such pro forma calculation shall be based upon the four
full fiscal quarters immediately preceding the Transaction Date of the Person,
or division or line of business of the Person, that is acquired or disposed of
for which
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financial information is available; and (D) the aggregate amount of
Indebtedness outstanding as of the end of the Reference Period will be deemed
to include the total amount of funds outstanding and/or available on the
Transaction Date under any revolving credit or similar facilities of the
Company or its Restricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
the Capital Stock of the Company or any of its Restricted Subsidiaries, each
item to be determined in conformity with GAAP (excluding the effects of
foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52).
"Credit Agreement" means the $100 million credit facility to be entered into
by the Company and its Restricted Subsidiaries and NationsBank of Texas, N.A.
pursuant to a commitment letter dated May 9, 1997.
"Credit Facilities" means revolving credit or working capital facilities or
similar facilities made available from time to time to the Company and its
Restricted Subsidiaries.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Existing Stockholders" means ITC Holding, Campbell B. Lanier, III and SCANA
Corporation and their Affiliates, and Campbell B. Lanier, III's spouse and any
one or more of his lineal descendants and their spouses; provided however,
that any such person other than Campbell B. Lanier, III shall only be deemed
to be an "Existing Stockholder" to the extent such person's Capital Stock of
the Company was received, directly or indirectly, from Campbell B. Lanier,
III.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive
if evidenced by a Board Resolution; provided that for purposes of clause
(viii) of the second paragraph of the "Limitation on Indebtedness" covenant,
(x) the fair market value of any security registered under the Exchange Act
shall be the average of the closing prices, regular way, of such security for
the 20 consecutive trading days immediately preceding the capital contribution
or sale of Capital Stock and (y) in the event the aggregate fair market value
of any other property (other than cash or cash equivalents) received by the
Company exceeds $10 million, the fair market value of such property shall be
determined by a nationally recognized investment banking firm and set forth in
their written opinion which shall be delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a significant
segment of the accounting profession. All ratios and computations contained or
referred to in the Indenture shall be computed in conformity with GAAP applied
on a consistent basis, except that computations made for purposes of
determining compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect to (i) the
amortization of any expenses incurred in connection with the offering of the
Notes or the Reorganization and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
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"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or
by agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length and are entered into in
the ordinary course of business), to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole
or in part); provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an Incurrence of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness of other Persons secured by
a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness
of other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date (or, in the case of a revolving credit or
other similar facility, the total amount of funds outstanding and/or available
on the date of determination) of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided (A)
that the amount outstanding at any time of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at the time of its issuance as determined in conformity with
GAAP, (B) that money borrowed and set aside at the time of the Incurrence of
any Indebtedness in order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be "Indebtedness" and (C) that
Indebtedness shall not include any liability for federal, state, local or
other taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and
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(ii) the fair market value of the Capital Stock (or any other Investment),
held by the Company or any of its Restricted Subsidiaries, of (or in) any
Person that has ceased to be a Restricted Subsidiary, including, without
limitation, by reason of any transaction permitted by clause (iii) of the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant described below. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of
its Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Subsidiaries)) of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary
shall be considered a reduction in outstanding Investments and (iii) any
property transferred to or from any Person shall be valued at its fair market
value at the time of such transfer.
"ITC Holding" means ITC Holding Company, Inc., a Delaware corporation.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes (whether or not such
taxes will actually be paid or are payable) as a result of such Asset Sale
without regard to the consolidated results of operations of the Company and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset
Sale that either (A) is secured by a Lien on the property or assets sold or
(B) is required to be paid as a result of such sale and (iv) appropriate
amounts to be provided by the Company or any Restricted Subsidiary as a
reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP, and (b) with respect to any capital contribution or
issuance or sale of Capital Stock, options, warrants or other rights to
acquire Capital Stock or Indebtedness, the proceeds of such capital
contribution or issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection
with such issuance or sale and net of taxes or payable as a result thereof.
"Offer to Purchase" means an offer by the Company to purchase Notes from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(i) the covenant pursuant to which the offer is being made and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Payment Date"); (iii) that any Note not tendered will continue
to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant
to the Offer to Purchase will be required to surrender the Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on
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the Business Day immediately preceding the Payment Date; (vi) that Holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the third Business Day immediately
preceding the Payment Date, a facsimile transmission or letter setting forth
the name of such Holder, the principal amount of Notes delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Notes purchased; and (vii) that Holders whose Notes are being purchased only
in part will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided that each Note purchased and each
new Note issued shall be in a principal amount of $1,000 or integral multiples
thereof. On the Payment Date, the Company shall (i) accept for payment on a
pro rata basis Notes or portions thereof tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions
thereof so accepted together with an Officers' Certificate specifying the
Notes or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the Holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
an Offer to Purchase as soon as practicable after the Payment Date. The
Trustee shall act as the Paying Agent for an Offer to Purchase. The Company
will comply with Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to repurchase Notes
pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with
or into or transfer or convey all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided that such Person's primary
business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such Investment; (ii) a
Temporary Cash Investment; (iii) commission, payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) stock,
obligations or securities received in satisfaction of judgments; (v)
Investments in prepaid expenses, negotiable instruments held for collection,
and lease, utility and workers' compensation, performance and other similar
deposits; and (vi) Interest Rate Agreements and Currency Agreements to the
extent permitted under clause (iv) of the "Limitation on Indebtedness"
covenant described below.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provisions, if any, as shall be required in
conformity with GAAP shall have been made; (ii) statutory and common law Liens
of landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries; (vi) Liens (including
extensions and renewals thereof) upon real or personal property (including,
without limitation, Acquired Assets) acquired after the Closing Date; provided
that (a) such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Limitation on Indebtedness" covenant
described below, to finance the cost (including, without limitation, the cost
of design, development, construction, acquisition, installation,
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improvement, transportation or integration) of the real or personal property
subject thereto and such Lien is created prior to, at the time of or within
six months after the latest of the acquisition, the completion of construction
or the commencement of full operation of such real or personal property;
provided that in the case of Acquired Assets, the Lien secures the
Indebtedness Incurred to purchase the Capital Stock of the Person to make such
Person a Restricted Subsidiary, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any real or personal property other than such
real or personal property and any improvements on such real or personal
property and any proceeds thereof; (vii) leases or subleases granted to others
that do not materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor in
the property subject to any Capitalized Lease or operating lease; (x) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xi) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any Person existing at the time such Person becomes, or
becomes a part of, any Restricted Subsidiary; provided that such Liens do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets acquired and any proceeds
thereof; (xii) Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order against
the Company or any Restricted Subsidiary that does not give rise to an Event
of Default; (xiv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof; (xv) Liens in favor
of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (xvi)
Liens encumbering customary initial deposits and margin deposits, and other
Liens that are either within the general parameters customary in the industry
and incurred in the ordinary course of business, in each case securing
Indebtedness under Interest Rate Agreements and Currency Agreements and
forward contracts, options, future contracts, futures options or similar
agreements or arrangements designed solely to protect the Company or any of
its Restricted Subsidiaries from fluctuations in interest rates, currencies or
the price of commodities; (xvii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary
course of business in accordance with the past practices of the Company and
its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens on or
sales of receivables, including related intangible assets and proceeds
thereof; and (xix) Liens that secure Indebtedness with an aggregate principal
amount not to exceed $5 million at any time outstanding.
"Pledge Account" means the accounts established with the Trustee pursuant to
the terms of the Pledge Agreement for the deposit of the net proceeds from the
sale of the Notes and the purchase of the Pledged Securities.
"Pledge Agreement" means the Pledge and Security Agreement, dated as of the
Closing Date, made by the Company in favor of the Trustee, governing the
disbursement of funds from the Pledge Account, as such agreement may be
amended, restated, supplemented or otherwise modified from time to time.
"Pledged Securities" means the U.S. Government Obligations (and, prior to
the Reorganization, commercial paper rated at least "Prime-1" (or the then
equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then
equivalent grade) by Standards & Poor's Ratings Service) to be purchased and
held in the Pledge Account in accordance with the Pledge Agreement.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
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A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable in any
material respect to the holders of such Capital Stock than the provisions
contained in "Limitation on Asset Sales" and "Repurchase of Notes upon a
Change of Control" covenants described below are to the holders of the Notes
and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant
to the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control" covenants described below.
"Reorganization" means the transactions in which ITC Holding will contribute
to the Company its investments in the Reorganization Subsidiaries (or their
successors-in-interest), which will become Restricted Subsidiaries.
"Reorganization Subsidiaries" means, collectively, (i) DeltaCom, Inc., an
Alabama corporation; (ii) Eastern Telecom, Inc., a Georgia corporation; (iii)
Gulf States Transmission Systems, Inc., a Delaware corporation; (iv) ITC
Transmission Systems, Inc., a Delaware corporation; (v) ITC Transmission
Systems II, Inc., a Delaware corporation; and (vi) Interstate FiberNet, a
Georgia general partnership.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company, accounted for more than 10% of the consolidated
revenues of the Company and its Restricted Subsidiaries or (ii) as of the end
of such fiscal year, was the owner of more than 10% of the consolidated assets
of the Company and its Restricted Subsidiaries, all as set forth on the most
recently available consolidated financial statements of the Company for such
fiscal year.
"Stated Maturity" means (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of the Company
Incurred to finance the acquisition of a Person engaged in the
Telecommunications Business that by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is Incurred, (i)
is expressly made subordinate in right of payment to the Notes and (ii)
provides that no payment of principal, premium or interest on, or any other
payment with respect to, such Indebtedness may be made prior to the payment in
full of all of the Company's obligations under the Notes; provided that such
Indebtedness may provide for and be repaid at any time from the proceeds of
the sale of Capital Stock (other than Redeemable Stock) of the Company after
the Incurrence of such Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the voting power of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
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"Telecommunications Business" means the development, ownership or operation
of one or more telephone, telecommunications or information systems or the
provision of telephony, telecommunications or information services (including,
without limitation, any voice, video transmission, data or Internet services)
and any related, ancillary or complementary business.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within one year of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$50 million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) commercial paper, maturing
not more than one year after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America, any state thereof or any foreign country
recognized by the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard & Poor's
Ratings Service, and (v) securities with maturities of six months or less from
the date of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Service or Moody's Investors Service, Inc.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary (including any newly acquired or newly formed Subsidiary
of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns
any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any Restricted Subsidiary; provided that either (A) the Subsidiary
to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the "Limitation on Restricted Payments" covenant described below. The
Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation would, if Incurred
at such time, have been permitted to be Incurred for all purposes of the
Indenture. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
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"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); provided that the Company may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness
and the receipt and application of the proceeds thereof, the Consolidated
Leverage Ratio would be less than or equal to 7 to 1, for Indebtedness
Incurred on or prior to June 30, 1998, or less than or equal to 5 to 1, for
Indebtedness Incurred thereafter.
Notwithstanding the foregoing, the Company, and (except as specified below)
any Restricted Subsidiary, may Incur each and all of the following: (i)
Indebtedness in an aggregate principal amount outstanding or available at any
time not to exceed $100 million, less any amount of such Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales" covenant
described below; (ii) Indebtedness owed (A) to the Company and evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiaries; provided
that any event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute an Incurrence of such Indebtedness not permitted by this
clause (ii); (iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness (other
than Indebtedness Incurred under clause (i), (ii), (iv), (vi) or (ix) of this
paragraph) and any refinancings of such new Indebtedness in an amount not to
exceed the amount so refinanced or refunded (plus premiums, accrued interest,
fees and expenses); provided that Indebtedness the proceeds of which are used
to refinance or refund the Notes or Indebtedness that is pari passu in right
of payment with, or subordinated in right of payment to, the Notes shall only
be permitted under this clause (iii) if (A) in case the Notes are refinanced
in part or the Indebtedness to be refinanced is pari passu in right of payment
with the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu in right of payment with, or
subordinate in right of payment to, the remaining Notes, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the
Notes, such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average
Life of such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded; and provided further that in
no event may Indebtedness of the Company be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided in
the ordinary course of business, (B) under Currency Agreements and Interest
Rate Agreements; provided that such agreements (a) are designed solely to
protect the Company or its Subsidiaries against fluctuations in foreign
currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder or (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
for the purpose of
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financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of the Company, to the
extent the net proceeds thereof are promptly (A) used to purchase Notes
tendered in an Offer to Purchase made as a result of a Change of Control or
(B) deposited to defease all of the Notes as described below under
"Defeasance"; (vi) Guarantees of the Notes and Guarantees of Indebtedness of
the Company by any Restricted Subsidiary, provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation on
Issuance of Guarantees by Restricted Subsidiaries" covenant described below;
(vii) Indebtedness Incurred to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) of equipment, inventory or network assets
acquired by the Company or a Restricted Subsidiary after the Closing Date;
(viii) Indebtedness of the Company not to exceed, at any one time outstanding,
two times (A) the Net Cash Proceeds received by the Company after the Closing
Date as a capital contribution or from the issuance and sale of its Capital
Stock (other than Redeemable Stock) to a Person that is not a Subsidiary of
the Company, to the extent such Net Cash Proceeds have not been used pursuant
to clause (C)(2) of the first paragraph or clause (iii), (iv) or (vi) of the
second paragraph of the "Limitation on Restricted Payments" covenant described
below to make a Restricted Payment and (B) 80% of the fair market value of
property (other than cash and cash equivalents) received by the Company after
the Closing Date from a contribution of capital or the sale of its Capital
Stock (other than Redeemable Stock) to a Person that is not a Subsidiary of
the Company, to the extent such capital contribution or sale of Capital Stock
has not been used pursuant to clause (iii), (iv) or (ix) of the second
paragraph of the "Limitation on Restricted Payments" covenant described below
to make a Restricted Payment; provided that such Indebtedness does not mature
prior to the Stated Maturity of the Notes and has an Average Life longer than
the Notes; (ix) Strategic Subordinated Indebtedness; and (x) Indebtedness in
an aggregate principal amount not to exceed $20 million to be Incurred in
connection with the Reorganization.
(b) Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness" covenant
shall not be deemed to be exceeded due solely to the result of fluctuations in
the exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included and (2) any Liens granted pursuant to the equal and ratable
provisions referred to in the "Limitation on Liens" covenant described below
shall not be treated as Indebtedness. For purposes of determining compliance
with this "Limitation on Indebtedness" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on or with respect to its Capital Stock (other than (x) dividends
or distributions payable solely in shares of its Capital Stock (other than
Redeemable Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders, provided that such
dividends do not in the aggregate exceed the minority stockholders' pro rata
share of such Restricted Subsidiaries' net income from the first day of the
fiscal quarter beginning immediately following the Closing Date) held by
Persons other than the Company or any of its Restricted Subsidiaries, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of (A) the Company or an Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by any
Person or (B) a Restricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Affiliate of the
Company (other than a Wholly Owned Restricted Subsidiary) or any holder (or
any Affiliate of such holder) of 5% or
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more of the Capital Stock of the Company, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for value, of Indebtedness of
the Company that is subordinated in right of payment to the Notes (other than,
in each case, the purchase, repurchase or acquisition of Indebtedness in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in any case due within one year after the date of such
purchase, repurchase or acquisition) or (iv) make any Investment, other than a
Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) above being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and
be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant or (C)
the aggregate amount of all Restricted Payments (the amount, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) made
after the Closing Date shall exceed the sum of (1) 50% of the aggregate amount
of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of the amount of such loss) (excluding, for
purposes of such computation, income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning
on the first day of the fiscal quarter immediately following the Closing Date
and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed with the Commission or
provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant plus (2) the aggregate Net Cash Proceeds received by the
Company after the Closing Date from a capital contribution or the issuance and
sale permitted by the Indenture to a Person who is not a Subsidiary of the
Company of (a) its Capital Stock (other than Redeemable Stock), (b) any
options, warrants or other rights to acquire Capital Stock of the Company (in
each case, exclusive of any Redeemable Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the Notes) and (c) Indebtedness of
the Company that has been exchanged for or converted into Capital Stock of the
Company (other than Redeemable Stock), in each case except to the extent such
Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (viii) of
the second paragraph under the "Limitation on Indebtedness" covenant, plus (3)
an amount equal to the net reduction in Investments (other than reductions in
Permitted Investments and reductions in Investments made pursuant to clause
(vi) of the second paragraph of this "Limitation on Restricted Payments"
covenant) in any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds is included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the definition
of "Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at
such date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment
to the Notes, including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for, Indebtedness Incurred under clause (iii)
of the second paragraph of part (a) of the "Limitation on Indebtedness"
covenant; (iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Redeemable Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to the
Notes in exchange for, or out of the proceeds of, a substantially concurrent
offering of shares of the Capital Stock (other than Redeemable Stock) of the
Company (or options, warrants or other rights to acquire such Capital Stock);
(v) payments or distributions to dissenting stockholders pursuant to
applicable law in connection with a consolidation, merger or transfer of
assets that complies with the provisions of the Indenture applicable to
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mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company; (vi) Investments in any Person the primary
business of which is related, ancillary or complementary to the business of
the Company and its Restricted Subsidiaries on the date of such Investments;
provided that the aggregate amount of Investments made pursuant to this clause
(vi) does not exceed the sum of (x) $25 million plus (y) the amount of Net
Cash Proceeds received by the Company after the Closing Date as a capital
contribution or from the sale of its Capital Stock (other than Redeemable
Stock) to a Person who is not a Subsidiary of the Company, except to the
extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to
clause (viii) under the "Limitation on Indebtedness" covenant or to make
Restricted Payments pursuant to clause (C)(2) of the first paragraph, or
clauses (iii) or (iv) of this paragraph, of this "Limitation on Restricted
Payments" covenant, plus (z) the net reduction in Investments made pursuant to
this clause (vi) resulting from distributions on or repayments of such
Investments or from the Net Cash Proceeds from the sale of any such Investment
(except in each case to the extent any such payment or proceeds is included in
the calculation of Adjusted Consolidated Net Income) or from such Person
becoming a Restricted Subsidiary (valued in each case as provided in the
definition of "Investments"), provided that the net reduction in any
Investment shall not exceed the amount of such Investment; (vii) the purchase,
redemption, acquisition, cancellation or other retirement for value of shares
of Capital Stock of the Company to the extent necessary, in the judgment of
the Board of Directors, to prevent the loss or secure the renewal or
reinstatement of any license or franchise held by the Company or any
Restricted Subsidiary from any governmental agency; (viii) the purchase,
redemption, retirement or other acquisition for value of shares of Capital
Stock of the Company, or options to purchase such shares, held by directors,
employees, or former directors or employees of the Company or any Restricted
Subsidiary (or their estates or beneficiaries under their estates) upon their
death, disability, retirement, termination of employment or pursuant to the
terms of any agreement under which such shares of Capital Stock or options
were issued; provided that the aggregate consideration paid for such purchase,
redemption, retirement or other acquisition for value of such shares of
Capital Stock or options after the Closing Date does not exceed $2 million in
any calendar year, or $5 million in the aggregate; or (ix) Investments
acquired as a capital contribution to the Company or in exchange for Capital
Stock (other than Redeemable Stock) of the Company; provided that, except in
the case of clauses (i), (iii) and (iv), no Default or Event of Default shall
have occurred and be continuing, or occur as a consequence of the actions or
payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) thereof, an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in clause (iii) or
(iv) thereof and an Investment referred to in clause (ix) thereof), and the
Net Cash Proceeds from any issuance of Capital Stock referred to in clauses
(iii), (iv) and (vi) thereof, shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu in right of payment with the
Notes, then the Net Cash Proceeds of such issuance shall be included in clause
(C) of the first paragraph of this "Limitation on Restricted Payments"
covenant only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii)
make loans or advances to the Company or any other Restricted Subsidiary or
(iv) transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances
and restrictions in any such extensions,
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refinancings, renewals or replacements are no less favorable in any material
respect to the Holders than those encumbrances or restrictions that are then
in effect and that are being extended, refinanced, renewed or replaced; (ii)
existing under or by reason of applicable law; (iii) existing with respect to
any Person or the property or assets of such Person acquired by the Company or
any Restricted Subsidiary and existing at the time of such acquisition and not
incurred in contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than
such Person or the property or assets of such Person so acquired; (iv) in the
case of clause (iv) of the first paragraph of this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A)
that restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not, individually
or in the aggregate, detract from the value of property or assets of the
Company or any Restricted Subsidiary in any manner material to the Company or
any Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and
imposed pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or property
and assets of, such Restricted Subsidiary; or (vi) contained in the terms of
any Indebtedness or any agreement pursuant to which such Indebtedness was
issued if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained in
such Indebtedness or agreement; provided that in the case of the Credit
Agreement the encumbrance or restriction may apply if an event of default
(other than an event of default resulting solely from the breach of a
representation or warranty) occurs and is continuing under the Credit
Agreement; provided that, with respect to any event of default (other than a
payment default, a bankruptcy event with respect to the Company or
Transmission or the loss of a material license or fiber network) under the
Credit Agreement, such encumbrance or restriction may not prohibit dividends
to the Company to pay scheduled interest on the Notes for more than 180 days
in any consecutive 360-day period, (B) the encumbrance or restriction is not
materially more disadvantageous to the Holders of the Notes than is customary
in comparable financings (as determined by the Company) and (C) the Company
determines that any such encumbrance or restriction will not materially affect
the Company's ability to make principal or interest payments on the Notes.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant described below or (2) restricting the sale or other disposition of
property or assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary, (ii) issuances of director's qualifying shares, or
sales to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law, (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been
permitted to be made under the "Limitation on Restricted Payments" covenant if
made on the date of such issuance or sale or (iv) issuances or sales of Common
Stock of a Restricted Subsidiary, provided that the Company or such Restricted
Subsidiary applies the Net Cash Proceeds, if any, of any such sale in
accordance with clause (A) or (B) of the "Limitation on Asset Sales" covenant
described below.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
in right of payment with, or subordinate in right of payment
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to, the Notes ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to
the Indenture providing for a Guarantee (a "Subsidiary Guarantee") of payment
of the Notes by such Restricted Subsidiary and (ii) such Restricted Subsidiary
waives, and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any
other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; provided that this paragraph shall not be applicable to (x) any
Guarantee of any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or (y) any
Guarantee of any Restricted Subsidiary of Indebtedness Incurred (I) under
Credit Facilities pursuant to clause (i) of the second paragraph of the
"Limitation on Indebtedness" covenant or (II) pursuant to clause (vii) of the
second paragraph of the "Limitation on Indebtedness" covenant. If the
Guaranteed Indebtedness is (A) pari passu in right of payment with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu in
right of payment with, or subordinated in right of payment to, the Subsidiary
Guarantee or (B) subordinated in right of payment to the Notes, then the
Guarantee of such Guaranteed Indebtedness shall be subordinated in right of
payment to the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated in right of payment to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release
or discharge of the Guarantee which resulted in the creation of such
Subsidiary Guarantee, except a discharge or release by or as a result of
payment under such Guarantee.
Limitation on Transactions with Stockholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable in any material
respect to the Company or such Restricted Subsidiary than could be obtained,
at the time of such transaction or, if such transaction is pursuant to a
written agreement, at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to: (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized
investment banking firm stating that the transaction is fair to the Company or
such Restricted Subsidiary from a financial point of view; (ii) any
transaction solely between the Company and any of its Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries; (iii) the
payment of reasonable and customary regular fees to directors of the Company
who are not employees of the Company; (iv) any payments or other transactions
pursuant to any tax-sharing agreement between the Company and any other Person
with which the Company files a consolidated tax return or with which the
Company is part of a consolidated group for tax purposes; (v) any Restricted
Payments not prohibited by the "Limitation on Restricted Payments" covenant;
or (vi) the Reorganization. Notwithstanding the foregoing, any transaction
covered by the first paragraph of this "Limitation on Transactions with
Stockholders and Affiliates" covenant and not covered by clauses (ii) through
(vi) of this paragraph, the aggregate amount of which exceeds $5 million in
value, must be approved or determined to be fair in the manner provided for in
clause (i)(A) or (B) above.
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Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to: (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in favor
of the Holders; (iii) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary to secure Indebtedness owing to the Company or
such other Restricted Subsidiary; (iv) Liens securing Indebtedness which is
Incurred to refinance secured Indebtedness which is permitted to be Incurred
under clause (iii) of the second paragraph of the "Limitation on Indebtedness"
covenant; provided that such Liens do not extend to or cover any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced; (v) Liens securing
obligations under Credit Facilities Incurred under clause (i) of the second
paragraph of the "Limitation on Indebtedness" covenant; or (vi) Permitted
Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess
of three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company
and any Wholly Owned Restricted Subsidiary or solely between Wholly Owned
Restricted Subsidiaries; or (iv) the Company or such Restricted Subsidiary,
within 12 months after the sale or transfer of any assets or properties is
completed, applies an amount not less than the net proceeds received from such
sale in accordance with clause (A) or (B) of the first paragraph of the
"Limitation on Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the
Company or such Restricted Subsidiary is at least equal to the fair market
value of the assets sold or disposed of and (ii) at least 75% of the
consideration received consists of cash or Temporary Cash Investments. In the
event and to the extent that the Net Cash Proceeds received by the Company or
any of its Restricted Subsidiaries from one or more Asset Sales occurring on
or after the Closing Date in any period of 12 consecutive months exceed 10% of
Adjusted Consolidated Net Tangible Assets (determined as of the date closest
to the commencement of such 12-month period for which a consolidated balance
sheet of the Company and its Subsidiaries has been filed with the Commission
or provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant), then the Company shall or shall cause the relevant
Restricted Subsidiary to (i) within 12 months after the date Net Cash Proceeds
so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply
an amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to the "Limitation on Issuances of
Guarantees by Restricted Subsidiaries" covenant described above or
Indebtedness of any other Restricted Subsidiary, in each case owing to a
Person other than the Company or any of its Subsidiaries, or (B) invest an
amount equal to such excess Net Cash
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Proceeds, or the amount of such Net Cash Proceeds not so applied pursuant to
clause (A) (or enter into a definitive agreement committing to so invest
within 12 months after the date of such agreement), in capital assets of a
nature or type or that are used in a business (or in a Person having capital
assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such
investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and
(ii) apply (no later than the end of the 12-month period referred to in clause
(i)) such excess Net Cash Proceeds (to the extent not applied pursuant to
clause (i)) as provided in the following paragraph of this "Limitation on
Asset Sales" covenant. The amount of such excess Net Cash Proceeds required to
be applied (or to be committed to be applied) during such 12-month period as
set forth in clause (i) of the preceding sentence and not applied as so
required by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $5 million, the
Company must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the Holders on a pro rata
basis an aggregate principal amount of Notes equal to the Excess Proceeds on
such date, at a purchase price equal to 100% of the principal amount of the
Notes plus, in each case, accrued interest to the Payment Date.
Commission Reports and Reports to Holders
The Company shall file with the Commission the annual, quarterly and other
reports and other information required by Section 13(a) or 15(d) of the
Exchange Act, regardless of whether such sections of the Exchange Act are
applicable to the Company (unless the Commission will not accept such a
filing). The Company shall mail or cause to be mailed copies of such reports
and information to Holders and the Trustee within 15 days after the date it
files such reports and information with the Commission or after the date it
would have been required to file such reports and information with the
Commission had it been subject to such sections of the Exchange Act; provided,
however, that the copies of such reports and information mailed to Holders may
omit exhibits, which the Company will supply to any Holder at such Holder's
request.
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
The Company shall commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Exchange Notes then
outstanding, at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Exchange Notes) required by the foregoing covenant
(as well as may be contained in other securities of the Company which might be
outstanding at the time). The foregoing covenant requiring the Company to
repurchase the Exchange Notes will, unless consents are obtained, require the
Company to repay all indebtedness then outstanding which by its terms would
prohibit such Exchange Note repurchase, either prior to or concurrently with
such Exchange Note repurchase.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the Indenture:
(a) defaults in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) defaults in the payment of interest on any Note
when the same becomes due and payable, which defaults continue for a period of
30 days; provided that a failure to make any of the first six scheduled
interest payments on the Notes on the applicable Interest Payment Date will
constitute an Event of Default with no grace or cure period; (c) defaults in
the performance or breach of the provisions of the Indenture applicable to
mergers, consolidations and transfers of all or substantially all of the
assets of the Company or mandatory redemption, or the failure to make or
consummate an Offer to Purchase in accordance
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with the "Limitation on Asset Sales" or the "Repurchase of Notes upon a Change
of Control" covenant described above; (d) defaults in the performance or
breach of any covenant or agreement of the Company in the Indenture or under
the Notes (other than a default specified in clause (a), (b) or (c) above),
which default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding; (e) there occurs with respect
to any issue or issues of Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $5 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness
now exists or shall hereafter be created, (I) an event of default that has
caused the holder thereof to declare such Indebtedness to be due and payable
prior to its Stated Maturity and such Indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled within 30 days of
such acceleration and/or (II) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance) for the payment of
money in excess of $5 million in the aggregate for all such final judgments or
orders against all such Persons (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against the Company or any
Significant Subsidiary and shall not be paid or discharged, and there shall be
any period of 30 consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to exceed $5
million during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (g) a court
having jurisdiction in the premises enters a decree or order for (A) relief in
respect of the Company or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and,
in each case, such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; (h) the Company or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors; or (i) the Pledge Agreement shall
cease to be in full force and effect or enforceable in accordance with its
terms, other than in accordance with its terms.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal
of, premium, if any, and accrued interest on the Notes to be immediately due
and payable. Upon a declaration of acceleration, such principal, premium, if
any, and accrued interest shall be immediately due and payable. In the event
of a declaration of acceleration because an Event of Default set forth in
clause (e) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied or cured by the Company or the relevant Significant Subsidiary or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (g) or (h) above occurs with respect to the Company, the
principal of, premium, if any, and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder. The
Holders of at least a majority in principal amount of the outstanding Notes,
by written notice to the Company and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment
of the principal of, premium, if any, and interest on the Notes that have
become due solely by such declaration of acceleration, have been cured or
waived and (ii) the rescission would not conflict with any
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judgment or decree of a court of competent jurisdiction. For information as to
the waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the Holder gives the Trustee written notice of a continuing Event
of Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of a
majority in aggregate principal amount of the outstanding Notes do not give
the Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the Holder.
The Indenture requires certain officers of the Company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the performance of the Company and its Restricted
Subsidiaries under the Indenture and that the Company has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Company is also obligated to notify the Trustee of any default or
defaults in the performance of any covenants or agreements under the
Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company unless: (i) the Company shall be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof, and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of the Company
on all of the Notes and under the Indenture; (ii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing; (iii) immediately after giving effect to such transaction
on a pro forma basis, the Company or any Person becoming the successor obligor
of the Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis,
the Company, or any Person becoming the successor obligor of the Notes, as the
case may be, could Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant described above;
provided, however, that this clause (iv) shall not apply to a consolidation or
merger with or into (x) a Wholly Owned Restricted Subsidiary with a positive
net worth or (y) ITC Holding, provided that (A) in connection with any such
merger or consolidation, no consideration (except Capital Stock (other than
Redeemable Stock) in the surviving Person or the Company (or a Person that
owns directly or indirectly all of the Capital Stock of the surviving Person
or the Company immediately following such transaction)) shall be issued or
distributed to the stockholders of the Company and (B) in connection with a
consolidation or merger with or into ITC Holding, all Liens and Indebtedness
of ITC Holding and its Subsidiaries (other than the Company and its Restricted
Subsidiaries) outstanding immediately prior to such transaction would, if
Incurred at such time, have been permitted to be Incurred by the Company
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and its Restricted Subsidiaries for all purposes of the Indenture; and (v) the
Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and
(iv) above) and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture comply with
this provision and that all conditions precedent provided for herein relating
to such transaction have been complied with; provided, however, that clauses
(iii) and (iv) above do not apply if, in the good faith determination of the
Board of Directors of the Company, whose determination shall be evidenced by a
Board Resolution, the principal purpose of such transaction is to change the
state of incorporation of the Company; and provided further that any such
transaction shall not have as one of its purposes the evasion of the foregoing
limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to
the Notes (except for, among other matters, certain obligations to register
the transfer or exchange of the Notes, to replace stolen, lost or mutilated
Notes, to maintain paying agencies and to hold monies for payment in trust)
if, among other things, (A) the Company has deposited with the Trustee, in
trust, money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if
any, and accrued interest on the Notes on the Stated Maturity of such payments
in accordance with the terms of the Indenture and the Notes, (B) the Company
has delivered to the Trustee (i) either (x) an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for federal income
tax purposes as a result of the Company's exercise of its option under this
"Defeasance" provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred, which Opinion
of Counsel must be based upon (and accompanied by a copy of) a ruling of the
Internal Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a ruling is
no longer required or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after
giving effect to such deposit on a pro forma basis, no Event of Default, or
event that after the giving of notice or lapse of time or both would become an
Event of Default, shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound, and (D) if at such time the Notes are listed on
a national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted as a
result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The Indenture
further provides that the provisions of the Indenture will no longer be in
effect with respect to clauses (iii) and (iv) under "Consolidation, Merger and
Sale of Assets" and all the covenants described herein under "Covenants,"
clause (d) under "Events of Default" with respect to such covenants and
clauses (iii) and (iv) under "Consolidation, Merger and Sale of Assets," and
that clauses (e) and (f) under "Events of Default" shall be deemed not to be
Events of Default, upon, among other things, the deposit with the Trustee, in
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if
any, and accrued interest on the Notes on the Stated Maturity of such payments
in accordance with the terms of the Indenture and the Notes, the satisfaction
of the provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by the Company to the Trustee of an Opinion of
Counsel to the effect that, among other things, the Holders will
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not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance of certain covenants and Events of Default and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, the Company
will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that
no such modification or amendment may, without the consent of each Holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce the principal of, or
premium, if any, or interest on, any Note, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive a default in the payment of principal of, premium,
if any, or interest on the Notes or (vii) reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose Holders is
necessary for waiver of compliance with certain provisions of the Indenture or
for waiver of certain defaults.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will initially be
represented by one or more permanent global Notes in definitive, fully
registered form without interest coupons (each a "Global Note") and will be
deposited with the Trustee as custodian for, and registered in the name of, a
nominee of DTC. Except in the limited circumstances described below under
"Certificated Notes," owners of beneficial interests in a Global Note will not
be entitled to receive physical delivery of Certificated Notes (as defined
below).
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture and the Exchange Notes. No beneficial owner
of an interest in a Global Note will be able to transfer that interest except
in accordance with DTC's applicable procedures, in addition to those provided
for under the Indenture.
Payments of the principal of, and interest on, a Global Note will be made to
DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their
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respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by a
holder of Exchange Notes (including the presentation of Exchange Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in a Global Note is credited and only in
respect of such portion of the aggregate principal amount of Exchange Notes as
to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Exchange Notes, DTC will
exchange the applicable Global Note for Certificated Exchange Notes, which it
will distribute to its participants.
The Company understands that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a clearing corporation within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates and certain other organizations. Indirect access to
the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC,
it is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Company nor
the Trustee will have any responsibility for the performance by DTC or its
respective participants or indirect participants of their respective
obligation under the rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes, and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Note. Holders of an interest in a Global Note may receive a
Certificated Note in accordance with DTC's rules and procedures in addition to
those provided for under the Indenture.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Exchange Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon
any obligation, covenant or agreement of the Company in the Indenture, or in
any of the Exchange Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, stockholder,
officer, director, employee or controlling person of the Company or of any
successor Person thereof. Each Holder, by accepting the Exchange Notes, waives
and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
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The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Senior
Notes where such Senior Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period not to exceed 180 days after the Expiration Date, it will furnish
additional copies of this Prospectus, as amended or supplemented, to any
broker-dealer that reasonably requests such documents for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Exchange Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the Exchange
Notes on any national securities exchange or to seek approval for quotation
through any automated quotation system. The Company has been advised by the
Placement Agents that following completion of the Exchange Offer, the
Placement Agents intend to make a market in the Exchange Notes. However, the
Placement Agents are not obligated to do so and any market-making activities
with respect to the Exchange Notes may be discontinued at any time without
notice. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or as to the liquidity of or the
trading market for the Exchange Notes. If a trading market does not develop or
is not maintained, holders of the Exchange Notes may experience difficulty in
reselling the Exchange Notes or may be unable to sell them at all. If a market
for the Exchange Notes develops, any such market may cease at any time. If a
public trading market develops for the Exchange Notes, future trading prices
of the Exchange Notes will depend on many factors, including, among other
things, prevailing interest rates, the market for similar securities, the
financial conditions and results of operations of the Company and other
factors beyond the control of the Company, including general economic
conditions. Notwithstanding the registration of the Exchange Notes in the
Exchange Offer, holders who are "affiliates" of the Company (within the
meaning of Rule 405 under the Securities Act) may publicly offer for sale or
resell the Exchange Notes only in compliance with the provisions of Rule 144
under the Securities Act or any other available exemptions under the
Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
other than commissions or concessions of any brokers or dealers, and will
indemnify the holders of the Senior Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
are being passed upon for the Company by Hogan & Hartson L.L.P., Washington,
D.C., counsel for the Company. Hogan & Hartson L.L.P. also provides legal
services to ITC Holding, its affiliated companies and Campbell B. Lanier, III,
Chairman and Chief Executive Officer of ITC Holding. Anthony S. Harrington, a
partner of Hogan & Hartson, L.L.P., beneficially owns 34,800 shares of common
stock of ITC Holding.
EXPERTS
The balance sheet of ITC/\DeltaCom, Inc. as of June 30, 1997 and the related
statements of operations, stockholder's deficit, and cash flows for the period
from inception (March 24, 1997) through June 30, 1997 included in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their report with respect thereto and is
included herein in reliance upon the authority of said firm as experts in
giving said report.
The combined balance sheets of ITC Transmission Systems, Inc., ITC
Transmission Systems II, Inc., Gulf States Transmission Systems, Inc., Eastern
Telecom, Inc. (d.b.a. InterQuest), and DeltaCom, Inc. as of December 31, 1995
and 1996, and the related combined statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1996, included in this Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, to the extent and for the
periods indicated in their report, and are included herein in reliance upon
the authority of said firm as experts in giving said report.
The statements of operations, stockholders' equity and cash flows of
DeltaCom, Inc. for the year ended December 31, 1994 included in this
Registration Statement have been audited by Martin Stuedeman & Associates,
P.C., independent auditors, as stated in their report appearing herein. The
statements of operations, stockholders' equity and cash flows of DeltaCom,
Inc. for the year ended December 31, 1995 included in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The balance sheets of Gulf States FiberNet as of December 31, 1995 and 1996,
and the related statements of operations, partners' capital, and cash flows
for the period from inception (August 17, 1994) through December 31, 1994 and
for the years ended December 31, 1995 and 1996 included in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, to the extent and for the periods indicated in their report, and
are included herein in reliance upon the authority of said firm as experts in
giving said report.
The financial statements of Georgia Fiber for the years ended December 31,
1996 and 1995 included in this Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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AVAILABLE INFORMATION
The Company is not currently subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of the Registration Statement (of which this
Prospectus is a part), the Company will become subject to the informational
requirements of the Exchange Act. In addition, the Indenture provides that,
regardless of whether the Company is required to file reports with the
Commission, the Company shall file with the Commission all such reports and
other information as would be required to be filed with the Commission if the
Company were subject to the reporting requirements of the Exchange Act. The
Company will supply, or cause the Trustee to supply, to each holder of
Exchange Notes, without cost, copies of such reports or other information.
The Company has filed the Registration Statement (of which this Prospectus
is a part) under the Securities Act with respect to the Exchange Offer. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement. For
further information about the Company and the Exchange Offer, reference is
made to the Registration Statement and to the financial statements, exhibits
and schedules filed therewith. The statements contained in this Prospectus
about the contents of any contract or other document referred to are not
necessarily complete, and in each instance, reference is made to a copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of each such document may be obtained from the Commission at
its principal office in Washington, D.C. upon payment or the charges
prescribed by the Commission or, in the case of certain such documents, by
accessing the Commission's World Wide Web site at http://www.sec.gov.
The Company is required by the terms of the Indenture to furnish the Trustee
with annual reports containing consolidated financial statements audited by
their independent public accountants and with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
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GLOSSARY
Access--Telecommunications services that permit long distance carriers to
use local exchange facilities to originate and/or terminate long distance
service.
Access charges--The fees paid by long distance carriers to local exchange
carriers for originating and terminating long distance calls on their local
network.
AT&T -- AT&T Corp.
Cable & Wireless--Cable & Wireless Communications Inc.
Central offices--The switching centers or central switching facilities of
the local exchange companies.
Co-location--The ability of a competitor carrier to connect its network to
the local exchange carriers' central offices. Physical co-location occurs when
a competitor carrier places its network connection equipment inside the local
exchange company's central offices. Virtual co-location is an alternative to
physical co-location pursuant to which the local exchange company permits a
competitor carrier to connect its network to the local exchange company's
central offices on comparable terms, even through the competitor carrier's
network connection equipment is not physically located inside the central
offices.
Dedicated--Local telecommunications lines reserved for use by particular
customers, generally for connection between the customer's location and an
interexchange carrier POP.
DeltaCom--DeltaCom, Inc., an Alabama corporation which provides long
distance telephone services in the southeastern United States. DeltaCom became
a wholly owned subsidiary of the Company as part of the Reorganization.
Dialing Parity--The ability of a competing local or toll service provider to
provide telecommunications services in such a manner that customers have the
ability to route automatically, without the use of any access code, their
telecommunications to the service provider of the customer's designation.
Digital--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching technologies employ
a sequence of these pulses to represent information as opposed to the
continuously variable analog signal. The precise digital numbers minimize
distortion (such as graininess or snow in the case of video transmission, or
static or other background distortion in the case of audio transmission).
DS-1, DS-3--Standard telecommunications industry digital signal formats,
which are distinguishable by bit rate (the number of binary digits (0 and 1)
transmitted per second). DS-1 service has a bit rate of 1.544 megabits per
second and DS-3 service has a bit rate of 45 megabits per second.
Frontier--Allnet Communications Services, Inc. d/b/a Frontier Communications
Services.
GTE--GTE Corporation.
Gulf States FiberNet--A Georgia general partnership, prior to the
Reorganization, that operates a fiber-optic telecommunications network between
Atlanta, Georgia and Longview, Texas. Gulf States FiberNet's assets and
operations now are 100% owned by Gulf States Transmission Systems, Inc.
Gulf States Transmission--Gulf States Transmission Systems, Inc., a Delaware
corporation, formed in 1994 by ITC Holding to be the 36% managing general
partner in Gulf States FiberNet and which now owns 100% of Gulf States
FiberNet's assets and its operations. Gulf States Transmission Systems, Inc.
became a wholly owned subsidiary of the Company as part of the Reorganization.
G-1
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Interconnection--Interconnection of facilities between or among local
exchange carriers, including potential physical collocation of one carrier's
equipment in the other carrier's premise to facilitate such interconnection.
Interconnection Decision--The August 1996 order issued by the FCC
implementing the interconnection provisions of the Telecommunications Act.
Portions of this order have been stayed by the U.S. Eighth Circuit Court of
Appeals.
InterLATA--Telecommunications services originating in a LATA and terminating
outside of that LATA.
InterQuest--Eastern Telecom, Inc., a Georgia corporation, d/b/a InterQuest,
engaged solely in the provision of operator and other directory assistance
services. Eastern Telecom merged into Interstate FiberNet, Inc. as part of the
Reorganization.
Interstate FiberNet--A Georgia general partnership which operates a fiber-
optic telecommunications network between Georgia and Alabama. Interstate
FiberNet became part of Interstate FiberNet, Inc. following the
Reorganization.
Interstate FiberNet, Inc.--The wholly owned subsidiary of the Company that
currently holds the businesses that were held by ITC Transmission Systems,
Inc., ITC Transmission Systems II, Inc., InterQuest and Interstate FiberNet
prior to the Reorganization.
IntraLATA--Telecommunications services originating and terminating in the
same LATA.
ITC Holding--ITC Holding Company, Inc. is a diversified telecommunications
company based in West Point, Georgia, with substantial holdings in
telecommunications companies operating in the southern United States.
ITC Transmission Systems II, Inc.--A Delaware corporation formed by ITC
Holding to hold a 51 percent interest in InterState FiberNet. ITC Transmission
Systems II merged into Interstate FiberNet, Inc. as part of the
Reorganization.
IXC--IXC Communications Inc.
LATA (local access and transport area)--A geographic area composed of
contiguous local exchanges, usually but not always within a single state.
There are approximately 200 LATAs in the United States.
LCI--LCI International Telecom Corp.
Local exchange--A geographic area determined by the local exchange carrier
in which calls generally are transmitted without toll charges to the calling
or called party.
Local exchange carrier--A company providing local telephone services.
Long distance carriers (interexchange carriers)--Long distance carriers
provide services between local exchanges on an interstate or intrastate basis.
A long distance carrier may offer services over its own or another carrier's
facilities.
MCI--MCI Communications Corporation.
Nortel Access Node--A remote multi-purpose vehicle for local switched access
transport services. Used to extend Nortel DMS-500 local access lines to remote
cities along the long-haul network.
Number portability--The ability of an end user to change local exchange
carriers while retaining the same telephone number.
OC-N--Standard telecommunications industry measurements for optical
transmission capacity distinguishable by bit rate transmitted per second and
the number of voice or data transmissions that can be simultaneously
transmitted through fiber optic cable. "N" represents the number of DS-3s
involved. For
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example, an OC-3 is generally equivalent to three DS-3s and has a bit rate of
155.52 megabits per second and can transmit 2,016 simultaneous voice or data
transmissions. An OC-12 has a bit rate of 622.08 megabits per second and can
transmit 8,064 simultaneous voice or data transmissions. An OC-48 has a bit
rate of 2488.32 megabits per second and can transmit 32,256 simultaneous voice
or data transmissions.
POPs (points of presence)--Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
Private line--A dedicated telecommunications connection between end user
locations.
"PUC" or "Public utilities commission"--A state regulatory body, established
in most states, which regulates utilities, including telephone companies
providing intrastate services.
Reciprocal compensation--The same compensation of a new competitive local
exchange carrier for termination of a local call by the local exchange carrier
on its network as the new competitor pays the local exchange carrier for
termination of local calls on the local exchange carrier network.
Reorganization--The contribution to the Company by ITC Holding of the
businesses of Interstate FiberNet, Gulf States FiberNet, DeltaCom and
InterQuest.
Resale--Resale by a provider of telecommunications services (such as a local
exchange carrier) of such services to other providers or carriers on a
wholesale or a retail basis.
Route miles--The number of miles of the telecommunications path in which
fiber optic cables are installed.
SCANA--SCANA Communications, Inc.
Self-healing ring--A self-healing ring is a network design in which the
network backbone consists of a continuous ring connecting a central hub
facility with one or more network nodes. Traffic is routed between the hub and
each of the nodes simultaneously in both a clockwise and a counterclockwise
direction. In the event of a cable cut or component failure along one of these
paths, traffic will continue to flow along the alternate path so no traffic is
lost. In the event of a catastrophic node failure, other nodes will be
unaffected because traffic will continue to flow along whichever path (primary
or alternate) does not pass through the affected node. The switch from the
primary to the alternate path will be imperceptible to most users.
Sprint--Sprint Corporation.
"SS7" or "Signaling System 7" services--Signaling System 7 network services
utilize common channel signaling, which reduces connect time delays and
directs calls.
Switch--A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
Switched access transport services--Transportation of switched traffic along
dedicated lines between the local exchange company central offices and long
distance carrier POPs.
Switched traffic--Telecommunications traffic along the public switched
network. This traffic is generally switched at the local exchange company's
central offices.
Transmission--ITC Transmission Systems, Inc., a Delaware corporation formed
by ITC Holding to hold a 49% managing interest in InterState FiberNet. ITC
Transmission Systems became a wholly owned subsidiary of the Company as part
of the Reorganization and changed its name to Interstate FiberNet, Inc.
Unbundled Access--Access to unbundled elements of a telecommunications
services provider's network, including network facilities, equipment,
features, functions and capabilities, at any technically feasible point within
such network.
WorldCom--WorldCom, Inc.
G-3
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INDEX TO THE FINANCIAL STATEMENTS
ITC/\DELTACOM,INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants................................ F-2
Balance Sheet--June 30, 1997 ........................................... F-3
Statement of Operations for the Period from Inception (March 24, 1997)
through June 30, 1997.................................................. F-4
Statement of Stockholder's Deficit for the Period from Inception (March
24, 1997) through June 30, 1997........................................ F-5
Statement of Cash Flows for the Period from Inception (March 24, 1997)
thrugh June 30, 1997................................................... F-6
Notes to Financial Statements........................................... F-7
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.), ITC
TRANSMISSION SYSTEMS II, INC., GULF STATES TRANSMISSION SYSTEMS, INC.,
EASTERN TELECOM, INC., D.B.A INTERQUEST, DELTACOM, INC. AND ITC/\DELTACOM,
INC. (REORGANIZED AS ITC/\DELTACOM, INC.)
Report of Independent Public Accountants................................ F-10
Combined Balance Sheets--December 31, 1995 and 1996 and June 30, 1997
(unaudited) ........................................................... F-11
Combined Statements of Operations for the Years Ended December 31, 1994,
1995, and 1996 and for the Six Months Ended June 30, 1996 and 1997
(unaudited)............................................................ F-12
Combined Statements of Stockholder's Equity for the Years Ended December
31, 1994, 1995, and 1996 and for the Six Months Ended June 30, 1997
(unaudited)............................................................ F-13
Combined Statements of Cash Flows for the Years Ended December 31, 1994,
1995, and 1996 and for the Six Months Ended June 30, 1996 and 1997
(unaudited)............................................................ F-14
Notes to Combined Financial Statements.................................. F-16
DELTACOM, INC.
Independent Auditors' Report............................................ F-35
Report of Independent Public Accountants................................ F-36
Statements of Operations for the Years Ended December 31, 1994 and 1995
and for the One Month Ended January 29, 1996........................... F-37
Statements of Stockholder's Equity for the Years Ended December 31, 1994
and 1995 and for the One Month Ended January 29, 1996.................. F-38
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995
and for the One Month Ended January 29, 1996........................... F-39
Notes to Financial Statements........................................... F-40
GULF STATES FIBERNET
Report of Independent Public Accountants................................ F-43
Balance Sheets--December 31, 1995 and 1996 and March 27, 1997
(unaudited) ........................................................... F-44
Statements of Operations for the Period From Inception (August 17, 1994)
Through December 31, 1994 and for the Years Ended December 31, 1995 and
1996 and for the periods ended March 31, 1996 and March 27, 1997
(unaudited)............................................................ F-45
Statements of Partners' Capital for the Period From Inception (August
17, 1994) Through December 31, 1994 and for the Years Ended December
31, 1995 and 1996 and for the period ended March 27, 1997 (unaudited).. F-46
Statements of Cash Flows for the Period From Inception (August 17, 1994)
Through December 31, 1994 and for the Years Ended December 31, 1995 and
1996 and for the periods ended March 31, 1996 and March 27, 1997
(unaudited)............................................................ F-47
Notes to Financial Statements........................................... F-48
GEORGIA FIBER
Independent Auditors' Report............................................ F-54
Balance Sheets--December 31, 1995 and 1996, and March 31, 1996 and March
27, 1997 (unaudited)................................................... F-55
Statements of Income and Net Equity for the Years Ended December 31,
1995 and 1996 and for the periods ended March 31, 1996 and March 27,
1997 (unaudited)....................................................... F-56
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996
and for the periods ended March 31, 1996 and March 27, 1997
(unaudited)............................................................ F-57
Notes to Financial Statements........................................... F-58
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ITC/\DeltaCom, Inc.:
We have audited the accompanying balance sheet of ITC/\DELTACOM, INC. (a
Delaware corporation) as of June 30, 1997 and the related statements of
operations, stockholder's deficit and cash flows for the period from inception
(March 24, 1997) to June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these statements based on our audit.
We conducted our audit 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 audit provides 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 ITC/\DeltaCom, Inc. as of
June 30, 1997 and the results of its operations and its cash flows for the
period from inception (March 24, 1997) through June 30, 1997 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
July 31, 1997 (except with respect to the Credit Agreement discussion in Note
4, as to which the date is September 17, 1997)
F-2
<PAGE>
ITC/\DELTACOM, INC.
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
CASH............................................................ $ 401,857
RESTRICTED ASSET................................................ 194,775,128
------------
Total current assets........................................ 195,176,985
OTHER NON-CURRENT ASSETS........................................ 5,978,387
------------
TOTAL ASSETS.................................................... $201,155,372
============
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES--Accounts payable and accrued liabilities... $ 1,646,575
LONG-TERM DEBT.................................................. 200,000,000
------------
Total liabilities........................................... $201,646,575
------------
PREFERRED STOCK, $.01 par value; 5,000,000 shares authorized, 0
shares issued and outstanding.................................. 0
CLASS A COMMON STOCK, $.01 par value; 60,000,000 shares
authorized, 0 shares issued and outstanding.................... 0
CLASS B COMMON STOCK, $.01 par value; 30,000,000 shares
authorized, 15,000,000 shares issued and outstanding........... 150,000
Accumulated deficit............................................. (641,203)
------------
Total stockholder's deficit................................. (491,203)
------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT..................... $201,155,372
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE>
ITC/\DELTACOM, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MARCH 24, 1997)
THROUGH JUNE 30, 1997
<TABLE>
<S> <C>
OPERATING EXPENSES:
Depreciation and amortization................................... $ 60,833
-----------
OPERATING LOSS.................................................... (60,833)
-----------
OTHER INCOME (EXPENSE):
Interest expense................................................ (1,687,671)
Interest income................................................. 776,985
-----------
Total other income (expense).................................. (910,686)
-----------
LOSS BEFORE INCOME TAXES.......................................... (971,519)
INCOME TAX BENEFIT................................................ 330,316
-----------
NET LOSS.......................................................... $ (641,203)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
ITC/\DELTACOM, INC.
STATEMENT OF STOCKHOLDER'S DEFICIT
FOR THE PERIOD FROM INCEPTION (MARCH 24, 1997)
THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL DEFICIT TOTAL
--------- ------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception
(March 24, 1997)....... $ 0 $ 0 $150,000 $ 0 $ 0 $ 150,000
Net loss.............. 0 0 0 0 (641,203) (641,203)
--- --- -------- --- --------- ---------
Balance, June 30, 1997.. $ 0 $ 0 $150,000 $ 0 $(641,203) $(491,203)
=== === ======== === ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
ITC/\DELTACOM, INC.
STATEMENT OF CASH FLOWS
FOR PERIOD FROM INCEPTION (MARCH 24, 1997)
THROUGH JUNE 30, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (641,203)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.......................... 60,833
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities.............. 1,646,575
-------------
Total adjustments................................... 1,707,408
-------------
Net cash provided by operating activities........... 1,066,205
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in restricted assets (Note 1)................. (194,775,128)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................... 150,000
Proceeds from issuance of long-term debt, net of offering
expenses................................................ 193,960,780
-------------
Net cash provided by financing activities............... 194,110,780
-------------
NET INCREASE IN CASH...................................... 401,857
CASH, BEGINNING OF THE PERIOD............................. 0
-------------
CASH, END OF THE PERIOD................................... $ 401,857
=============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
ITC/\DELTACOM, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND NATURE OF BUSINESS
ITC/\DeltaCom, Inc. (the "Company") was incorporated under the laws of the
state of Delaware on March 24, 1997. The purpose of incorporating the Company
was to enable ITC Holding Company, Inc. ("ITC Holding"), the Company's parent
company and only stockholder to complete a reorganization of certain of its
wholly owned subsidiaries on July 25, 1997 as follows:
. Eastern Telecom, Inc. (d.b.a. InterQuest) and ITC Transmission Systems
II, Inc. were merged with and into Interstate FiberNet, Inc. (formerly
ITC Transmission Systems, Inc.) ("FiberNet").
. ITC Holding contributed all of the outstanding capital stock of
FiberNet, DeltaCom, Inc. ("DeltaCom") and Gulf States Transmission
Systems, Inc. to the Company.
. The Company contributed all of the outstanding capital stock of
DeltaCom, Inc. and Gulf States Transmission Systems, Inc. to FiberNet.
In connection with the Reorganization, FiberNet undertook to repay (and
DeltaCom agreed to reimburse FiberNet) approximately $31 million of DeltaCom's
advances from ITC Holding. ITC Holding then forgave such indebtedness and
contributed it to FiberNet as additional equity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
Debt issuance costs
The Company has incurred debt issuance costs in connection with its long-
term debt. These costs have been capitalized and are being amortized over the
term of the related debt.
3. EQUITY INTERESTS
CAPITAL STOCK
The Company has authorized two classes of common stock. Holders of the
Company's Class A Common Stock have one vote per share, while holders of the
Company's Class B Common Stock have ten votes per share. At June 30, 1997, 0
shares of the Company's Class A Common Stock and 15,000,000 shares of the
Company's Class B Common Stock were outstanding.
EMPLOYEE STOCK OPTION PLAN
On March 24, 1997, the Company adopted and its stockholder approved the 1997
Stock Option Plan (the "Stock Option Plan"). The Stock Option Plan provides
for the grant of options that are intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") to employees of the Company, its subsidiaries to be obtained in
the reorganization described in Note 1, and ITC Holding, as well as the grant
of non-qualifying options to any other individual whose participation in the
Stock Option Plan is determined to be in the best interests of the Company.
The Stock Option Plan authorizes the issuance of up to 1.5 million shares of
Class A Common Stock pursuant to options granted under the Stock Option Plan
(subject to anti-dilution adjustments in the event of a stock split,
recapitalization or similar transaction). The maximum number of shares subject
to options that can be awarded under the Stock Option
F-7
<PAGE>
ITC/\DELTACOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Plan to any person is 500,000 shares. The Compensation Committee of the Board
of Directors will administer the Stock Option Plan and will grant options to
purchase Class A Common Stock.
The option exercise price for incentive stock options granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
Class A Common Stock on the date of grant of the option (or 110% in the case
of an incentive stock option granted to an optionee beneficially owning more
than 10% of the outstanding Class A Common Stock). The option exercise price
for non-incentive stock options granted under the Stock Option Plan may not be
less than the par value of the Class A Common Stock on the date of grant of
the option. The maximum option term is 10 years (or five years in the case of
an incentive stock option granted to an optionee beneficially owning more than
10% of the outstanding Class A Common Stock). There is also a $100,000 limit
on the value of Class A Common Stock (determined at the time of grant) covered
by incentive stock options that become exercisable by an optionee in any year.
Options granted will become exercisable with respect to 50% of the shares
subject to the options on the second anniversary of the date of grant and with
respect to 25% of the shares subject to the options on each of the third and
fourth anniversaries of the date of grant.
The Board of Directors may amend or terminate the Stock Option Plan with
respect to shares of Class A Common Stock as to which options have not been
granted.
On March 24, 1997, the Company granted options to purchase 789,000 shares of
Class A Common Stock under the Stock Option Plan. All options were granted at
a price at least equal to the estimated fair value of the common stock on the
date of grant ($7.20) as determined by the Company's stockholder's board of
directors based on equity transactions and other analyses. On July 29, 1997,
the Company granted options to purchase 105,254 shares of Class A Common Stock
under The Stock Option Plan. All options were granted at a price at least
equal to the estimated fair value of the common stock on the date of grant
($7.20) as determined by the Company's stockholder's board of directors based
on equity transactions and other analyses.
DIRECTORS STOCK OPTION PLAN
On March 24, 1997, the Company adopted and its stockholder approved the
Directors Stock Option Plan (the "Directors Plan"). The Directors Plan
provides for the "formula" grant of options that are not intended to qualify
as "incentive stock options" under Section 422 of the Code to directors of the
Company who are not officers or employees of the Company, ITC Holding, or any
subsidiary of the Company (each an "Eligible Director"). The Directors Plan
authorizes the issuance of up to 150,000 shares of Class A Common Stock
pursuant to options granted under the Directors Plan (subject to anti-dilution
adjustments in the event of a stock split, recapitalization or similar
transaction). The option exercise price for options granted under the
Directors Plan will be 100% of the fair market value of the shares of Class A
Common Stock on the date of grant of the option. Under the Directors Plan,
each Eligible Director will be granted an option to purchase 10,000 shares of
Class A Common Stock upon such person's initial election or appointment to
serve as director. Options granted will become exercisable with respect to 50%
of the shares subject to the options on the second anniversary of the date of
grant and with respect to 25% of the shares subject to the options on each of
the third and fourth anniversaries of the date of grant. The options will
expire ten years and 30 days after the date of grant.
On March 24, 1997, the Company granted options to purchase 10,000 shares of
the Company's Class A common stock to each of its six nonemployee directors.
All options were granted at a price equal to the estimated fair value of the
common stock on the date of grant ($7.20) as determined by the Company's
stockholder's board of directors based on equity transactions and other
analyses.
F-8
<PAGE>
ITC/\DELTACOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to account
for options granted to employees under APB Opinion No. 25, under which no
compensation cost has been recognized. Options granted to non-employees, if
any, will be accounted for under SFAS No. 123 and compensation expense equal
to the fair value of the options granted will be recognized.
4. FINANCING ARRANGEMENTS
Senior Notes Offering
On June 3, 1997, the Company completed the issuance of $200 million
principal amount of 11% Senior Notes due 2007 (the "Offering"). Proceeds from
the Offering were held by the trustee until all regulatory approvals related
to the reorganization described in Note 1 were received. On July 25, 1997, the
reorganization was completed and the proceeds from the Offering were released
to the Company. In accordance with the Indenture related to the Notes,
approximately $62.7 million of the approximately $192.7 million net proceeds
was invested in U.S. government securities, which are in a pledged account
held by the Trustee to secure and fund the first six interest payments on the
Notes. Additionally, approximately $99.6 million of the net proceeds was used
to repay outstanding debt and related accrued interest owed by the Company's
subsidiaries. The Company intends to use the remaining approximately $30.4
million of net proceeds (i) to fund market expansion activities of the
Company's telecommunications business, including development and construction
costs of the Company's fiber optic network and its regional sales offices, and
(ii) for additional working capital and other general corporate purposes,
including the funding of cash flow deficits (after capital expenditures).
Pending such uses, the Company has invested such amounts in U.S. government
securities.
Credit Agreement
On September 17, 1997, FiberNet entered into a credit agreement with
NationsBank of Texas, N.A., as administrative lender (the "Credit Agreement").
The Credit Agreement provides for a term and revolving credit facility of up
to $100 million to be used for working capital and other purposes, including
refinancing existing indebtedness, capital expenditures, and permitted
acquisitions. The Credit Agreement matures on September 15, 2002 and includes
a $50 million multi-draw term loan facility and a $50 million revolving credit
facility. Amounts may be drawn under the term loan facility until September
15, 1999. All $50 million of the term loan facility must be utilized before
drawing down any amount over $10 million under the revolving credit facility.
Amounts drawn under the Credit Agreement will bear interest, at FiberNet's
option, at either the Base Rate of the LIBOR Rate, plus an applicable margin.
Borrowings under the Credit Agreement are guaranteed by the Companies and
are secured by a first priority lien on substantially all current and future
assets and properties of FiberNet and its subsidiaries and a first priority
pledge of the stock of FiberNet and its subsidiaries. The Credit Agreement
contains covenants limiting the Companies ability to incur debt or make
guaranties, create liens, pay dividends, make distributions or stock
repurchases, make investments or capital expenditures, issue capital stock,
engage in transactions with affiliates, sell assets, and engage in mergers and
acquisitions. The Credit Agreement also requires FiberNet to comply with
certain financial tests and to maintain certain financial ratios on a
consolidated basis.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interstate FiberNet, Inc. (formerly ITC Transmission Systems, Inc.),
ITC Transmission Systems II, Inc.,
Gulf States Transmission Systems, Inc.,
Eastern Telecom, Inc., d.b.a. InterQuest, and
DeltaCom, Inc.:
We have audited the accompanying combined balance sheets of INTERSTATE
FIBERNET, INC., (FORMERLY ITC TRANSMISSION SYSTEMS, INC.) (a Delaware
corporation), ITC TRANSMISSION SYSTEMS II, INC. (a Delaware corporation), GULF
STATES TRANSMISSION SYSTEMS, INC. (a Delaware corporation), EASTERN TELECOM,
INC., D.B.A. INTERQUEST (a Georgia corporation), AND DELTACOM, INC. (an
Alabama corporation) (collectively referred to as the "Companies" and
contributed to ITC/\DeltaCom, Inc. in connection with the reorganization as
discussed in Notes 1 and 16) as of December 31, 1995 and 1996 and the related
combined statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1996. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Companies as of December 31, 1995 and 1996 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 27, 1997 (except with respect to Note 16, as to which the dateis
September 17, 1997)
F-10
<PAGE>
ITC/\DELTACOM, INC.
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
ITC TRANSMISSION SYSTEMS II, INC.,
GULF STATES TRANSMISSION SYSTEMS, INC.,
EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
DELTACOM, INC.
(REORGANIZED AS ITC/\DELTACOM, INC.)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 656,096 $ 1,301,415 $ 5,478,614
Restricted assets.................... 0 0 194,775,128
Accounts receivable:
Customer, net of allowance for
uncollectible accounts of $35,787,
$856,858 and $1,019,606 in 1995,
1996 and 1997, respectively......... 1,577,037 11,029,037 17,308,908
Affiliate............................ 84,796 1,227,661 178,360
Inventory............................ 0 543,447 630,431
Prepaid expenses..................... 220,022 1,191,287 1,348,767
Federal income tax refunds receivable
from Parent (Note 8)................ 523,782 2,546,534 663,200
Deferred income taxes (Note 8)....... 85,357 525,660 364,302
----------- ------------ ------------
Total current assets............... 3,147,090 18,365,041 220,747,710
----------- ------------ ------------
PROPERTY, PLANT, AND EQUIPMENT, NET
(NOTE 3)............................. 9,386,444 31,880,556 115,852,080
OTHER LONG-TERM ASSETS:
Intangible assets, net of accumulated
amortization of $58,695, $1,431,753
and $1,973,562 in 1995, 1996 and
1997, respectively (Note 4)......... 1,721,871 55,517,575 65,397,003
Investments (Note 5)................. 6,653,079 7,424,797 5,000
Other long-term assets............... 13,853 20,010 13,928
----------- ------------ ------------
Total assets....................... $20,922,337 $113,207,979 $402,015,721
=========== ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade................................ $ 376,799 $ 4,192,927 $ 7,130,290
Construction......................... 1,020,904 972,215 3,664,666
Affiliate (Note 12).................. 577,439 658,990 0
Accrued interest expense payable to
Parent.............................. 0 5,830,716 9,011,106
Accrued compensation................. 275,856 1,189,395 1,391,633
Unearned revenue..................... 248,459 762,829 3,178,367
Other accrued liabilities............ 214,769 983,270 3,871,230
Advances from Parent................. 0 0 79,886,220
Current portion of long-term debt
(Note 6)............................ 675,000 290,140 43,875,381
Current portion of capital lease
obligations (Note 6)................ 0 69,471 563,153
----------- ------------ ------------
Total current liabilities.......... 3,389,226 14,949,953 152,572,046
----------- ------------ ------------
LONG-TERM LIABILITIES:
Advance from Parent (Note 7)......... 1,456,477 74,227,827 0
Deferred income taxes (Note 8)....... 757,098 3,918,140 4,402,511
Long-term debt (Note 6).............. 1,012,500 640,112 208,611,385
Capital lease obligations (Note 6)... 0 215,421 2,979,207
----------- ------------ ------------
Total long-term liabilities........ 3,226,075 79,001,500 215,993,103
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES
6, 7, 10, AND 16)
STOCKHOLDER'S EQUITY:
Common stock (Note 9)................ 26 826 150,826
Additional paid-in capital........... 14,633,723 23,492,162 40,814,227
Accumulated deficit.................. (326,713) (4,236,462) (7,514,481)
----------- ------------ ------------
Total stockholder's equity......... 14,307,036 19,256,526 33,450,572
----------- ------------ ------------
Total liabilities and stockholder's
equity............................ $20,922,337 $113,207,979 $402,015,721
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-11
<PAGE>
ITC/\DELTACOM, INC.,
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.),
ITC TRANSMISSION SYSTEMS II, INC.,
GULF STATES TRANSMISSION SYSTEMS, INC.,
EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
DELTACOM, INC.
(REORGANIZED AS ITC/\DELTACOM, INC.)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------- -----------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $4,945,902 $5,750,587 $66,518,585 $28,574,799 $53,365,061
COST OF SERVICES........ 2,484,744 3,149,231 38,756,287 16,129,463 25,302,747
---------- ---------- ----------- ----------- -----------
GROSS MARGIN............ 2,461,158 2,601,356 27,762,298 12,445,336 28,062,314
---------- ---------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, operations,
and administration... 948,230 1,626,678 18,876,572 8,206,621 16,961,324
Depreciation and
amortization......... 738,052 1,267,882 6,438,074 2,832,017 8,273,232
---------- ---------- ----------- ----------- -----------
Total operating
expenses........... 1,686,282 2,894,560 25,314,646 11,038,638 25,234,556
---------- ---------- ----------- ----------- -----------
OPERATING INCOME
(LOSS)................. 774,876 (293,204) 2,447,652 1,406,698 2,827,758
---------- ---------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Equity in losses of
unconsolidated
subsidiary (Note 5).. (96,920) (258,242) (1,589,812) (1,088,404) 0
Interest expense...... (273,759) (297,228) (6,172,421) (2,762,757) (7,561,591)
Interest and other
income (other
expense)............. 82,348 41,734 171,514 107,216 883,388
---------- ---------- ----------- ----------- -----------
Total other
expense............ (288,331) (513,736) (7,590,719) (3,743,945) (6,678,203)
---------- ---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES,
PREACQUISITION EARNINGS
(LOSSES) AND
EXTRAORDINARY ITEM..... 486,545 (806,940) (5,143,067) (2,337,247) (3,850,445)
INCOME TAX PROVISION
(BENEFIT).............. 113,248 (302,567) (1,233,318) 671,467 1,005,809
---------- ---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
PREACQUISITION EARNINGS
(LOSSES) AND
EXTRAORDINARY ITEM..... 373,297 (504,373) (3,909,749) (1,665,780) (2,844,636)
PREACQUISITION EARNINGS
(LOSSES) (NOTE 1)...... 236,300 0 0 0 74,132
---------- ---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... 136,997 (504,373) (3,909,749) (1,665,780) (2,770,504)
EXTRAORDINARY ITEM--
LOSS ON EXTINGUISHMENT
OF DEBT (LESS RELATED
INCOME TAX BENEFITS OF
$311,057).............. 0 0 0 0 (507,515)
---------- ---------- ----------- ----------- -----------
NET INCOME (LOSS)....... $ 136,997 $ (504,373) $(3,909,749) $(1,665,780) $(3,278,019)
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-12
<PAGE>
ITC/\DELTACOM, INC.
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
ITC TRANSMISSION SYSTEMS II, INC.,
GULF STATES TRANSMISSION SYSTEMS, INC.,
EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
DELTACOM, INC.
(REORGANIZED AS ITC/\DELTACOM, INC.)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS TOTAL
--------------- PAID-IN (ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------ -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1993................... 630 $ 6 $ 2,131,494 $ 40,663 $ 2,172,163
Capital contribution
from Parent for for-
mation of ITC Trans-
mission Systems II,
Inc. and acquisition
of 51% interest in
Interstate FiberNet
(Note 5)............. 1,000 10 4,567,407 0 4,567,417
Capital contribution
from Parent for for-
mation of Gulf States
Transmission Systems,
Inc.................. 1,000 10 6,999,990 0 7,000,000
Return of capital con-
tribution to Parent.. 0 0 (115,168) 0 (115,168)
Net income............ 0 0 0 136,997 136,997
------ -------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1994................... 2,630 26 13,583,723 177,660 13,761,409
Capital contributions
from Parent, net..... 0 0 1,050,000 0 1,050,000
Net loss.............. 0 0 0 (504,373) (504,373)
------ -------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1995................... 2,630 26 14,633,723 (326,713) 14,307,036
Acquisition of
DeltaCom, Inc. (Note
13).................. 80,000 800 5,999,200 0 6,000,000
Capital contributions
from Parent, net..... 0 0 2,859,239 0 2,859,239
Net loss.............. 0 0 0 (3,909,749) (3,909,749)
------ -------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1996................... 82,630 826 23,492,162 (4,236,462) 19,256,526
Capital contributions
from Parent, net..... 0 0 17,322,065 0 17,322,065
Initial capitalization
of ITC/\DeltaCom..... 0 150,000 0 0 150,000
Net loss.............. 0 0 0 (3,278,019) (3,278,019)
------ -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1997
(UNAUDITED)............ 82,630 $150,826 $40,814,227 $(7,514,481) $33,450,572
====== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-13
<PAGE>
ITC/\DELTACOM, INC.,
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.),
ITC TRANSMISSION SYSTEMS II, INC.,
GULF STATES TRANSMISSION SYSTEMS, INC.,
EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
DELTACOM, INC.
(REORGANIZED AS ITC/\DELTACOM, INC.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ---------------------------
1994 1995 1996 1996 1997
------------ ----------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ 136,997 $ (504,373) $ (3,909,749) $ (1,665,780) $ (3,278,019)
------------ ----------- ------------ ------------ -------------
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities (excluding
the effects of
acquisitions):
Depreciation and
amortization......... 738,052 1,267,882 6,438,074 2,832,017 8,334,065
Deferred income
taxes................ 165,195 368,998 611,530 0 104,330
Equity in losses of
investee............. 96,920 258,242 1,589,812 1,088,404 0
Loss on sale of
assets............... 0 73,967 0 0 0
Preacquisition
earnings............. 236,300 0 0 0 (74,132)
Extraordinary item--
Loss on
extinguishment of
debt, net of income
tax benefit.......... 0 0 0 0 507,515
Other................. 48,794 14,326 13,853 13,265 73,369
Changes in current
operating assets and
liabilities:
Accounts receivable.. (1,321,852) 471,988 (2,646,760) (2,110,448) (3,055,995)
Inventory............ 0 0 (182,853) (228,299) (86,984)
Prepaid expenses..... (14,390) (93,563) (246,159) (536,620) (101,682)
Income tax refunds
receivable from
Parent.............. (52,609) (471,619) (2,022,752) 0 (663,200)
Accounts payable..... 491,656 15,083 1,506,728 1,616,103 (505,512)
Accrued interest..... 0 0 5,830,716 2,650,325 3,180,390
Unearned revenue..... 240,234 4,225 514,370 388,927 2,415,538
Accrued compensation
and other accrued
liabilities......... 227,855 31,718 698,290 (1,505,644) 2,563,342
Other, net........... (14,377) 443 (6,482) (93,552) (3,246)
------------ ----------- ------------ ------------ -------------
Total adjustments... 841,778 1,941,690 12,098,367 4,114,478 12,687,798
------------ ----------- ------------ ------------ -------------
Net cash provided by
operating
activities......... 978,775 1,437,317 8,188,618 2,448,698 9,409,779
------------ ----------- ------------ ------------ -------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures... (4,003,835) (2,526,646) (6,003,971) (1,855,798) (14,069,380)
Change in accrued
construction costs.... 300,000 720,904 (168,689) (424,115) 1,711,909
Purchase of
Investments........... 0 0 0 (394,923) 0
Proceeds from sales of
property to
affiliate............. 0 326,984 0 0 0
Investment in Gulf
States FiberNet....... (7,000,000) 0 (2,361,530) (501,595) 0
Purchase of DeltaCom,
net of cash received
(Note 13)............. 0 0 (63,534,092) (63,534,092) 0
Purchase of assets of
Viper Computer
Systems, Inc. (Note
14)................... 0 0 (625,000) 0 0
Purchase of Gulf States
FiberNet, net of cash
received.............. 0 0 0 0 574,600
Purchase of restricted
assets................ 0 0 0 0 194,775,128
------------ ----------- ------------ ------------ -------------
Net cash used in
investing
activities......... (10,703,835) (1,478,758) (72,693,282) (66,710,523) (206,557,999)
------------ ----------- ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-14
<PAGE>
ITC/\DELTACOM, INC.
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
ITC TRANSMISSION SYSTEMS II, INC.,
GULF STATES TRANSMISSION SYSTEMS, INC.,
EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
DELTACOM, INC.
(REORGANIZED AS ITC/\DELTACOM, INC.)
COMBINED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from Senior
Notes................. $ 0 $ 0 $ 0 $ 0 $194,250,000
Proceeds from other
long-term debt........ 2,700,000 0 0 0 41,095,061
Repayment of other
long-term debt and
capital lease obliga-
tions................. (337,500) (675,000) (10,619,682) (10,327,884) (41,562,500)
Proceeds from advance
from Parent........... 854,190 0 74,005,598 74,741,047 8,243,990
Repayment of advance
from Parent........... 0 (195,000) (1,234,248) (1,194,806) (48,329)
Proceeds from common
stock................. 0 0 0 0 150,000
Capital contributions
from Parent, net...... 6,884,832 1,050,000 2,859,239 1,810,412 (624,465)
Repayment of capital
lease obligations..... 0 0 0 (6,000) (184,420)
Proceeds from note re-
ceivable.............. 0 0 139,076 0 6,082
----------- ----------- ------------- ----------- ------------
Net cash provided by
financing activities.. 10,101,522 180,000 65,149,983 65,022,769 201,325,419
----------- ----------- ------------- ----------- ------------
INCREASE IN CASH AND
CASH EQUIVALENTS....... 376,462 138,559 645,319 760,944 4,177,199
----------- ----------- ------------- ----------- ------------
CASH AND CASH EQUIVA-
LENTS AT BEGINNING OF
YEAR................... 141,075 517,537 656,096 656,096 1,301,415
----------- ----------- ------------- ----------- ------------
CASH AND CASH EQUIVA-
LENTS AT END OF YEAR... $ 517,537 $ 656,096 $ 1,301,415 $ 1,417,040 $ 5,478,614
=========== =========== ============= =========== ============
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for inter-
est................... $ 143,762 $ 174,513 $ 280,791 $ 1,217,972 $ 1,034,980
=========== =========== ============= =========== ============
Cash paid for income
taxes, net of refunds
received.............. $ 7,000 $ 11,558 $ 546,501 $ 362,764 $ (621,319)
=========== =========== ============= =========== ============
NONCASH TRANSACTIONS:
Equity portion of ac-
quisition of DeltaCom
(Note 13)............. $ 0 $ 0 $ 6,000,000 $ 6,000,000 $ 0
=========== =========== ============= =========== ============
Assumption of capital
leases related to
acquisition of assets
of Viper Computer
Systems, Inc.
(Note 14)............. $ 0 $ 0 $ 171,683 $ 0 $ 0
=========== =========== ============= =========== ============
Equity portion of
acquisition of 64%
interest in Gulf State
FiberNet and Georgia
Fiber Assets.......... $ 0 $ 0 $ 0 $ 0 $ 17,896,665
=========== =========== ============= =========== ============
Assumption of long-term
debt related to
acquisition of Georgia
Fiber Assets.......... $ 0 $ 0 $ 0 $ 0 $ 9,964,091
=========== =========== ============= =========== ============
Offset of Advances to
Parent as a reduction
to related advances
from Parent........... $ 0 $ 0 $ 0 $ 0 $ 2,546,534
=========== =========== ============= =========== ============
Accrued debt issuance
costs related to
Notes................. $ 0 $ 0 $ 0 $ 0 $ 289,220
=========== =========== ============= =========== ============
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-15
<PAGE>
ITC/\DELTACOM, INC.
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
ITC TRANSMISSION SYSTEMS II, INC.,
GULF STATES TRANSMISSION SYSTEMS, INC.,
EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
DELTACOM, INC.
(REORGANIZED AS ITC/\DELTACOM, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION, BASIS OF PRESENTATION, AND NATURE OF BUSINESS
Organization
InterState FiberNet, Inc. (formerly ITC Transmission Systems, Inc.)
("FiberNet"), ITC Transmission Systems II, Inc. ("Transmission II"), Gulf
States Transmission Systems, Inc. ("GSTS"), and Eastern Telecom, Inc. d.b.a.
InterQuest ("InterQuest") (collectively, the "Fiber Companies"), as well as
DeltaCom, Inc. ("DeltaCom"), are all wholly owned subsidiaries of ITC Holding
Company, Inc. (the "Parent"). ITC/\DeltaCom, Inc. ("ITC/\DeltaCom") was
incorporated on March 24, 1997 under the laws of the State of Delaware, as a
wholly owned subsidiary of the Parent, to acquire and operate the Fiber
Companies and DeltaCom. Upon receipt of certain regulatory approvals and
certain other consents, on July 25, 1997 the Parent completed the
reorganization of such subsidiaries (the "Reorganization"), as follows:
a. InterQuest and Transmission II were merged with and into FiberNet.
b. The Parent contributed all of the issued and outstanding capital
stock of FiberNet, DeltaCom and GSTS to ITC/\DeltaCom Inc.
c. ITC/\DeltaCom contributed all of the outstanding capital stock of
DeltaCom and GSTS to FiberNet.
As a result of the Reorganization, ITC/\DeltaCom became the sole stockholder
of FiberNet and FiberNet became the sole stockholder of both GSTS and
DeltaCom. ITC/\DeltaCom, FiberNet, Transmission II, GSTS, InterQuest, and
DeltaCom are collectively referred to herein as the "Companies."
At December 31, 1996, FiberNet and Transmission II together held 100% of the
ownership interests in Interstate FiberNet ("Interstate"), a Georgia general
partnership (Note 5). Effective with the Reorganization, Interstate was
absorbed by law into FiberNet. GSTS held a 36% ownership in and is the
managing partner of Gulf States FiberNet ("Gulf States"), a Georgia general
partnership (Note 5). Subsequent to year-end, the Parent agreed to purchase
the remaining 64% interest in Gulf States (Note 16).
Basis of Accounting and Financial Statement Presentation
The accompanying combined financial statements of the Companies are prepared
on the accrual basis of accounting and present their combined assets,
liabilities, revenues, expenses, and cash flows as if they existed as a
separate corporation during the periods presented. ITC/\DeltaCom's results of
operations, changes in stockholder's equity, and cash flow have been included
in the combined statements for the period from inception (March 24, 1997)
through June 30, 1997.
The financial information included herein may not necessarily reflect the
financial position, results of operations, or cash flows of the Companies in
the future or what the financial position, results of operations or cash flows
of the Companies would have been if they were combined as a separate stand
alone company during the periods presented.
F-16
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The combined balance sheet as of June 30, 1997 and the combined statements
of operations and cash flows for the six months ended June 30, 1996 and 1997
are unaudited and have been prepared by management of the Companies in
accordance with the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements contain all
adjustments (consisting of only normal recurring items) necessary for the fair
presentation of the financial position and results of operations for the
interim period. The results of operations for the six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the
entire year.
Investments in affiliated entities in which the Companies have at least 20%
ownership and do not have management control are accounted for using the
equity method. All material intercompany accounts and transactions have been
eliminated in the accompanying combined financial statements.
Interstate was initially formed in 1992 as a partnership between FiberNet,
which held a 49% ownership interest, and SCANA Communications, Inc. ("SCANA"),
which held the remaining 51% interest. FiberNet accounted for this investment
using the equity method. On August 17, 1994, the Parent formed Transmission II
and purchased SCANA's 51% interest in Interstate (Note 5). To reflect this
step acquisition, the revenues and expenses of Interstate have been included
in the accompanying statements of operations for the full year ended December
31, 1994, with the preacquisition earnings attributable to SCANA prior to
August 17, 1994 deducted to determine combined net income of the Companies.
On January 29, 1996, the Parent acquired 100% of the common stock of
DeltaCom (Note 13). The acquisition was accounted for using the purchase
method of accounting. The results of operations of DeltaCom have been included
in the accompanying statements of operations since the date of acquisition.
Gulf States was initially formed in 1994 as a partnership between GSTS,
which held a 36% ownership interest, and SCANA, which held the remaining 64%
interest. GSTS accounted for this investment using the equity method. On March
27, 1997, GSTS purchased SCANA's 64% interest in Gulf States (Note 16). To
reflect this step acquisition, the revenues and expenses of Gulf States have
been included in the statement of operations for the six months ended June 30,
1997, with the preacquisition losses attributable to SCANA prior to March 27,
1997 deducted to determine the combined net loss of the Companies.
Nature of Business
The Companies operate primarily in two business segments. DeltaCom is a
regional long-distance company operating primarily in the State of Alabama.
DeltaCom is engaged in the retail sale of long-distance services such as
traditional switched and dedicated long distance; 800/888 calling; calling
card and operator services; ATM and frame relay; high-capacity broadband
private line services, as well as Intranet, Internet, and Web page hosting and
development services; and customer premises equipment installation and repair.
DeltaCom primarily serves midsized and major regional businesses in the
southern United States (the "Retail Services").
The Fiber Companies are engaged in the sale of long-haul private-line
services on a wholesale basis to other telecommunications companies using
their owned and managed fiber optic network which extends throughout ten
southern states (Arkansas, Texas, Tennessee, Mississippi, Louisiana, Alabama,
Georgia, North Carolina, South Carolina, and Florida) (the "Carriers' Carrier
Services"). The Fiber Companies have been providing Carriers' Carrier Services
since 1992 through their ownership interests in Interstate and, later, Gulf
States (Note 5).
Certain of the Companies have experienced operating losses as a result of
efforts to build their network infrastructure and internal staffing, develop
their systems, and expand into new markets. Assuming financing is available,
all of the Companies expect to continue to focus on increasing their customer
base and expanding their network operations. Accordingly, the Companies expect
that their cost of services, selling, operations, and administration expenses
and capital expenditures will continue to increase significantly, all of which
will have a
F-17
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
negative impact on short-term operating results. In addition, the Companies
may change their pricing policies to respond to a changing competitive
environment. The Companies have entered into a commitment letter with a third-
party lender for a five-year, $100 million secured credit facility and
ITC/\DeltaCom has issued senior notes (Note 16) to refinance certain existing
indebtedness of the Companies and to provide additional funds for the
Companies' expansion plans. In the opinion of management, the Companies' cash
flows from operations and existing credit position, combined with management's
ability to scale back expansion plans if necessary, will be sufficient to meet
the capital and operating needs of the Companies through at least 1997.
However, there can be no assurance that growth in the Companies' revenue or
customer base will continue or that the Companies will be able to achieve or
sustain profitability and/or positive cash flow.
Sources of Supplies
The Companies voluntarily use a single vendor for transmission equipment
used in the Companies' network. However, if this vendor were unable to meet
the Companies' needs, management believes that other sources for this
equipment exist on commensurate terms and that operating results would not be
adversely affected.
Credit Risk and Significant Customers
The Companies' accounts receivable potentially subject the Companies to
credit risk, as collateral is generally not required. The Companies' risk of
loss is limited due to advance billings to certain customers for services and
the ability to terminate access on delinquent accounts. The concentration of
credit risk is mitigated by the large number of customers comprising the
customer base. In 1996 and 1994, no customer represented more than 10% of the
Companies' combined operating revenues. However, in 1995, one customer
represented approximately 30% of the Companies' combined operating revenues.
Regulation
The Companies are subject to certain regulations and requirements of the
Federal Communications Commission and various state public service
commissions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting 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.
Cash and Cash Equivalents
The Companies consider all short term highly liquid investments with an
original maturity date of three months or less to be cash equivalents.
Inventory
Inventory is held only by DeltaCom and consists primarily of customer
premise equipment held for resale.
Inventory is valued at the lower of cost or market, with cost determined
using the first in, first out method.
F-18
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are recorded at cost or fair market value at the
acquisition date (Note 3). Depreciation of property and equipment is provided
using the composite or straight line method over the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and towers................................................. 30
Office furniture, fixtures, and equipment............................ 3 to 15
Vehicles............................................................. 5
Telecommunications equipment......................................... 5 to 20
</TABLE>
Intangible Assets
Intangible assets include the excess of the purchase price of acquisitions
over the fair value of net assets acquired, as well as various other acquired
intangibles. Intangible assets are amortized over the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Goodwill............................................................. 40
Trademark............................................................ 40
Customer base........................................................ 5 to 12
Noncompete agreements................................................ 5
</TABLE>
At June 30, 1997, intangible assets also include debt issuance costs
associated with ITC/\DeltaCom's offering of Senior Notes (Note 16) as well as
the Bridge Facility (Note 16), which will be amortized over the life of the
related debt.
Long-Lived Assets
The Companies adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121 establishes
accounting standards for the impairment of long lived assets and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangible assets to be disposed of. The effect of
adopting SFAS No. 121 was not material to the Companies' combined financial
statements.
The Companies review their intangible assets for impairment at each balance
sheet date or whenever events or changes in circumstances indicate that the
carrying amount of an asset should be assessed. Management evaluates the
intangible assets related to each acquisition individually to determine
whether an impairment has occurred. An impairment is recognized when the
discounted future cash flows estimated to be generated by the acquired
business are sufficient to recover the current unamortized balance of the
intangible asset with the amount of any such deficiency charged to income in
the current year. Estimates of future cash flows are based on many factors,
including current operating results, expected market trends, and competitive
influences.
Unearned Revenue
Unearned revenue represents the liability for advanced billings to customers
for use of the Companies' fiber- optic network. Customers are billed in
advance for fixed monthly charges.
Unbilled Revenue
DeltaCom records unbilled revenue for long-distance services provided to
customers but not yet billed. Approximately $3.4 million in unbilled revenue
is included in accounts receivable in the accompanying balance sheet at
December 31, 1996.
F-19
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Companies utilize the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.
The Internal Revenue Code and applicable state statutes provide that the
income and expenses of a partnership are not separately taxable to the
partnership but rather accrue directly to the partners. Accordingly, the
accompanying financial statements include provisions for federal and state
income taxes related to partnership interests in Interstate and Gulf States
held by FiberNet, Transmission II, and GSTS.
The Companies are included in the consolidated federal income tax return of
the Parent. Under a tax-sharing arrangement, the Companies are paid for the
utilization of net operating losses included in the consolidated tax return,
even if such losses could not have been used if the Companies were to have
filed on a separate return basis.
Revenue Recognition
Revenues are recognized as services are provided and consist primarily of
charges for use of long-distance services and for use of the Companies' fiber-
optic network.
Fair Value of Financial Instruments
The carrying values of the Companies' financial instruments, other than the
portion of their advance from the Parent related to the DeltaCom acquisition,
approximate their fair values. See Note 7 for the terms of the advance from
the Parent and the related interest swap agreements under which DeltaCom would
receive $285,308 if the agreements were terminated at December 31, 1996.
Advertising Costs
The Companies expense all advertising costs as incurred.
3. PROPERTY AND EQUIPMENT
Balances of major classes of assets and the related accumulated depreciation
as of December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Land................................................. $ 0 $ 140,695
Buildings and towers................................. 788,107 1,293,495
Furniture and fixtures............................... 1,219,792 4,140,188
Vehicles............................................. 31,610 287,219
Telecommunications equipment......................... 7,598,308 32,321,553
---------- -----------
9,637,817 38,183,150
Less accumulated depreciation........................ 1,511,374 6,569,908
---------- -----------
Net property, plant, and equipment in service........ 8,126,443 31,613,242
Assets under construction............................ 1,260,001 267,314
---------- -----------
Property, plant, and equipment, net.................. $9,386,444 $31,880,556
========== ===========
</TABLE>
F-20
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. INTANGIBLE ASSETS
Goodwill and other intangible assets and the related amortization as of
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Goodwill............................................ $1,780,566 $50,961,123
Customer base....................................... 0 5,846,371
Noncompete agreements............................... 0 102,000
Trademark........................................... 0 39,834
---------- -----------
1,780,566 56,949,328
Less accumulated amortization....................... (58,695) (1,431,753)
---------- -----------
Intangibles, net.................................... $1,721,871 $55,517,575
========== ===========
</TABLE>
At December 31, 1995, all goodwill related to the acquisition of Interstate
in 1994 (Note 5). See Notes 14 and 15 for a discussion of additional
intangible assets recorded in 1996 related to the acquisitions of DeltaCom and
the assets of Viper Computer Systems, Inc. ("ViperNet").
5. INVESTMENTS
Gulf States
At December 31, 1995 and 1996, investments represent GSTS's 36% ownership
interest in Gulf States, which was formed as a partnership between GSTS and
SCANA in 1994. Gulf States provides digital communications transport services
to communications common carriers in the states of Georgia, Texas, Alabama,
Mississippi, and Louisiana. GSTS is the managing partner and is responsible
for managing and operating Gulf States. Subsequent to year-end, the Parent
agreed to purchase the remaining 64% interest in Gulf States previously owned
by SCANA (Note 16). The following table summarizes various financial data of
Gulf States for the period from inception (August 17, 1994) to December 31,
1994 and for the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues.................... $ 127,569 $ 7,587,713 $10,056,544
Operating (loss) income............... (280,718) 1,214,409 (216,992)
Net loss.............................. (269,222) (717,340) (4,416,142)
Current assets........................ 590,040 6,557,741 2,751,101
Noncurrent assets..................... 42,950,641 64,206,522 63,820,143
Current liabilities................... 10,753,346 9,831,768 9,432,588
Noncurrent liabilities................ 12,700,000 41,562,500 35,625,000
</TABLE>
Interstate
FiberNet owned a 49% interest in Interstate. On August 17, 1994, the Parent
exchanged 250,000 shares of its common stock, valued at $4,435,000, for
SCANA's 51% interest in Interstate and paid $132,417 in related expenses.
Simultaneously, the Parent formed Transmission II, transferred the 51%
ownership interest in Interstate to Transmission II, and made an equity
contribution to Transmission II equal to the value of the net assets acquired.
Goodwill of $1,780,566 related to this transaction has been "pushed down" to
the accounts of Transmission II. The goodwill represents the excess of the
purchase price paid for the 51% ownership interest in Interstate over the fair
market value of the net assets acquired.
F-21
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
To reflect this step acquisition, the revenues and expenses of Interstate
for the year ended December 31, 1994 have been included in the accompanying
statements of operations, with the preacquisition earnings attributable to
SCANA deducted to determine combined net income of the Companies. In addition,
the statement of cash flows for the year ended December 31, 1994 reflects all
cash flows of Interstate during the year. The statement of stockholder's
equity reflects the step acquisition as a capital contribution to FiberNet
during 1994.
As discussed in Note 1, effective with the Reorganization, the partners of
Interstate merged and the partnership was absorbed by law into FiberNet.
6. FINANCING OBLIGATIONS
Long-Term Debt
Long-term debt at December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Borrowings under NationsBank of Georgia, N.A. credit
agreement (up to $2,700,000), 8% interest; due in
quarterly installments of $168,750 through September
1998; secured by the assets of Interstate; all
outstanding amounts were repaid during 1996............ $1,687,500 $ 0
Installment payments on equipment due to Northern
Telecom, payable in annual installments of $351,370;
due June 1, 1999; interest rate imputed at 8.6%........ 0 930,252
---------- ---------
1,687,500 930,252
Less current maturities................................. (675,000) (290,140)
---------- ---------
Long-term debt, net of current portion.................. $1,012,500 $ 640,112
========== =========
</TABLE>
Maturities of long term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................ $290,140
1998................................................................ 306,862
1999................................................................ 333,250
2000................................................................ 0
2001................................................................ 0
Thereafter.......................................................... 0
--------
$930,252
========
</TABLE>
Long term debt at June 30, 1997 consisted of the following (unaudited):
<TABLE>
<S> <C>
11% Senior Notes Due 2007 (Note 16)............................ $200,000,000
$41.6 million bridge facility, interest payable at LIBOR plus
2.25% (8.25% at June 30, 1997), paid in full on July 25, 1997
(Note 16)..................................................... 41,600,000
$10.0 million term facility, interest payable at 11%, maturing
on March 31, 2002............................................. 9,964,091
Other.......................................................... 922,675
------------
Total long-term debt .......................................... 252,486,766
Less: current maturities....................................... 43,875,381
------------
Total.......................................................... $208,611,385
============
</TABLE>
F-22
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
LEASE OBLIGATIONS
The Companies have entered into various operating and capital leases for
facilities and equipment used in their operations. Aggregate future minimum
rental commitments under noncancelable operating leases with original or
remaining periods in excess of one year and maturities of capital lease
obligations as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- --------
<S> <C> <C>
1997................................................. $ 2,156,464 $ 90,139
1998................................................. 2,694,668 89,678
1999................................................. 2,583,231 45,643
2000................................................. 1,937,701 21,981
2001................................................. 1,769,097 19,004
Thereafter........................................... 7,987,843 99,797
----------- --------
$19,129,004 366,242
===========
Less amounts representing interest................... (81,350)
--------
Present value of net minimum lease payments.......... 284,892
Less current portion................................. (69,471)
--------
Obligations under capital lease, net of current por-
tion................................................ $215,421
========
</TABLE>
Rental expense charged to operations for the years ended December 31, 1994,
1995, and 1996 was $63,251, $74,534, and $1,272,389, respectively.
7. ADVANCE FROM PARENT
The advance from Parent reflected on the Companies' balance sheets includes
the following at December 31, 1995 and 1996.
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
DeltaCom advance from Parent related to acquisi-
tion............................................. $ 0 $74,005,598
Cash advance from Parent to InterQuest............ 1,456,477 1,267,143
Cash advance to Parent from DeltaCom.............. 0 (1,044,914)
---------- -----------
Total advance from Parent......................... $1,456,477 $74,227,827
========== ===========
</TABLE>
DeltaCom Advance From Parent Related to Acquisition
As discussed in Note 12, the Parent funded the acquisition of DeltaCom and
the related refinancing of DeltaCom's outstanding debt through borrowings of
$74,005,598 on its own credit facility (the "Parent Credit Facility") with
First Union National Bank of North Carolina ("First Union") and CoBank, ACB
("CoBank"). These borrowings have been pushed down to the accounts of the
Company through the advance from Parent account under terms substantially
identical to those of the Parent Credit Facility.
The Parent Credit Facility is a two year line of credit providing for
borrowings of up to $127.5 million on a two year revolving basis. The
available credit was initially split equally between CoBank ("Tranche A") and
First Union ("Tranche B"); however, First Union subsequently syndicated
Tranche B to several other lenders. On January 19, 1998, the Parent may elect
to convert all outstanding balances to a five year term loan with quarterly
principal payments through December 31, 2002. Loans made under the Parent
Credit Facility may, at any time or from time to time, be repaid in whole or
in part, upon certain notices to the administrative agent. As of December 31,
1996, the Parent had $86 million outstanding under this agreement.
F-23
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Interest on the Parent Credit Facility is calculated on a 360 day year, at
the option of the Parent, as follows:
. Tranche A--"Margin" plus either (a) prime, (b) 1-, 2-, 3-, or 6-month
LIBOR, or (c) one year Treasury
. Tranche B--"Margin" plus either (a) prime or (b) 1-, 2-, 3-, or 6-month
LIBOR
The applicable "Margin" varies based on the Parent's leverage ratio and is
adjusted quarterly. At December 31, 1996, the interest rate for both tranches
was calculated based on the applicable margin (2.25%) plus the 3 month LIBOR
rate (5.53125%).
The Parent has also entered into a forward starting interest rate swap
agreement with First Union to hedge its interest rate exposure under the
Parent Credit Facility. The agreement swaps notional amounts of $50 million
and $41 million under the Parent Credit Facility with fixed rates of 8.66% and
8.53%, respectively. As of December 31, 1996, DeltaCom's proportionate share
of the fee the Parent would receive upon termination of the swap agreement was
$285,308. Upon the Reorganization (Note 16), DeltaCom will repay its portion
of these borrowings at an interest rate of 8.595%, which approximates the
Parent's average interest rate under these interest rate swap agreements. At
December 31, 1996, the balance sheet reflects approximately $5.8 million of
accrued interest related to DeltaCom's advance from Parent.
The Parent Credit Facility includes certain financial covenants and ratios.
At December 31, 1996, the Parent was in compliance with these requirements.
The Parent Credit Facility is jointly and severally guaranteed by the Parent,
the Companies, and other wholly owned or majority owned subsidiaries of the
Parent. The Parent Credit Facility is also secured by substantially all of the
assets of the Parent and the Companies, as well as the assets of other wholly
owned or majority owned subsidiaries of the Parent.
Cash Advance to Parent From DeltaCom
Amounts reflected as cash advance to Parent from DeltaCom represent excess
funds from operations which are loaned to the Parent at an annual interest
rate of 8.25%. DeltaCom recorded interest income of $77,868 during 1996. The
advance is repayable on demand.
Cash Advance From Parent to InterQuest
Amounts reflected as cash advance from Parent to InterQuest represent
borrowings for operating purposes. Interest is payable at a rate equal to the
interest rate on the Parent Credit Facility plus .5%. InterQuest recorded
interest expense of $122,696 and $96,665 in 1995 and 1996, respectively.
8. INCOME TAXES
Details of the income tax provision (benefit) for the years ended December
31, 1994, 1995, and 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Current:
Federal................................. $ 3,040 $(628,795) $(1,804,786)
State................................... (1,453) (42,770) (48,829)
-------- --------- -----------
Total current......................... 1,587 (671,565) (1,853,615)
-------- --------- -----------
Deferred:
Federal................................. 95,812 385,742 660,033
State................................... 15,849 (16,744) (39,736)
-------- --------- -----------
Total deferred........................ 111,661 368,998 620,297
-------- --------- -----------
Total provision (benefit)............. $113,248 $(302,567) $(1,233,318)
======== ========= ===========
</TABLE>
F-24
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities, as of December
31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Noncurrent deferred tax (liabilities) assets:
Property, plant, and equipment basis differ-
ences........................................... $(784,435) $(3,903,605)
Intangible assets................................ (48,109) (57,849)
Other............................................ 75,446 43,314
--------- -----------
(757,098) (3,918,140)
--------- -----------
Current deferred tax assets:
Accrued expenses................................. 0 80,245
Net operating loss carryforwards................. 77,526 130,912
Reserves for uncollectible accounts.............. 7,831 314,503
--------- -----------
85,357 525,660
--------- -----------
Net deferred income tax liabilities................ $(671,741) $(3,392,480)
========= ===========
</TABLE>
The Companies are included in the Parent's consolidated federal income tax
return. Prior to January 29, 1996, DeltaCom filed a separate federal income
tax return. The Companies each file separate state income tax returns.
Under a tax-sharing arrangement, the Companies receive payment for net
operating losses generated for federal income tax purposes and used by the
Parent in the Parent's consolidated income tax return. Amounts receivable from
the Parent under this tax-sharing agreement are $523,782 and $2,546,534 at
December 31, 1995 and 1996, respectively. Additionally, certain of the
Companies have generated net operating losses for state income tax purposes.
At December 31, 1995 and 1996, $77,526 and $130,912 respectively, have been
included in current assets in the Companies' balance sheets. Loss
carryforwards of approximately $11,000, $67,000, and $53,000 will expire in
2009, 2010, and 2011, respectively. In management's opinion, the Companies
will generate operating income sufficient to utilize all of the remaining
state net operating loss carryforwards in 1997.
A reconciliation of the federal statutory income tax rate to the effective
income tax rate for the periods presented is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------ -----
<S> <C> <C> <C>
Federal statutory rate............................... 34.0% (34.0)% (34.0)%
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit......... 5.5 (5.2) (2.0)
Nondeductible amortization of goodwill............. 0.0 0.0 9.0
Preacquisition earnings............................ (16.5) 0.0 0.0
Other................................................ 0.3 1.7 3.0
----- ------ -----
Effective income tax rate............................ 23.3% (37.5)% (24.0)%
===== ====== =====
</TABLE>
F-25
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. EQUITY INTERESTS
Capital Stock
The common stock authorized, issued, and outstanding at December 31, 1995
and 1996 for each of the Companies is as follows:
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND PAR VALUE
AUTHORIZED OUTSTANDING PER SHARE
---------- ----------- ---------
<S> <C> <C> <C>
FiberNet....................................
Transmission II............................. 10,000 1,000 0.01
GSTS........................................ 10,000 1,000 0.01
InterQuest.................................. 100,000 530 0.01
DeltaCom.................................... 80,000 80,000 0.01
</TABLE>
ITC/\DeltaCom has two classes of common stock authorized. Holders of
ITC/\DeltaCom's Class A Common Stock have one vote per share, while holders of
Class B Common Stock have ten votes per share. Upon the formation of
ITC/\DeltaCom (Note 1), 15,000,000 shares of Class B Common Stock were
outstanding.
Parent Stock Option Plan
The Parent sponsors a stock option plan which provides for the granting of
stock options to substantially all employees of the Parent and its wholly
owned and majority owned subsidiaries, including the Companies. Options are
generally granted at a price (established by the Parent's board of directors
based on equity transactions and other analyses) equal to at least 100% of the
fair market value of the Parent's common stock on the option grant date.
Options granted generally become exercisable 40% after two years and 20% per
annum for the next three years and remain exercisable for ten years after the
option grant date. At December 31, 1996, employees of the Companies held
outstanding options for a total of 314,768 of the Parent's shares at option
prices ranging from $7.60 to $30.50 per share.
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock- Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with
the accounting methodology required by APB Opinion No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
The Parent has elected to account for its stock based compensation plans
under APB Opinion No. 25, under which no compensation cost has been recognized
by either the Parent or the Companies. However, the Companies have computed,
for pro forma disclosure purposes, the value of all options for shares of the
Parent's common stock granted since December 15, 1994 to employees of the
Companies using the Black-Scholes option pricing model prescribed by SFAS No.
123 and the following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Risk-free interest rate................................ 5.53% 6.29%
Expected dividend yield................................ 0% 0%
Expected lives......................................... Ten years TEN YEARS
Expected volatility.................................... 50% 50%
</TABLE>
F-26
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average fair value of options for the Parent's stock granted to
employees of the Companies in 1995 and 1996 was $16.14 and $19.65 per share,
respectively. The total value of options for the Parent's stock granted to
employees of the Companies during 1995 and 1996 was computed as approximately
$257,000 and $4,116,000, respectively, which would be amortized on a pro forma
basis over the five-year vesting period of the options. If the Companies had
accounted for these plans in accordance with SFAS No. 123, the Companies' net
loss for the years ended December 31, 1995 and 1996 would have increased as
follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net loss for the year ended December 31, 1995.... $ (504,373) $ (595,987)
Net loss for the year ended December 31, 1996.... (3,909,749) (5,469,440)
</TABLE>
Because SFAS No. 123 has not been applied to options granted prior to
December 15, 1994, the resulting pro forma compensation cost may not be
representative of that expected in future years.
A summary of the status of the Companies' portion of the Parent's stock
option plan at December 31, 1995 and 1996 and changes during the years then
ended is presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE
SHARES PER SHARE
------- ---------
<S> <C> <C>
Outstanding at December 31, 1994.......................... 94,925 $13.92
Granted................................................. 14,252 21.17
Forfeited............................................... (750) 14.35
-------
Outstanding at December 31, 1995.......................... 108,427 14.87
Granted................................................. 223,081 25.87
Exercised............................................... (840) 16.86
Forfeited............................................... (15,900) 24.55
-------
Outstanding at December 31, 1996.......................... 314,768 22.17
=======
</TABLE>
The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
EXERCISE NUMBER AVERAGE CONTRACTUAL
PRICE RANGE OF SHARES PRICE LIFE
----------- --------- -------- -----------
(IN YEARS)
<S> <C> <C> <C>
$ 7.60-$ 7.99 25,000 $ 7.68 4.95
$14.35 31,300 14.35 7.27
$17.74 38,962 17.74 7.89
$20.00 5,300 20.00 8.43
$24.75-$24.78 170,406 24.78 9.87
$30.02-$30.50 43,800 30.08 9.31
</TABLE>
At December 31, 1996, 51,750 options for the Parent's stock with a weighted
average exercise price of $12.06 per share were exercisable by employees of
the Companies. At December 31, 1995, 26,260 options for the Parent's stock
with a weighted average exercise price of $9.27 per share were exercisable by
employees of the Companies.
F-27
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
At December 31, 1996, the Companies had entered into agreements with vendors
to purchase approximately $5.6 million of equipment related to the
installation of a switch in Columbia, South Carolina, improvements to a switch
in Birmingham, Alabama, and other network expansion efforts.
At June 30, 1997, the Companies had entered into agreements with vendors to
purchase approximately $11.5 million of equipment related to the improvement
and installation of switches, other network expansion efforts and certain
services (unaudited).
Legal Proceedings
In the normal course of business, the Companies are subject to various
litigation; however, in management's opinion and the opinion of counsel, there
are no legal proceedings pending against the Companies which would have a
material adverse effect on the financial position, results of operations, or
liquidity of the Companies.
11. EMPLOYEE BENEFIT PLANS
The Fiber Companies' employees are participants in the Parent's defined
benefit plan. Effective January 31, 1995, the Parent elected to freeze all
future benefit accruals under the plan. The plan provided retirement,
disability, and survivor benefits to eligible employees. The Fiber Companies
funded pension cost in accordance with applicable regulations. Total pension
cost charged to expense in 1994, 1995, and 1996 was $17,805, $8,721, and
$9,600, respectively.
The net assets available for benefits under the plan are maintained by the
Parent on behalf of its subsidiaries. As of December 31, 1995 and 1996, the
plan's net assets available for benefits were $1,878,498 and $1,646,892,
respectively, and the projected benefit obligations were $2,370,391 and
$2,442,917, respectively, as computed under SFAS No. 87.
Employees of the Fiber Companies participate in the Parent's 401(k) defined
contribution plan. This plan, which became effective February 1, 1995, covers
all employees of the participating entities who have one year of service and
are 18 years of age. The Parent contributes a discretionary amount of the
employees' earnings based on the plan's earnings. The discretionary
contribution percentages per employee for the years ended December 31, 1995
and 1996 were 2.53% (limited to a total for all participants of $100,000) and
2.66% (limited to a total for all participants of $150,000), respectively, and
were fully funded by the Parent. In addition, the Fiber Companies offer a
partial matching of employee contributions at a rate of 1/2% for each 1% of
the employee earnings contributed to a maximum match of 4% of employee
earnings. Total matching contributions made to the plan and charged to expense
by the Fiber Companies for the years ended December 31, 1995 and 1996 were
$26,520 and $54,098, respectively.
Employees of DeltaCom may participate in a separately administered 401(k)
defined contribution plan. The plan covers substantially all DeltaCom
employees with at least one year of service. Participants may elect to defer
15% of compensation up to a maximum amount determined annually pursuant to IRS
regulations. DeltaCom has elected to provide matching employer contributions
equal to the lesser of 3% of compensation or the maximum amount annually for
each participant. DeltaCom's policy is to fund contributions as earned.
Company contributions made to the plan and charged to expense by DeltaCom for
the 11 months ended December 31, 1996 were $123,854.
F-28
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
12. RELATED PARTY TRANSACTIONS
The Parent occasionally provides certain administrative services, such as
legal and tax planning services for its subsidiaries, including the Companies.
In addition, for the period from January through July 1994, the Parent
provided FiberNet and InterQuest with additional administrative services,
including marketing, management, and financial services. The costs of these
services are charged to the Companies based primarily on the salaries and
related expenses for certain of the Parent's executives and an estimate of
their time spent on projects specific to the Companies. For the years ended
December 31, 1994, 1995, and 1996, the Companies recorded $148,140, $5,270,
and $19,150 in selling, operations, and administration expenses related to
these services. In the opinion of management, the methodology used to
calculate the amounts charged to the Companies is reasonable.
The Parent also leases office space and transportation to the Companies.
Amounts charged to the Companies related to these leases for the years ended
December 31, 1995 and 1996 were $21,669, and $62,762, respectively, and are
reflected as selling, operations, and administration expenses in the
Companies' statements of operations. No such leases were in place in 1994. See
Notes 7 and 11 for discussion of certain other financial arrangements between
the Parent and the Companies.
Certain of the Parent's other wholly owned or majority-owned subsidiaries
provide the Companies with various services and/or receive services provided
by the Companies. These entities include Interstate Telephone Company and
Valley Telephone Company, which provide local and long-distance telephone
services; InterCall, Inc. ("InterCall"), which provides conference calling
services; and InterServ Services Corporation, which provides operator services
for "800" customer service numbers and full-service marketing research in the
telecommunications industry and other industries. The Parent also holds equity
investments in the following entities which do business with the Companies:
InterCel, Inc., which provides cellular services; KNOLOGY Holdings, Inc.,
formerly CyberNet Holding, Inc. ("KNOLOGY"), which provides cable television
services; and MindSpring Enterprises, Inc. ("MindSpring"), which is a regional
provider of Internet access. In management's opinion, the Companies'
transactions with these affiliated entities are generally representative of
arm's-length transactions.
For the years ended December 31, 1994, 1995, and 1996, the Companies
received services from these affiliated entities in the amounts of $89,149,
$465,167, and $180,400, respectively, which are reflected in selling,
operations, and administration expenses in the Companies' statements of
operations. In addition, in 1996, the Companies received services from these
affiliated entities in the amount of $762,173, which is reflected in cost of
services in the Companies' statements of operations. At December 31, 1995 and
1996, amounts payable for these services of $577,439 and $658,990,
respectively, are recorded in the Companies' balance sheets as affiliate
accounts payable.
The Fiber Companies provide operator and directory assistance services and
lease capacity on certain of their fiber routes to affiliated entities.
Beginning in 1996, DeltaCom also provides long-distance and related services
to the Parent and all of its wholly owned and majority-owned subsidiaries.
Also beginning in 1996, DeltaCom acts as an agent for InterCall and MindSpring
in contracting with major interexchange carriers to provide origination and
termination services. Under these agreements, DeltaCom contracts with the
interexchange carrier and rebills the appropriate access charges plus a margin
to InterCall and MindSpring, such that only the margin impacts the Companies'
combined revenues. Total affiliated revenues included in the Companies'
statements of operations for the years ended December 31, 1994, 1995, and 1996
were $458,302, $486,246, and $2,863,389, respectively. At December 31, 1995
and 1996, amounts receivable for these services were $84,796 and $1,227,661,
respectively, and are recorded in the Companies' balance sheets as affiliate
accounts receivable.
In 1995, the Fiber Companies constructed a fiber route on behalf of
CyberNet. Construction expenses reimbursed by KNOLOGY totaled $62,830. The
Companies also provided certain engineering and construction- related
management services to KNOLOGY in 1995. The Fiber Companies did not bill
KNOLOGY for these services, which are estimated by the Fiber Companies to have
a value of approximately $50,000.
F-29
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DeltaCom has a contract with a former stockholder to provide management
services to DeltaCom through 1997 for $300,000 annually. In addition, DeltaCom
leases real properties from former stockholders and other related parties.
Total rental expense related to these leases was approximately $235,000 in
1996. DeltaCom is obligated to pay rentals to a former stockholder totaling
approximately $181,000 annually from 1997 through 2005 under leases which are
cancelable by either of the parties with 24 months' notice. DeltaCom is also
obligated through 1999 to pay annual rentals ranging from approximately
$74,000 to $81,000 to an officer of a former stockholder.
Relatives of stockholders of the Parent are stockholders and employees of
the Companies' insurance provider. The costs charged to the Companies for
insurance services from this provider were $40,351, $63,836, and $156,523 for
the years ended December 31, 1994, 1995, and 1996.
The chief executive officer of the Fiber Companies, who has been named as
chief executive officer of ITC/\DeltaCom, has also served since July 15, 1996
as president and chief executive officer and as a director of KNOLOGY. He has
served in his capacity as chief executive officer and president of KNOLOGY at
the request of KNOLOGY and the Parent and received no compensation from
KNOLOGY for the year ended December 31, 1996. He resigned as chief executive
officer and president of KNOLOGY effective February 20, 1997. The value of
services provided through February 20, 1997 is estimated to total
approximately $20,000.
13. ACQUISITION OF DELTACOM
On January 29, 1996 (the "Acquisition Date"), DeltaCom was purchased by the
Parent for total consideration of $71,362,213, including cash acquired of
$1,828,121 (the "Acquisition"). The consideration included $65,362,213 in cash
and $6,000,000 in common stock of the Parent. Simultaneously, the Parent
refinanced $8,643,384 of DeltaCom's outstanding debt by borrowing against its
own line of credit and contributing the proceeds to DeltaCom, which then
repaid all of its outstanding debt. The Acquisition was accounted for under
the purchase method of accounting, and the purchase accounting entries were
"pushed down" to DeltaCom's financial statements. The purchase price has been
allocated to the underlying assets purchased and liabilities assumed based on
their estimated fair values at the Acquisition Date. The acquisition costs
exceeded the fair market value of net tangible assets acquired by $54,645,063,
of which $5,464,506 has been allocated to identifiable intangible assets and
the remainder has been recorded as goodwill in the accompanying balance
sheets. Amounts recorded in connection with the "pushdown" include the
$49,180,557 in goodwill, $5,464,506 in customer base, $74,005,598 in debt
related to the Acquisition and debt refinancing, and $6,000,000 in paid-in
capital. The operating results of DeltaCom have been included in the
Companies' financial statements since the Acquisition Date.
The following table summarizes the net assets purchased in connection with
the Acquisition and the amount attributable to cost in excess of net assets
acquired:
<TABLE>
<S> <C>
Working capital, net of $1,828,121 cash acquired............... $ 5,155,221
Property, plant, and equipment................................. 21,357,357
Other assets................................................... 198,920
Noncurrent liabilities......................................... (11,822,469)
Customer base.................................................. 5,464,506
Goodwill....................................................... 49,180,557
------------
Purchase price, net of cash acquired........................... $ 69,534,092
============
</TABLE>
The common stock portion of the Acquisition has been accounted for as a
noncash transaction for purposes of the statements of cash flows.
F-30
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following pro forma information has been prepared assuming that the
Acquisition occurred at the beginning of the respective periods. This
information includes pro forma adjustments related to the amortization of
goodwill resulting from the excess of the purchase price over the fair value
of the net assets acquired and interest expense related to the debt financing
used to acquire DeltaCom. The pro forma information is presented for
informational purposes only and may not be indicative of the results of
operations as they would have been had the Acquisition occurred at the
beginning of the respective periods, nor is the information necessarily
indicative of the results of operations which may occur in the future.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Combined operating revenues........................ $62,021,598 $71,775,516
Combined net loss.................................. (1,826,756) (4,024,866)
</TABLE>
14. ACQUISITION OF VIPERNET
In July 1996, DeltaCom purchased certain assets of ViperNet, which provides
business Internet services, for cash of $625,000 and assumption of capital
lease obligations in the amount of $171,683 (Note 6).
The following table summarizes the net assets purchased by DeltaCom in
connection with its acquisition of ViperNet:
<TABLE>
<S> <C>
Working capital................................................... $ 121,500
Property and equipment............................................ 191,318
Noncompete agreement.............................................. 102,000
Customer base..................................................... 381,865
Liabilities assumed............................................... (171,683)
---------
Cash paid for ViperNet, net assets................................ $ 625,000
=========
</TABLE>
The assumption of the capital lease obligations has been treated as a
noncash transaction for purposes of the statements of cash flows.
F-31
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15. SEGMENT REPORTING
Upon the acquisition of DeltaCom in January 1996 (Note 13), the Companies
began operating in two business segments: Carriers' Carrier Services and
Retail Services. Retail Services are provided by DeltaCom and include the
retail sale of long-distance, data, and Internet services, including the sale
and installation of customer premises equipment primarily to midsized and
major regional business customers. Carriers' Carrier Services are provided by
the Fiber Companies. Carriers' Carrier Services include the sale of long-haul
private line services on a wholesale basis using the Fiber Companies' owned
and managed fiber-optic network. Summarized financial data by business segment
for the year ended December 31, 1996 and as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
CARRIERS'
CARRIER RETAIL
SEGMENT SEGMENT ELIMINATIONS COMBINED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Sales to external custom-
ers..................... $ 6,598,709 $59,919,876 $ 0 $ 66,518,585
Intersegment sales....... 558,312 1,553,445 (2,111,757) 0
----------- ----------- ----------- ------------
Total operating reve-
nues.................. $ 7,157,021 $61,473,321 $(2,111,757) $ 66,518,585
----------- ----------- ----------- ------------
Gross margin............. $ 3,256,596 $24,325,559 $ 180,143 $ 27,762,298
Selling, operations, and
administration expense.. 1,646,277 17,050,152 180,143 18,876,572
Depreciation and amorti-
zation.................. 1,656,685 4,781,389 0 6,438,074
Equity in losses of Gulf
States.................. (1,589,812) 0 0 (1,589,812)
Other income (expense),
net..................... 171,514
Interest expense, net.... (6,172,421)
------------
Loss before income tax-
es...................... $ (5,143,067)
============
Identifiable assets...... 14,597,073 91,592,697 (406,588) $105,783,182
Investment in net assets
of Gulf States.......... 7,424,797 0 0 7,424,797
----------- ----------- ----------- ------------
Total assets............. $22,021,870 $91,592,697 $ (406,588) $113,207,979
=========== =========== =========== ============
Capital expenditures..... $ 1,101,181 $ 5,071,479 $ 0 $ 6,172,660
=========== =========== =========== ============
</TABLE>
16. SUBSEQUENT EVENTS
Acquisition
On March 27, 1997, the Parent purchased the 64% interest in Gulf States
owned by SCANA, along with certain of SCANA's other fiber and fiber-related
assets, including a significant long-term customer contract (the "Georgia
Fiber Assets"), for approximately $28 million payable at closing, plus certain
contingent consideration. The purchase price included 588,411 shares of the
Parent's convertible, nonvoting preferred stock valued at approximately $17.9
million and an unsecured purchase money note for approximately $10 million
(the "SCANA Note"). The purchase price was allocated as follows: $17 million
to the 64% interest in Gulf States and $10.9 million to the Georgia Fiber
Assets. The note, which bears interest at 11%, is payable in ten semiannual
principal payments of approximately $1 million plus accrued interest,
beginning September 30, 1997. The contingent consideration is due no later
than April 30, 1998, at which time the Parent must deliver additional
preferred stock to SCANA equal to 35.7% of (a) 64%, multiplied by (b)(i) 6,
multiplied by (ii) the amount, if any, by which the earnings before interest,
taxes, depreciation, and amortization of Gulf States for the year ended
December 31, 1997 exceed $11,265,696.
Upon the closing of these acquisitions, the Parent contributed the 64%
ownership interest in Gulf States to GSTS and the Georgia Fiber Assets to
FiberNet. The Gulf States partnership has been dissolved. The SCANA Note was
assumed by FiberNet and the Parent was released from its obligations
thereunder.
F-32
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
GSTS Bridge Facility
In connection with the acquisition of the remaining 64% interest in Gulf
States, GSTS refinanced Gulf States' outstanding indebtedness of approximately
$41.6 million. In connection with the refinancing, GSTS wrote off $818,572
($507,515 net of tax benefits) in unamortized debt issuance costs, which is
reflected on the accompanying statement of operations as an extraordinary loss
on extinguishment of debt. The GSTS Bridge Facility matured on the date the
proceeds from ITC/\DeltaCom's debt offering described below were released (July
25, 1997). The GSTS Bridge Facility bore interest at LIBOR plus 2.25%.
ITC/\DeltaCom Employee Stock Option Plan
Upon the Reorganization, all employees of the Companies became eligible to
receive stock options under ITC/\DeltaCom's 1997 Employee Stock Option Plan
(the "Stock Option Plan") which was adopted and approved by its sole
stockholder on March 24, 1997.
The Stock Option Plan provides for the grant of options that are intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") to employees of ITC/\DeltaCom, its
subsidiaries obtained in the reorganization described in Note 1, and the
Parent, as well as the grant of non-qualifying options to any other individual
whose participation in the Stock Option Plan is determined to be in the best
interests of ITC/\DeltaCom. The Stock Option Plan authorizes the issuance of up
to 1.5 million shares of Class A Common Stock pursuant to options granted
under the Stock Option Plan (subject to anti-dilution adjustments in the event
of a stock split, recapitalization or similar transaction). The maximum number
of shares subject to options that can be awarded under the Stock Option Plan
to any person is 500,000 shares. The Compensation Committee of ITC/\DeltaCom's
Board of Directors will administer the Stock Option Plan and will grant
options to purchase Class A Common Stock.
The option exercise price for incentive stock options granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
Class A Common Stock on the date of grant of the option (or 110% in the case
of an incentive stock option granted to an optionee beneficially owning more
than 10% of the outstanding Class A Common Stock). The option exercise price
for non-incentive stock options granted under the Stock Option Plan may not be
less than the par value of the Class A Common Stock on the date of grant of
the option. The maximum option term is 10 years (or five years in the case of
an incentive stock option granted to an optionee beneficially owning more than
10% of the outstanding Class A Common Stock). There is also a $100,000 limit
on the value of Class A Common Stock (determined at the time of grant) covered
by incentive stock options that become exercisable by an optionee in any year.
Options granted will become exercisable with respect to 50% of the shares
subject to the options on the second anniversary of the date of grant and with
respect to 25% of the shares subject to the options on each of the third and
fourth anniversaries of the date of grant.
ITC/\DeltaCom's Board of Directors may amend or terminate the Stock Option
Plan with respect to shares of Class A Common Stock as to which options have
not been granted.
On March 24, 1997, ITC/\Deltacom granted options to purchase 789,000 shares
of Class A Common Stock under the Stock Option Plan. All options were granted
at a price at least equal to the estimated fair value of the common stock on
the date of grant ($7.20) as determined by ITC/\DeltaCom's sole stockholder's
board of directors based on equity transactions and other analyses.
On July 29, 1997, ITC/\DeltaCom granted options to purchase 105,254 shares of
Class A Common Stock under The Stock Option Plan. All options were granted at
a price at least equal to the estimated fair value of the common stock on the
date of grant ($7.20) as determined by ITC/\DeltaCom's sole stockholder's board
of directors based on equity transactions and other analyses.
F-33
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Directors Stock Option Plan
On March 24, 1997, ITC/\DeltaCom adopted and its stockholders approved the
Directors Stock Option Plan (the "Directors Plan"). The Directors Plan
provides for the "formula" grant of options that are not intended to qualify
as "incentive stock options" under Section 422 of the Code to directors of
ITC/\Deltacom who are not officers or employees of the Company, the Parent, or
any subsidiary of ITC/\DeltaCom (each an "Eligible Director"). The Directors
Plan authorizes the issuance of up to 150,000 shares of Class A Common Stock
pursuant to options granted under the Directors Plan (subject to anti-dilution
adjustments). The option exercise price for options granted under the
Directors Plan will be at least 100% of the fair market value of the shares of
Class A Common Stock on the date of grant of the option. Under the Directors
Plan, each Eligible Director will be granted an option to purchase 10,000
shares of Class A Common Stock upon such person's initial election or
appointment to serve as director. Options granted will become exercisable with
respect to 50% of the shares subject to the options on the second anniversary
of the date of grant and with respect to 25% of the shares subject to the
options on each of the third and fourth anniversaries of the date of grant.
The options will expire ten years and 30 days after the date of grant.
On March 24, 1997, ITC/\DeltaCom granted options to purchase 10,000 shares of
ITC/\DeltaCom's Class A Common Stock to each of its six nonemployee directors.
All options were granted at a price equal to the estimated fair value of the
common stock on the date of grant ($7.20) as determined by the ITC/\DeltaCom's
stockholder's board of directors based on equity transactions and other
analyses.
Credit Agreement
On September 17, 1997, FiberNet entered into a credit agreement with
NationsBank of Texas, N.A., as administrative lender (the "Credit Agreement").
The Credit Agreement provides for a term and revolving credit facility of up
to $100 million to be used for working capital and other purposes, including
refinancing existing indebtedness, capital expenditures, and permitted
acquisitions. The Credit Agreement matures on September 15, 2002 and includes
a $50 million multi-draw term loan facility and a $50 million revolving credit
facility. Amounts may be drawn under the term loan facility until September
15, 1999. All $50 million of the term loan facility must be utilized before
drawing down any amount over $10 million under the revolving credit facility.
Amounts drawn under the Credit Agreement will bear interest, at FiberNet's
option, at either the Base Rate of the LIBOR Rate, plus an applicable margin.
Borrowings under the Credit Agreement are guaranteed by the Companies and
are secured by a first priority lien on substantially all current and future
assets and properties of FiberNet and its subsidiaries and a first priority
pledge of the stock of FiberNet and its subsidiaries. The Credit Agreement
contains covenants limiting the Companies ability to incur debt or make
guaranties, create liens, pay dividends, make distributions or stock
repurchases, make investments or capital expenditures, issue capital stock,
engage in transactions with affiliates, sell assets, and engage in mergers and
acquisitions. The Credit Agreement also requires FiberNet to comply with
certain financial tests and to maintain certain financial ratios on a
consolidated basis.
Debt Offering
On June 3, 1997, ITC/\DeltaCom completed the issuance of 11% Senior Notes due
2007 (the "Offering").
Proceeds from the Offering were held by the trustee until all regulatory
approvals related to the Reorganization described in Note 1 were received.
Upon their release, a portion of the proceeds was used to repay approximately
$48.0 million of the Companies' advances from Parent and approximately $41.6
million under the GSTS Bridge Facility as well as accrued interest.
Approximately $62.7 million of such proceeds are held by the Trustee as
security for and to fund the first six interest payments on the Senior Notes.
Also in connection with the Reorganization, FiberNet undertook to repay (and
DeltaCom agreed to reimburse to FiberNet) the remaining $31.0 million of
DeltaCom's advance from Parent; the Parent then forgave this indebtedness and
contributed it to FiberNet as additional equity. Upon the settlement of
DeltaCom's advance from Parent related to the acquisition (and accrued
interest), the Parent Credit Facility was amended to release the Companies as
guarantors and to terminate the related security interests in the assets of
the Companies (Note 7). The Parent effected the Reorganization on July 25,
1997.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To DeltaCom, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of DELTACOM, INC. for the year ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
DeltaCom, Inc. for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
MARTIN STUEDEMAN & ASSOCIATES P.C.
Birmingham, Alabama
March 19, 1997
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DeltaCom, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of DELTACOM, INC. (an Alabama corporation) for the year
ended December 31, 1995. 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 audit. The December 31, 1994 financial
statements were audited by other auditors, whose report dated March 19, 1997
expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
DeltaCom, Inc. for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 27, 1997
F-36
<PAGE>
DELTACOM, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ONE MONTH ENDED JANUARY 29, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUES....................... $53,777,565 $56,271,011 $5,256,931
COST OF SERVICES......................... 33,168,780 32,355,358 2,963,383
----------- ----------- ----------
Gross margin......................... 20,608,785 23,915,653 2,293,548
----------- ----------- ----------
OPERATING EXPENSES:
Selling, general, and administrative... 10,608,998 13,845,867 1,343,761
Depreciation and amortization.......... 2,982,325 3,241,869 290,226
----------- ----------- ----------
Total operating expenses............. 13,591,323 17,087,736 1,633,987
----------- ----------- ----------
OPERATING INCOME......................... 7,017,462 6,827,917 659,561
OTHER INCOME (EXPENSE):
Interest income........................ 56,474 105,477 12,334
Interest expense....................... (1,068,140) (1,025,571) (143,883)
----------- ----------- ----------
INCOME BEFORE INCOME TAXES............... 6,005,796 5,907,823 528,012
PROVISION FOR INCOME TAXES............... 2,239,613 2,211,115 200,645
----------- ----------- ----------
NET INCOME............................... $ 3,766,183 $ 3,696,708 $ 327,367
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE>
DELTACOM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ONE MONTH ENDED JANUARY 29, 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993... 80,000 $800 $5,145,715 $ 3,780,377 $ 8,926,892
Net income................. 0 0 0 3,766,183 3,766,183
------ ---- ---------- ----------- -----------
BALANCE, December 31, 1994... 80,000 800 5,145,715 7,546,560 12,693,075
Net income................. 0 0 0 3,696,708 3,696,708
------ ---- ---------- ----------- -----------
BALANCE, December 31, 1995... 80,000 800 5,145,715 11,243,268 16,389,783
Net income (unaudited)..... 0 0 0 327,367 327,367
------ ---- ---------- ----------- -----------
BALANCE, January 29, 1996
(Unaudited)................. 80,000 $800 $5,145,715 $11,570,635 $16,717,150
====== ==== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
DELTACOM, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ONE MONTH ENDED JANUARY 29, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 3,766,183 $ 3,696,708 $ 327,367
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Depreciation and amortization......... 2,982,325 3,241,869 290,226
Deferred income taxes................. 605,427 37,185 (8,767)
Changes in current operating assets
and liabilities:
Accounts receivable.................. (347,863) (832,551) (360,594)
Due from related parties............. 0 (26,397) 26,397
Prepayments.......................... (401,052) (137,876) 748,471
Inventories.......................... 28,081 (55,333) (82,217)
Notes receivable..................... 0 (167,481) 8,395
Accounts payable..................... (1,819,564) (863,902) 174,476
Accrued liabilities.................. 89,740 (20,027) 298,047
Income taxes payable................. 326,238 249,670 189,956
Other, net........................... 0 1,075 89,278
----------- ----------- -----------
Total adjustments................... 1,463,332 1,426,232 1,373,668
----------- ----------- -----------
Net cash provided by operating ac-
tivities........................... 5,229,515 5,122,940 1,701,035
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (2,596,331) (4,431,552) (171,036)
Proceeds from sale of equipment........ 0 175,389 0
Increase in accrued construction
payables.............................. 0 144,720 (144,720)
----------- ----------- -----------
Net cash used in investing activi-
ties............................... (2,596,331) (4,111,443) (315,756)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt... $(1,410,155) $(2,127,651) $(1,244,759)
Proceeds from financing agreement...... 0 1,388,859 0
----------- ----------- -----------
Net cash used in financing activi-
ties............................... (1,410,155) (738,792) (1,244,759)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS............................ 1,223,029 272,705 140,520
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD.............................. 191,867 1,414,896 1,687,601
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 1,414,896 $ 1,687,601 $ 1,828,121
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest.............................. $ 1,068,140 $ 1,005,827 $ 17,210
=========== =========== ===========
Income taxes.......................... $ 1,302,388 $ 2,016,860 $ 0
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
DELTACOM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND JANUARY 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DeltaCom, Inc. (the "Company") was incorporated in the state of Alabama on
April 7, 1982. The Company is a provider of telecommunications services and
products in Alabama and surrounding states. Prior to January 29, 1996, the
Company's common stock was owned 50% by SCI Systems (Alabama), Inc., 14% by
Brindlee Mountain Telephone Company ("BMTC"), and 36% by the majority
stockholder of BMTC. ITC Holding Company, Inc. acquired all of the stock of
the Company on January 29, 1996 (Note 7).
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting. Revenues are recognized as services are performed. Costs and
expenses are recognized when incurred. The financial statements are prepared
in conformity with generally accepted accounting principles, which require the
use of estimates. Actual results may differ from those estimates.
Accounting 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 revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Depreciation
Depreciation of property and equipment is generally provided on a composite
or straight-line basis over the assets' estimated useful lives, which are 40
years for buildings, 5 to 20 years for telecommunications equipment, 3 to 15
years for office furniture and equipment, and 5 years for vehicles.
Expenditures for maintenance and repairs are expensed currently, while
renewals and betterments that materially extend the life of an asset are
capitalized. The cost of assets sold, retired, or otherwise disposed of and
the related accumulated depreciation are eliminated from the accounts, and any
resulting gain or loss is included in the results of operations.
Income Taxes
Deferred income taxes are determined in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
approach results in the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the book
carrying amounts and the tax basis of assets and liabilities.
Advertising Costs
The Company expenses all advertising costs as incurred.
F-40
<PAGE>
DELTACOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INCOME TAXES
The components of the provision for income taxes for the years ended
December 31, 1994 and 1995 and the one month ended January 29, 1996 are as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Federal.................................. $1,780,968 $1,970,891 $190,360
State.................................... 164,427 203,039 19,052
Deferred................................... 294,218 37,185 (8,767)
---------- ---------- --------
$2,239,613 $2,211,115 $200,645
========== ========== ========
</TABLE>
A reconciliation of the federal statutory rate to the effective income tax
rate for the periods presented for the years ended December 31, 1994 and 1995
and the one month ended January 29, 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Federal statutory rate............................... 34.0% 34.0% 34.0%
State income taxes................................... 3.6 3.6 4.0
Other................................................ (0.3) (0.2) 0.0
---- ---- ----
Effective income tax rate............................ 37.3% 37.4% 38.0%
==== ==== ====
</TABLE>
3. RELATED-PARTY TRANSACTIONS
During 1994, the Company recorded revenues from two affiliates, BMTC and
Valley Telephone Services, for approximately $401,000 and $141,000,
respectively. The Company recorded expenses to BMTC in the amount of
approximately $1,650,000 in 1994.
During 1995, the Company recorded revenues of approximately $88,000 in the
accompanying statements of operations for long distance services provided to
BMTC. These services were discontinued in March 1995. The Company also
recorded revenues of approximately $168,000 during the year ended December 31,
1995 for long-distance services provided to Marshall Cellular, an affiliate of
BMTC.
During January 1996, the Company recorded revenues from BMTC, Marshall
Cellular, and another affiliate, SCI, of approximately $27,500, $13,200, and
$33,400, respectively. The Company also recorded expenses of $30,200 and
$2,000 for telephone services provided by BMTC and Marshall Cellular,
respectively.
The Company paid approximately $770,000 to BMTC for electronic data
information services, including billing and rating services, through July
1995. In August 1995, the Company terminated its contract for such services,
hired the information services personnel from BMTC, and assumed BMTC's
operating lease obligations, totaling approximately $419,000 annually, for
electronic data processing equipment. The Company contracted to furnish
electronic data processing services to BMTC annually for $300,000. The Company
recorded revenues of $125,000 in the accompanying statements of operations
related to these services for the year ended December 31, 1995 and $27,500 for
the one month ended January 29, 1996.
The Company paid $405,000 to BMTC for management services in 1995. These
services were terminated in January 1996. During 1995, the Company also paid
$600,000 in management fees to its stockholders. The
F-41
<PAGE>
DELTACOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company has a contract with a former stockholder to provide management
services to the Company through 1997 for $300,000 annually. The Company
recorded expenses of $25,000 in the accompanying statements of operations
related to those services for the one month ended January 29, 1996.
The Company leases real properties from stockholders and other related
parties. Total rental expense related to these leases was approximately
$133,000, $145,000, and $30,000 for the years ended December 31, 1994 and 1995
and the month ended January 29, 1996, respectively. The Company is obligated
to pay rentals totaling approximately $150,000 to BMTC in 1996 and future
years under leases which are cancelable by either of the parties with 24
months' notice. The Company is also obligated through 1999 to pay annual
rentals ranging from approximately $74,000 to $81,000 to an officer of a
former stockholder.
4. DEFERRED COMPENSATION PLAN
The Company has a 401(k) deferred compensation plan covering substantially
all employees with at least one year of service. Participants may elect to
defer 15% of compensation up to a maximum amount determined annually pursuant
to IRS regulations. The Company has elected to provide matching employer
contributions equal to the lesser of 3% of compensation or the maximum amount
annually for each participant. The Company's policy is to fund contributions
as earned. Company contributions made to the plan and charged to expense for
the years ended December 31, 1994 and 1995 and the one month ended January 29,
1996 were $111,561, $138,697, and $12,588, respectively.
5. COMMITMENTS
Minimum future rental commitments under noncancelable operating leases
having an initial or remaining term in excess of one year as of December 31,
1995 are as follows:
<TABLE>
<S> <C>
December 31:
1996............................................................ $ 988,523
1997............................................................ 831,657
1998............................................................ 754,481
1999............................................................ 407,300
2000............................................................ 279,755
Thereafter...................................................... 726,330
----------
$3,988,046
==========
</TABLE>
Total rental expense charged to operations for the years ended December 31,
1994 and 1995 and the one month ended January 29, 1996 was $287,425, $615,734,
and $105,578, respectively.
At January 29, 1996, the Company had agreed to purchase telecommunications
equipment at a price totaling approximately $365,000.
6. CONTINGENT MATTERS
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management, the
amount or ultimate liability with respect to these actions will not materially
affect the Company's financial position or results of operations.
7. ACQUISITION OF THE COMPANY
On January 29, 1996, the Company was purchased by ITC Holding Company, Inc.
for total consideration of $71,362,213.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gulf States FiberNet:
We have audited the accompanying balance sheets of GULF STATES FIBERNET (a
Georgia general partnership) as of December 31, 1995 and 1996 and the related
statements of operations, partners' capital, and cash flows for period from
inception (August 17, 1994) through December 31, 1994 and for the years ended
December 31, 1995 and 1996. These financial statements are the responsibility
of the Partnership'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 Gulf States FiberNet as of
December 31, 1995 and 1996 and the results of its operations and its cash
flows for the period from inception (August 17, 1994) through December 31,
1994 and for the years ended December 31, 1995 and 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 27, 1997 (except with
respect to the Debt Refinancing,
Parent's Reorganization of
Subsidiaries, and ITC/\DeltaCom
Debt Offering discussions in
Note 8, as to which the date
is July 25, 1997)
F-43
<PAGE>
GULF STATES FIBERNET
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
AND MARCH 27, 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 5,561,737 $ 1,130,668 $ 574,600
Accounts receivable:
Affiliates............................. 496,286 476,102 280,866
Customer accounts receivable, net of
allowance for uncollectible accounts
of $15,000, $24,000 and $39,006 in
1995, 1996 and 1997, respectively..... 428,775 1,127,788 1,923,592
Other.................................... 70,943 16,543 55,799
----------- ----------- -----------
6,557,741 2,751,101 2,834,857
----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET (NOTE 2)....... 62,756,563 62,444,185 66,112,272
----------- ----------- -----------
OTHER NONCURRENT ASSETS:
Goodwill, net of accumulated amortization
of $14,226, $27,358 and $30,640 in 1995,
1996, and 1997 respectively............. 511,034 497,902 494,620
Debt issuance costs, net of accumulated
amortization of $47,251, $188,505 and
$231,321 in 1995, 1996 and 1997, respec-
tively.................................. 938,925 878,056 974,572
----------- ----------- -----------
1,449,959 1,375,958 1,469,192
----------- ----------- -----------
$70,764,263 $66,571,244 $70,416,321
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities of long-term debt..... $ 5,937,500 $ 5,937,500 $42,068,969
Accounts payable:
Affiliates............................. 25,263 0 2,431
Other.................................. 136,604 104,208 1,290,172
Accrued construction costs............... 2,664,051 1,712,272 980,542
Other accrued liabilities................ 860,477 680,941 540,270
Unearned revenue......................... 207,873 997,667 1,185,206
----------- ----------- -----------
Total current liabilities............ 9,831,768 9,432,588 46,067,590
LONG-TERM DEBT (NOTE 4).................... 41,562,500 35,625,000 2,950,906
COMMITMENTS AND CONTINGENCIES (NOTES 4, 5,
AND 7)
PARTNERS' CAPITAL.......................... 19,369,995 21,513,656 21,397,825
----------- ----------- -----------
$70,764,263 $66,571,244 $70,416,321
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-44
<PAGE>
GULF STATES FIBERNET
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (AUGUST 17, 1994)
THROUGH DECEMBER 31, 1994,
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND FOR THE PERIODS ENDED MARCH
31, 1996 AND MARCH 27, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- MARCH 31, MARCH 27,
1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 127,569 $ 7,587,713 $10,056,544 $ 1,832,487 $4,085,039
COST OF SERVICES........ 41,838 82,680 867,558 47,368 418,472
--------- ----------- ----------- ----------- ----------
Gross margin........ 85,731 7,505,033 9,188,986 1,785,119 3,666,567
--------- ----------- ----------- ----------- ----------
OPERATING EXPENSES:
Selling, general, and
administrative....... 318,685 2,455,159 2,785,596 733,135 871,566
Depreciation and
amortization......... 47,764 3,835,465 6,620,382 1,574,627 1,897,826
--------- ----------- ----------- ----------- ----------
Total operating
expenses........... 366,449 6,290,624 9,405,978 2,307,762 2,769,392
--------- ----------- ----------- ----------- ----------
OPERATING (LOSS)
INCOME................. (280,718) 1,214,409 (216,992) (522,643) 897,175
--------- ----------- ----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense...... 0 (2,172,373) (4,345,001) (1,085,287) (1,031,546)
Other................. 11,496 240,624 145,851 62,834 18,540
--------- ----------- ----------- ----------- ----------
Total other income
(expense).......... 11,496 (1,931,749) (4,199,150) (1,022,453) (1,013,006)
--------- ----------- ----------- ----------- ----------
NET LOSS................ $(269,222) $ (717,340) $(4,416,142) $(1,545,096) $ (115,831)
========= =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE>
GULF STATES FIBERNET
STATEMENTS OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (AUGUST 17, 1994)
THROUGH DECEMBER 31, 1994,
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE PERIOD ENDED MARCH 27, 1997
<TABLE>
<CAPTION>
PARTNERS' CAPITAL TOTAL
----------------------- PARTNERS'
SCANA GSTS CAPITAL
----------- ---------- -----------
<S> <C> <C> <C>
BALANCE AT INCEPTION (AUGUST 17, 1994)... $ 5,449,670 $ 0 $ 5,449,670
Partnership contributions.............. 7,906,887 7,000,000 14,906,887
Net loss............................... (172,302) (96,920) (269,222)
----------- ---------- -----------
BALANCE, DECEMBER 31, 1994............... 13,184,255 6,903,080 20,087,335
Net loss............................... (459,098) (258,242) (717,340)
----------- ---------- -----------
BALANCE, DECEMBER 31, 1995............... 12,725,157 6,644,838 19,369,995
Partnership contributions.............. 4,198,274 2,361,529 6,559,803
Net loss............................... (2,826,331) (1,589,811) (4,416,142)
----------- ---------- -----------
BALANCE, DECEMBER 31, 1996............... 14,097,100 7,416,556 21,513,656
Net loss............................... (74,132) (41,699) (115,831)
----------- ---------- -----------
BALANCE, MARCH 27, 1997 (UNAUDITED)...... $14,022,968 $7,374,857 $21,397,825
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
GULF STATES FIBERNET
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (AUGUST 17, 1994)
THROUGH DECEMBER 31, 1994 AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE PERIODS ENDED MARCH 31, 1996 AND MARCH 27, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31, MARCH 27,
1994 1995 1996 1996 1997
------------ ------------ ----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $ (269,222) $ (717,340) $(4,416,142) $ (1,545,096) $ (115,831)
------------ ------------ ----------- ------------ -----------
Adjustments to recon-
cile net loss to net
cash provided by op-
erating activities:
Depreciation and
amortization....... 47,764 3,835,465 6,620,382 1,574,627 1,897,826
Changes in operating
assets and liabili-
ties:
Accounts
receivable....... (64,004) (861,057) (678,829) (157,231) (600,569)
Other current as-
sets............. (12,600) (58,343) 54,400 (33,821) 49,215
Accounts payable.. 430,873 (269,004) (57,659) (131,172) 1,188,426
Accrued liabili-
ties............. 106,985 753,492 (179,536) (117,742) (140,671)
Unearned revenue.. 36,868 171,005 789,794 38,419 99,068
------------ ------------ ----------- ------------ -----------
Total adjust-
ments.......... 545,886 3,571,558 6,548,552 1,173,080 2,493,295
------------ ------------ ----------- ------------ -----------
Net cash
provided by
(used in)
operating
activities..... 276,664 2,854,218 2,132,410 (372,016) 2,377,464
------------ ------------ ----------- ------------ -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures.. (37,548,729) (24,105,172) (6,153,618) (1,216,962) (2,062,470)
Accrued construction
costs................ 10,178,620 (7,514,569) (951,779) (1,921,170) (731,730)
------------ ------------ ----------- ------------ -----------
Net cash used in
investing
activities..... (27,370,109) (31,619,741) (7,105,397) (3,138,132) (2,794,200)
------------ ------------ ----------- ------------ -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from interim
construction loan.... 12,700,000 24,000,000 0 0 0
Payments on interim
construction loan.... 0 (36,700,000) 0 0 0
Proceeds from long-
term note............ 0 47,500,000 0 0 0
Payments on long-term
note................. 0 0 (5,937,500) 0 0
Payment of debt issu-
ance costs........... 0 (986,176) (80,385) (22,072) (139,332)
Capital contribu-
tions................ 14,906,881 0 6,559,803 1,393,320 0
------------ ------------ ----------- ------------ -----------
Net cash
provided by
(used in)
financing
activities..... 27,606,881 33,813,824 541,918 1,371,248 (139,332)
------------ ------------ ----------- ------------ -----------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ 513,436 5,048,301 (4,431,069) (2,138,900) (556,068)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... 0 513,436 5,561,737 5,561,737 1,130,668
------------ ------------ ----------- ------------ -----------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. $ 513,436 $ 5,561,737 $ 1,130,668 $ 3,422,837 $ 574,600
============ ============ =========== ============ ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for inter-
est.................. $ 45,907 $ 2,909,056 $ 4,689,477 $ 991,318 $ 1,410,816
============ ============ =========== ============ ===========
Noncash financing
activities:
Assets contributed by
SCANA................ $ 5,449,670 $ 0 $ 0 $ 0 $ 0
============ ============ =========== ============ ===========
Capital lease
obligation for fiber
route................ $ 0 $ 0 $ 0 $ 0 $ 3,457,345
============ ============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
GULF STATES FIBERNET
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995, AND 1996
1. ORGANIZATION AND BUSINESS OPERATIONS
General
Gulf States FiberNet (the "Partnership") was formed on August 17, 1994
pursuant to the provisions of the Georgia Uniform Partnership Act. The
Partnership provides digital communications transport to communications common
carriers in the states of Georgia, Texas, Alabama, Mississippi, and Louisiana.
The Partnership is a facilities-based entity with an existing fiber optic
transmission facility between Atlanta, Georgia, and Birmingham, Alabama. The
Partnership has also constructed a redundant route from Atlanta to Birmingham
which continues on to Longview, Texas, through such cities as Tuscaloosa,
Alabama; Meridian, Jackson, and Vicksburg, Mississippi; and Monroe and
Shreveport, Louisiana. The Partnership has also constructed a spur from
Meridian to Gulfport, Mississippi. These additional routes became operational
during May 1995. In September 1996, an extension to Longview, Texas, was
completed. The Partnership has also constructed a route from Atlanta to
Gainesville, Georgia, where it connects to the network of another
nonaffiliated entity that provides transit into the networks of several other
nonaffiliated entities in the states of North Carolina and South Carolina. The
Atlanta to Gainesville route was completed in January 1996.
The general partners and their respective ownership percentages as of
December 31, 1996 were as follows:
<TABLE>
<S> <C>
SCANA Communications, Inc. ("SCANA").......... 64%
Gulf States Transmission Systems, Inc.
("GSTS")..................................... 36
</TABLE>
GSTS is the managing partner and is responsible for managing and operating
the Partnership. The partners make capital contributions to share in the
operating results of, and receive distributions from, the Partnership in
accordance with their respective ownership percentages.
The Partnership's revenues are derived from sales to a relatively small
number of customers. The loss of a major customer would have a significant
impact on the partnership's results of operations and financial position. This
risk is mitigated by take-or-pay contracts whereby the customers are
contractually obligated to pay periodic specified amounts, even if they do not
take delivery of the contracted services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Presentation
The Partnership's financial statements are prepared on the accrual basis of
accounting. The balance sheet as of March 27, 1997 and the statements of
operations and cash flows for the periods ending March 31, 1996 and March 27,
1996 are unaudited and, in the opinion of management, contain all adjustments
(consisting of only normal recurring items) necessary for the fair
presentation of the financial position and results of operations for the
interim periods. The results of operations for the period ended March 27, 1997
are not necessarily indicative of the results to be expected for the entire
year.
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.
Cash and Cash Equivalents
For purposes of the statements of cash flows, temporary investments
represent securities with maturities of 90 days or less and are considered
cash equivalents.
F-48
<PAGE>
GULF STATES FIBERNET
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Revenues are recognized as the Partnership performs services in accordance
with contract or tariff terms.
Property and Equipment
Property and equipment are carried at cost or fair market value of
contributed property at the time of the contribution. Depreciation and
amortization of property and equipment are provided using the straight-line
method over estimated useful lives (3 to 20 years). Balances of major classes
of assets and the related accumulated depreciation as of December 31, 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Land............................................... $ 2,500 $ 2,500
Vehicles and work equipment........................ 357,994 459,906
Office furniture, fixtures, equipment, and lease-
hold improvements................................. 79,939 80,628
Electronic equipment............................... 8,935,670 13,730,134
Buildings and POP extensions....................... 3,608,294 4,297,142
Cable and installation costs....................... 42,412,149 45,612,729
Other depreciable assets........................... 8,370,033 8,572,664
Less accumulated depreciation...................... (4,006,455) (10,472,469)
----------- ------------
Net property and equipment in service............ 59,760,124 62,283,234
Property and equipment under construction.......... 2,996,439 160,951
----------- ------------
Net property and equipment......................... $62,756,563 $ 62,444,185
=========== ============
</TABLE>
Long-Lived Assets
In 1995, the Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The effect of adopting SFAS No.
121 was not material.
The Partnership periodically reviews the values assigned to long-lived
assets, such as property and equipment, and cost in excess of net assets
acquired to determine whether any impairments are other than temporary.
Management believes that the long-lived assets in the accompanying balance
sheets are appropriately valued.
Income Taxes
The Internal Revenue Code and applicable state statutes provide that the
income and expenses of a partnership are not separately taxable to the
partnership but rather accrue directly to the partners. Accordingly, no
provision for federal or state income taxes has been made in the accompanying
financial statements.
Interest Expense
All interest incurred during 1994, 1995, and 1996 is attributable to the
construction of the routes detailed in Note 1. Interest was capitalized until
the completion of the construction of a specific route segment. The amount of
interest capitalized in 1994, 1995, and 1996 totaled $45,907, $1,020,204, and
$40,365, respectively.
F-49
<PAGE>
GULF STATES FIBERNET
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Other Noncurrent Assets
The excess of cost over the fair market value of assets acquired
("goodwill") is being amortized to income on a straight-line basis over a
period of 40 years.
In connection with the issuance of its long-term debt, the Partnership
incurred debt issuance costs of approximately $986,000 and $80,000 in 1995 and
1996, respectively. These costs were recorded as other assets and are being
amortized on a straight-line basis over 7 to 8.5 years, the term of the
related debt facilities.
Presentation
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. SCANA ASSET CONTRIBUTION
Effective November 1, 1994, SCANA contributed an existing Atlanta to
Birmingham fiber optic route to the Partnership as part of its capital
contribution. The tangible assets associated with this route were recorded at
their estimated appraised value of $4,924,410. This route was valued at
$5,449,670 for purposes of determining a portion of SCANA's capital
contribution. The $525,260 difference between the estimated appraised value of
the tangible assets and the fair market value of the route is reflected as
goodwill in the accompanying balance sheets.
4. INTERIM CONSTRUCTION LOAN AND LONG-TERM DEBT
Interim Construction Loan
On December 8, 1994, the Partnership completed a $40,000,000 construction
loan commitment ("Loan") with NationsBank of North Carolina. The Loan provided
the Partnership the ability to draw amounts as needed to finance the
construction of a new route. The interest rates paid on amounts outstanding
under the Loan ranged from 6.75% to 7.25% in 1995. Any unused portion of this
Loan was subject to a commitment fee equal to .25% per annum. The Partnership
borrowed $36,700,000 under this Loan prior to its repayment in full in August
1995. The Partnership utilized funds realized from the $47,500,000 nonrecourse
project financing discussed below to repay the Loan.
Long-Term Debt
Long-term debt consisted of the following at December 31, 1996 and March 27,
1997:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 27,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
$41.6 million bridge facility, interest payable
at LIBOR plus 2.25% (8.25% at June 30, 1997).. $41,562,500 $ 41,600,000
Other.......................................... 0 3,419,875
----------- ------------
41,562,500 45,019,875
Less: Current maturities....................... 5,937,500 (42,068,969)
----------- ------------
Total long-term debt........................... $35,625,000 $ 2,950,906
=========== ============
</TABLE>
On July 25, 1995, the Partnership completed a $47,500,000 nonrecourse
project financing (the "Financing") with NationsBank of North Carolina. The
Financing is to be repaid in 16 equal semiannual installments of $2,968,750
beginning on June 30, 1996 and ending on December 31, 2003. The Financing
bears
F-50
<PAGE>
GULF STATES FIBERNET
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
interest on outstanding amounts at various floating rate options plus an
applicable credit spread, which varies throughout the term of the Financing.
The Partnership is contractually obligated to select the three-month LIBOR
option as a direct result of the interest rate swap agreement discussed below.
The Financing is secured by substantially all of the Partnership's assets.
Concurrent with the closing of the Financing, the parent companies of GSTS
and SCANA, ITC Holding Company, Inc. ("ITC") and SCANA, Inc., respectively,
have entered into the Telecommunications System Capacity Agreement ("TSCA")
with NationsBank of North Carolina ("NationsBank"). The TSCA requires ITC and
SCANA to make additional equity contributions to the Partnership. These
required equity contributions are calculated on a quarterly basis throughout
the term of the Financing based on a contractually determined amount, less the
Partnership's quarterly revenue, excluding the nonrecurring revenue discussed
in Note 7. The contractually determined amounts discussed above are fixed
amounts and are not contingent upon the results of operations of the
Partnership.
On January 24, 1995, the Partnership entered into a forward starting
interest rate swap agreement with a $47,500,000 principal amount with
NationsBank. This agreement is accounted for as a hedge of an anticipated
transaction. The agreement swaps the applicable three-month LIBOR selected
under the Financing with a fixed rate of 8.25%. As of December 31, 1996, the
Partnership would be required to pay $2,962,000 to terminate the interest rate
swap with NationsBank. The Partnership made payments totaling $1,261,000 and
$553,320 to NationsBank in 1995 and 1996, respectively, in connection with
this interest rate swap. These payments are included in interest expense in
the accompanying statements of operations.
As a result of this interest rate swap, the Financing will bear an effective
interest rate as follows:
<TABLE>
<S> <C>
Years 1-3......................................................... 9.375%
Years 4-6......................................................... 9.500
Years 7-8.5....................................................... 9.625
</TABLE>
Maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997......................................................... $ 5,937,500
1998......................................................... 5,937,500
1999......................................................... 5,937,500
2000......................................................... 5,937,500
2001......................................................... 5,937,500
Thereafter................................................... 11,875,000
-----------
$41,562,500
===========
</TABLE>
5. LEASE OBLIGATIONS
The Partnership has entered into various operating leases for facilities and
equipment used in its operations. Aggregate future minimum rental commitments
under noncancelable operating leases as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 682,902
1998.......................................................... 636,037
1999.......................................................... 620,405
2000.......................................................... 601,135
2001.......................................................... 580,585
Thereafter.................................................... 2,310,260
----------
$5,431,324
==========
</TABLE>
F-51
<PAGE>
GULF STATES FIBERNET
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Rent expense charged to operations for the years ended December 31, 1994,
1995, and 1996 was $6,437, $153,003, and $953,713, respectively.
6. RELATED-PARTY TRANSACTIONS
ITC provides certain administrative services and leases office space to the
Partnership. In addition, certain of ITC's other wholly owned or majority-
owned subsidiaries provide the Partnership with various services and/or
receive services provided by the Partnership. These entities include
Interstate Telephone Company and Valley Telephone Company, which provide local
and long distance telephone services; Interstate FiberNet, which provides
digital communications transport; and InterQuest, which provides operator
assistance services. ITC also holds equity investments in the following
entities which do business with the Partnership: InterCel, Inc., which
provides cellular services, and MindSpring Enterprises, Inc., which is a
regional provider of Internet access.
The Company received services from ITC and other affiliated entities of
approximately $279,000, $1,162,000, and $1,477,000, for the period from
inception through December 31, 1994 and the years ended December 31, 1995 and
1996, respectively, which are reflected in selling, general, and
administrative expenses in the Partnership's statements of operations. In
addition, the Partnership received services from ITC and other affiliated
entities of approximately $70,000 for the year ended December 31, 1996, which
is reflected in cost of services in the Partnership's statement of operations.
At December 31, 1995 and 1996, amounts payable for these services of $0 and
$25,263, respectively, are recorded in the Partnership's balance sheets as
affiliate accounts payable. In management's opinion, the Partnership's
transactions with these affiliated entities are representative of arm's-length
transactions.
Relatives of stockholders of ITC are stockholders and employees of the
Partnership's insurance provider. The costs charged to the Partnership for
insurance services were approximately $1,300, $33,000, and $54,000 for the
years ended December 31, 1994, 1995, and 1996, respectively.
7. SIGNIFICANT CUSTOMERS
No customer was responsible for greater than 10% of the Partnership's
revenues for the period from inception through December 31, 1994. However, two
customers made up greater than 10% of the Partnership's revenues for the years
ended December 31, 1995 and 1996, as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Customer A................................................... 82.5% 43.2%
Customer B................................................... 8.6 21.0
</TABLE>
During 1995, the Partnership received nonrecurring revenue of $3,250,000, or
approximately 43% of net sales to Customer A, related to the cancellation of
an existing lease agreement.
The Partnership entered into an agreement with Customer A to lease certain
fiber optic lines whereby Customer A is contractually obligated to pay
$4,338,996 per annum for 11 years beginning June 1995.
8. SUBSEQUENT EVENTS
Capital Lease
In January 1997, the Partnership entered into a capital lease agreement with
Southern Telecom 1, Inc. ("STI") to construct and lease a fiber optic facility
and related equipment from Birmingham to Montgomery, Alabama. In total, STI
constructed a 24 fiber optic strand facility, 12 strands of which it leased to
the Partnership and 12 strands of which it granted the Partnership a revocable
right to use. STI has the option to lease to the
F-52
<PAGE>
GULF STATES FIBERNET
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Partnership any of the additional 12 licensed fibers for a monthly payment of
$2,000 per fiber after the ninth anniversary of the lease. To the extent STI
does not lease the Partnership at least six of the licensed fibers under its
option, the Partnership will have the right to lease from STI up to a total of
six of the licensed fibers. Construction was completed and lease payments
began in February 1997. Payments under the lease are as follows:
<TABLE>
<CAPTION>
MONTHS MONTHLY
OF TERM PAYMENT
------- -------
<S> <C>
1 through 48.................................................... $75,000
49 through 108.................................................. 25,000
109 through 240................................................. 1,000
</TABLE>
Dissolution of the Partnership
On March 27, 1997, GSTS's parent, ITC, purchased the 64% interest in the
Partnership owned by SCANA for approximately $17 million, payable at closing
in shares of ITC's nonvoting convertible preferred stock, plus certain
contingent consideration. The contingent consideration is due no later than
April 30, 1998, at which time ITC must deliver additional nonvoting
convertible preferred stock to SCANA equal to 35.7% of (a) 64%, multiplied by
(b) (i) 6, multiplied by (ii) the amount, if any, by which the earnings before
interest, taxes, depreciation, and amortization of the Partnership for the
year ended December 31, 1997 exceed $11,265,696.
Upon the closing of the acquisition, ITC contributed the 64% ownership
interest in the Partnership to GSTS and the Partnership was dissolved.
Debt Refinancing
In connection with the acquisition of the remaining 64% interest in the
Partnership, GSTS signed an agreement with NationsBank of Texas, N.A. for a
$41.6 million bridge financing facility (the "Bridge Facility"). The Bridge
Facility finances the Partnership's existing Financing described in Note 4 and
is secured by the assets of the Partnership. The Bridge Facility bore interest
on outstanding amounts at various floating rate options plus an applicable
credit margin. The Bridge Facility matured and was repaid on the date the
proceeds from ITC/\DeltaCom's debt offering discussed later were released.
Parent's Reorganization of Subsidiaries
In March 1997, ITC formed a new wholly owned subsidiary, ITC/\DeltaCom, Inc.
("ITC/\DeltaCom"). Upon completion of the debt offering and the related
transactions described below, ITC reorganized several of its wholly owned
subsidiaries as follows:
. Eastern Telecom, Inc. (d.b.a. InterQuest) and ITC Transmission Systems
II, Inc. merged with and into Interstate FiberNet, Inc., formerly ITC
Transmission Systems, Inc. ("FiberNet").
. ITC contributed all of the outstanding capital stock of FiberNet,
DeltaCom, Inc. and GSTS to ITC/\DeltaCom.
. ITC/\DeltaCom contributed all of the outstanding capital stock of
DeltaCom and GSTS to FiberNet.
These changes are collectively referred to as the "Reorganization."
ITC/\DeltaCom Debt Offering
On June 3, 1997, ITC/\DeltaCom issued senior notes with a principal value of
$200 million (the "Offering"). Proceeds from the Offering were held by the
trustee until all required regulatory approvals related to the Reorganization
were received. Upon consummation of the Reorganization on July 25, 1997, a
portion of the proceeds was used to repay the Bridge Facility described above
as well as certain advances from the Parent outstanding at DeltaCom, Inc.
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
SCANA Communications, Inc.
We have audited the accompanying balance sheets of Georgia Fiber (a business
unit of SCANA Communications, Inc. (SCI)) as of December 31, 1996 and 1995,
and the related statements of income and net equity and of cash flows for the
years then ended. These financial statements are the responsibility of SCI'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, such financial statements present fairly, in all material
respects, the financial position of Georgia Fiber at December 31, 1996 and
1995 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared from the separate
records of Georgia Fiber (a business unit of SCANA Communications, Inc.) and
may not necessarily be indicative of the conditions that would have existed or
the results of operations that would have occurred had Georgia Fiber been
operated as an unaffiliated company.
As discussed in Note 1 to the financial statements, on March 27, 1997, the
assets of Georgia Fiber were sold.
DELOITTE & TOUCHE LLP
Columbia, South Carolina
May 23, 1997
F-54
<PAGE>
GEORGIA FIBER
(A BUSINESS UNIT OF SCANA COMMUNICATIONS, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 27, MARCH 31,
1996 1995 1997 1996
----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable.......... $ 89 $ 332,426 $ 300,311 $ 302,854
Prepaid expenses............. 18,790 17,761 -- 15,039
----------- ---------- ----------- ----------
Total current assets....... 18,879 350,187 300,311 317,893
FIBER OPTIC TRANSMISSION CAPAC-
ITY, NET (Notes 1 and 2)...... 10,484,324 7,980,616 10,352,258 8,007,715
----------- ---------- ----------- ----------
TOTAL ASSETS................... $10,503,203 $8,330,803 $10,652,569 $8,325,608
=========== ========== =========== ==========
LIABILITIES AND NET EQUITY
CURRENT LIABILITIES--Accounts
payable and accrued
liabilities................... $ 339,644 $ 139,740 $ 596,958 $ 131,135
NET EQUITY..................... 10,163,559 8,191,063 10,055,611 8,194,473
----------- ---------- ----------- ----------
TOTAL LIABILITIES AND NET
EQUITY.................... $10,503,203 $8,330,803 $10,652,569 $8,325,608
=========== ========== =========== ==========
</TABLE>
See notes to financial statements.
F-55
<PAGE>
GEORGIA FIBER
(A BUSINESS UNIT OF SCANA COMMUNICATIONS, INC.)
STATEMENTS OF INCOME AND NET EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------- MARCH 27, MARCH 31,
1996 1995 1997 1996
----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES (Note 1)........ $ 3,542,302 $3,499,606 $ 885,450 $ 885,950
----------- ---------- ----------- ----------
OPERATING COSTS AND EXPENSES:
Depreciation and
amortization.............. 1,063,408 778,817 334,034 219,662
Selling, general and
administrative expenses... 431,394 432,517 69,921 156,659
Maintenance................ 288,085 122,770 135,286 16,298
Other operating costs and
expenses.................. 140,761 231,446 43,018 29,484
----------- ---------- ----------- ----------
Total costs and
expenses................ 1,923,648 1,565,550 582,259 422,103
----------- ---------- ----------- ----------
OPERATING INCOME............. 1,618,654 1,934,056 303,191 463,847
NET EQUITY, BEGINNING OF
YEAR........................ 8,191,063 6,300,078 10,163,559 8,191,063
NET CASH PROVIDED FROM (TO)
SCANA COMMUNICATIONS, INC... 353,842 (43,071) (411,139) (460,436)
----------- ---------- ----------- ----------
NET EQUITY, END OF YEAR...... $10,163,559 $8,191,063 $10,055,611 $8,194,474
=========== ========== =========== ==========
</TABLE>
See notes to financial statements.
F-56
<PAGE>
GEORGIA FIBER
(A BUSINESS UNIT OF SCANA COMMUNICATIONS, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ MARCH 27, MARCH 31,
1996 1995 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Operating income............ $ 1,618,654 $ 1,934,056 $ 303,191 $ 463,847
Adjustments to reconcile
operating income to net
cash provided by operating
activities:
Depreciation and
amortization.............. 1,063,408 778,817 334,034 219,662
Changes in operating assets
and liabilities:
Decrease in receivables... 332,337 181,416 (300,222) 29,572
(Increase) decrease in
prepaid expenses......... (1,029) 1,995 18,790 2,722
Increase (decrease) in
accounts payable and
accrued expenses......... 199,904 (169,780) 257,314 (8,605)
----------- ----------- --------- ---------
Net cash provided by
operating activities.... 3,213,274 2,726,504 613,107 707,198
----------- ----------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES--Additions to
fiber optic transmission
capacity.................... (3,567,116) (2,683,433) (201,968) (246,762)
----------- ----------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES--Net cash
provided from (to) SCANA
Communications, Inc......... 353,842 (43,071) (411,139) (460,436)
----------- ----------- --------- ---------
NET CHANGE IN CASH........... -- -- -- --
CASH, BEGINNING OF THE YEAR.. -- -- -- --
----------- ----------- --------- ---------
CASH, END OF THE YEAR........ $ -- $ -- $ -- $ --
=========== =========== ========= =========
</TABLE>
See notes to financial statements.
F-57
<PAGE>
GEORGIA FIBER
(A BUSINESS UNIT OF SCANA COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--Georgia Fiber is a business unit of SCANA Communications, Inc.
("SCI"). This business unit consists of certain fiber optic capacity in the
State of Georgia. Such assets were sold to a third party on March 27, 1997.
The accompanying financial statements include the historical cost basis assets
and related operations of the business unit. No effects of the asset sale are
included in the financial statements.
All revenues were derived from fiber optic service provided to one customer.
Revenues are recognized as earned on a monthly basis in accordance with an
agreement with such customer.
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.
Fiber Optic Transmission Capacity--Pursuant to certain agreements, SCI
(formerly MPX Systems, Inc.) obtained fiber optic transmission capacity along
specified routes in Georgia. Such agreements obligated SCI to reimburse the
counterparty for costs incurred in construction of the capacity and to pay for
operation and maintenance costs applicable to the capacity. In addition, SCI
pays an amount equal to 2.8% of operating income from operations to the
counterparty. Since inception, additional costs have been incurred to upgrade
and extend the life of the capacity. Costs of obtaining, constructing,
upgrading and extending the life of the capacity are capitalized. Of the
capitalized cost at December 31, 1996, approximately $6,231,000 is being
amortized over a useful life of 25 years and approximately $9,308,000 is
amortized over a life of 8 years. Costs of operating and maintaining the
capacity are expensed as incurred. These agreements expire in 2015 with two
ten-year renewal options.
Cost and Expenses--The accompanying financial statements reflect costs and
expenses that are applicable to the business unit and selling, general and
administrative expenses of SCI which were allocated to the business unit based
on revenues. Management believes that the method used to allocate such
expenses is reasonable (see Note 3).
Fair Value of Financial Instruments--The carrying values of the Company's
financial instruments (receivables and payables) approximate fair value.
Income Taxes--SCI is a wholly owned subsidiary of SCANA Corporation. As a
business unit of SCI, Georgia Fiber does not incur income tax expense. On a
pro forma separate return basis, for the year ended December 31, 1996,
management estimates that Georgia Fiber would have incurred an income tax
provision of approximately $615,000.
F-58
<PAGE>
GEORGIA FIBER
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. FIBER OPTIC TRANSMISSION CAPACITY
Fiber optic transmission capacity consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Fiber optic transmission capacity.................. $15,538,718 $11,971,958
Accumulated amortization........................... (5,054,394) (3,991,342)
----------- -----------
Net fiber optic transmission capacity.............. $10,484,324 $ 7,980,616
=========== ===========
</TABLE>
3. RELATED PARTY TRANSACTIONS
Expenses allocated by SCI to the business unit during the years ended
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Selling, general and administrative expenses.............. $383,824 $383,929
======== ========
</TABLE>
* * * * * * * *
F-59
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OF-
FER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS OR THE LET-
TER OF TRANSMITTAL. NEITHER THIS PROSPECTUS NOR THE LETTER OF TRANSMITTAL CON-
STITUTES AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OF-
FER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DIS-
TRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
$200,000,000
[LOGO OF ITC/\DELTACOM APPEARS HERE]
11% SENIOR NOTES DUE 2007
PROSPECTUS
DATED , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("DGCL"), a
corporation may indemnify its directors, officers, employees and agents and
its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements, actually and reasonably incurred in connection with the defense
of any action, suit or proceeding in which they or any of them were or are
made parties or are threatened to be made parties by reason of their serving
or having served in such capacity. The DGCL provides, however, that such
person must have acted in good faith and in a manner such person reasonably
believed to be in (or not opposed to) the best interests of the corporation
and, in the case of a criminal action, such person must have had no reasonable
cause to believe his or her conduct was unlawful. In addition, the DGCL does
not permit indemnification in an action or suit by or in the right of the
corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person
fairly and reasonably is entitled to indemnity for costs the court deems
proper in light of liability adjudication. Indemnity is mandatory to the
extent a claim, issue or matter has been successfully defended.
The Company's Certificate of Incorporation (the "Certificate") contains
provisions that provide that no director of the Company shall be liable for
breach of fiduciary duty as a director except for (1) any breach of the
directors' duty of loyalty to the Company or its stockholders; (2) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (3) liability under Section 174 of the DGCL; or
(4) any transaction from which the director derived an improper personal
benefit. Under the Bylaws of the Company, the Company is required to advance
expenses incurred by an officer or director in defending or participating in
any action which such director or officer is made a party to or is threatened
to be made a party to by reason of his or her serving or having served as an
officer or director if the director or officer undertakes to repay such amount
if it is determined that the director or officer is not entitled to
indemnification. In addition, the Company intends to enter into indemnity
agreements with each of its directors pursuant to which the Company will agree
to indemnify the directors as permitted by the DGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*1.1 Placement Agreement, dated as of May 29, 1997, among ITC/\DeltaCom,
Inc. and Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, First Union Capital Markets Corp. and
NationsBanc Capital Markets, Inc.
*2.1 Agreement and Plan of Merger, dated as of July 24, 1997, by and
between Eastern Telecom, Inc. and Interstate FiberNet, Inc.
*2.2 Agreement and Plan of Merger, dated as of July 24, 1997, by and
between ITC Transmission Systems II, Inc. and Interstate FiberNet,
Inc.
*2.3 Stock Assignment and Contribution Agreement, dated as of July 25,
1997, by and between ITC Holding Company, Inc. and ITC/\DeltaCom, Inc.
*2.4 Stock Assignment and Contribution Agreement, dated as of July 25,
1997, by and between ITC/\DeltaCom, Inc. and Interstate FiberNet, Inc.
*3.1 Certificate of Incorporation of ITC/\DeltaCom, Inc.
*3.2 Bylaws of ITC/\DeltaCom, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*4.1 Indenture dated June 3, 1997 between ITC/\DeltaCom, Inc. and United
States Trust Company of New York, as Trustee, relating to the 11%
Senior Notes Due 2007 of ITC/\DeltaCom, Inc.
*4.2 Registration Rights Agreement, dated June 3, 1997, among ITC/\DeltaCom,
Inc. and Morgan Stanley & Co. Incorporated, Merrill Lynch & Co., First
Union Capital Markets Corp. and NationsBanc Capital Markets, Inc.
*4.3 Pledge and Security Agreement dated as of June 3, 1997 from
ITC/\DeltaCom, Inc. as Pledgor to United States Trust Company of New
York as Trustee.
*4.4 Form of Exchange Note (contained in Indenture filed as Exhibit 4.1).
*4.5 Assignment and Assumption Agreement Pursuant to Pledge and Security
Agreement, dated as of July 25, 1997, by and among ITC/\DeltaCom, Inc.,
Interstate FiberNet, Inc. and United States Trust Company of New York,
as Trustee.
5.1 Opinion of Hogan & Hartson L.L.P.
*10.1 Capacity Agreement dated as of February 1, 1997 between Interstate
FiberNet and Entergy Technology Company.
*10.2 License Agreement dated February 1, 1997 between Interstate FiberNet
and Metropolitan Atlanta Rapid Transit Authority.
*10.3 Supply Agreement for Transmission Equipment dated March 26, 1993
between Interstate FiberNet and Northern Telecom, Inc.
*10.4 First Amendment to Supply Agreement for Transmission Equipment dated
as of September 9, 1993 between Interstate FiberNet and Northern
Telecom, Inc.
*10.5 Second Amendment to Supply Agreement for Transmission Equipment dated
as of January 19, 1994 between Interstate FiberNet and Northern
Telecom, Inc.
*10.6 Sixth Amendment to Supply Agreement for Transmission Equipment dated
as of November 21, 1996 between Interstate FiberNet and Northern
Telecom, Inc. (which supersedes the Third and the Fourth Amendment to
this Agreement).
*10.7 Seventh Amendment to Supply Agreement for Transmission Equipment dated
as of April 15, 1997 between Interstate FiberNet and Northern Telecom,
Inc. (which supersedes the Fifth Amendment to this Agreement).
*10.8 Master Capacity Lease dated July 22, 1996 between Interstate FiberNet
and InterCel PCS Services, Inc.
*10.9 First Amendment to Master Capacity Lease dated as of August 22, 1996
between Interstate FiberNet and InterCel PCS Services, Inc.
*10.10 Amended and Restated Loan Agreement dated as of March 27, 1997 by and
among Gulf States Transmission Systems, Inc., the Lenders parties
thereto and NationsBank, N.A.
*10.11 Promissory Note dated March 27, 1997 between Gulf States Transmission
Systems, Inc. and NationsBank, N.A.
*10.12 Amended and Restated Security Agreement dated as of March 27, 1997
between Gulf States Transmission Systems, Inc. and NationsBank, N.A.
*10.13 Assignment and Assumption Agreement dated as of March 27, 1997 between
Gulf States FiberNet and Gulf States Transmission Systems, Inc.
*10.14 Term Agreement dated as of August 11, 1994 between Gulf States
FiberNet and Illinois Central Railroad Company.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*10.15 Revised and Restated Fiber Optic Facilities and Services Agreement
dated as of June 9, 1995 among Southern Development and Investment
Group, Inc., on behalf of itself and as agent for Alabama Power
Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company, Savannah Electric and Power Company, Southern
Electric Generating Company and Southern Company Services, Inc., and
MPX Systems, Inc., which was assigned in part by MPX Systems, Inc.
to Gulf States FiberNet pursuant to an Assignment dated as of July
25, 1995.
*10.16 First Amendment to Revised and Restated Fiber Optic Facilities and
Services Agreement dated as of July 24, 1995 between Southern
Development and Investment Group, Inc. on behalf of itself and as
agent for others and MPX Systems, Inc.
*10.17 Partial Assignment and Assumption of Revised and Restated Fiber
Optic Facilities and Services Agreement dated July 25, 1995 between
MPX Systems, Inc. and Gulf States FiberNet.
*+10.17.1 Amendment to Revised and Restated Fiber Optic Facilities and
Services Agreement, dated July 15, 1997, by and among Southern
Development and Investment Group, Inc., on behalf of itself and its
agent for Alabama Power Company, Georgia Power Company, Gulf Power
Company, Mississippi Power Company, Savannah Electric and Power
Company, Southern Electric Generating Company and Southern Company
Services, Inc. (collectively "SES"), ITC Transmission Systems, Inc.
(as managing partner of Interstate FiberNet) and Gulf States
Transmission Systems, Inc.
*10.18 Consent for Assignment of Interest dated February 20, 1997 among
SCANA Communications, Inc., Gulf States FiberNet, Gulf States
Transmission Systems, Inc. and Southern Development and Investment
Groups, Inc.
*10.19 Second Partial Assignment and Assumption of Revised and Restated
Fiber Optic Facilities and Services Agreement dated March 27, 1997
between SCANA Communications, Inc. and ITC Holding Company, Inc.
*10.20 Fiber System Lease Agreement dated January 30, 1996 between CSW
Communications, Inc. and Gulf States FiberNet.
*10.21 Consent for Acquisition and Assignment dated January 13, 1997
between CSW Communications, Inc. and Gulf States FiberNet.
*10.22 Agreement for the Provision of Fiber Optic Services and Facilities
dated April 21, 1986 between SouthernNet, Inc. and MPX Systems, Inc.
*10.23 First Amendment to Agreement for the Provision of Fiber Optic
Services and Facilities dated May 8, 1992 between MPX Systems, Inc.
and MCI Telecommunications Corporation.
*10.24 Second Amendment to Agreement for the Provision of Fiber Optic
Services and Facilities dated January 30, 1996 between MPX Systems,
Inc. and MCI Telecommunications Corporation.
*10.25 Network Operating Agreement dated March 25, 1996 among Gulf States
FiberNet, TriNet, Inc., Hart Communications, Inc. and SCANA
Communications, Inc. (f/k/a MPX Systems, Inc.).
*10.26 Agreement for the Provision of Fiber Optic Facilities and Services
dated March 29, 1990 between Alabama Power Company and Southern
Interexchange Facilities, Inc.
*10.27 Amendment to the Agreement for Provision of Fiber Optic Facilities
and Services dated March 29, 1990 between Alabama Power Company and
Southern Interexchange Facilities, Inc.
*10.28 First Amendment to the Agreement for the Provision of Fiber Optic
Facilities and Services dated March 22, 1991 between Alabama Power
Company and Southern Interexchange Facilities, Inc.
*10.29 Second Amendment to the Agreement for the Provision of Fiber Optic
Facilities and Services dated December 1, 1991 between Alabama Power
Company and Southern Interexchange Facilities, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*10.30 Third Amendment to the Agreement for the Provision of Fiber Optic
Facilities and Services dated September 23, 1992 between Alabama
Power Company and Southern Interexchange Facilities, Inc.
*10.31 Fourth Amendment to the Agreement for the Provision of Fiber Optic
Facilities and Services dated January 1, 1994 between Alabama Power
Company and Southern Interexchange Facilities, Inc.
*10.32 Agreement dated March 6, 1990 between Tennessee Valley Authority and
Consolidated Communications Corporation (predecessor to DeltaCom,
Inc.).
*10.33 Interconnection Agreement signed March 12, 1997 between DeltaCom,
Inc. and BellSouth Telecommunications, Inc.
*10.34 Amendment to Interconnection Agreement relating to BellSouth loops
dated March 12, 1997 between DeltaCom, Inc. and BellSouth
Telecommunications, Inc.
*10.35 Amendment to Interconnection Agreement relating to resale of
BellSouth services dated March 12, 1997 between DeltaCom, Inc. and
BellSouth Telecommunications, Inc.
*10.35.1 Third Amendment to Interconnection Agreement, dated March 12, 1997,
by and between DeltaCom, Inc. and BellSouth Telecommunications, Inc.
10.35.2 Fourth Amendment to Interconnection Agreement, dated August 22,
1997, by and between DeltaCom, Inc. and BellSouth
Telecommunications, Inc.
*10.36 Master Equipment Lease Agreement dated October 30, 1995 between AT&T
Systems Leasing Co. and DeltaCom, Inc.
*10.37 Network Products Purchase Agreement dated January 24, 1996, as
amended through March 4, 1997, between DeltaCom, Inc. and Northern
Telecom, Inc.
*10.38 First Amendment to Product Attachment Carrier Network Products,
dated May 20, 1997.
*10.39 Agreement for Use of Optical Fiber System, Microwave Radio Tower
Site and Associated Facilities dated January 2, 1996 between
DeltaCom, Inc. and SCI Systems, Inc.
*10.40 Collocate Agreement dated January 7, 1991 between Williams
Telecommunications Services, Inc., and Southern Interexchange
Facilities, Inc. (including consent for change of control).
*10.41 Agreement dated January 14, 1997 between DeltaCom, Inc. and SCANA
Communications, Inc., for switch location in Columbia, South
Carolina.
*10.42 Lease Agreement dated January 1, 1996 between Brindlee Mountain
Telephone Company and DeltaCom, Inc. for, among other purposes,
switch location in Arab, Alabama.
*10.43 Promissory Note dated March 27, 1997 between ITC Holding Company,
Inc. and SCANA Communications, Inc.
*+10.44 Agreement for the Provision of Telecommunications Services and
Facilities, dated January 27, 1996, by and between Interstate
FiberNet and Carolinas FiberNet, LLC.
*+10.45 Fiber Optic Facilities Agreement, dated November 15, 1996, by and
between Interstate FiberNet and Florida Power Corporation.
*+10.46 Fiber Optic Capacity Marketing and Operating Agreement, dated March
21, 1996, by and between Interstate FiberNet and Florida Power &
Light Company.
*+10.47 Addendum to Fiber Optic Capacity Marketing and Operating Agreement,
dated July 10, 1997, by and between Interstate FiberNet and Florida
Power & Light Company.
*+10.48 Master Service Agreement, dated May 6, 1996, by and between
Interstate FiberNet and MCI Telecommunications Corporation.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*+10.49 Telecommunications System Maintenance Agreement, dated as of January
26, 1995, by and between Interstate FiberNet and Sprint Communications
Company L.P.
*+10.50 Sprint Communications Company Facilities and Services Agreement, dated
January 26, 1995, by and between Interstate FiberNet and Sprint
Communications Company L.P.
*+10.51 Fiber Optic Facility Lease Agreement, dated as of January 31, 1997, by
and between Interstate FiberNet and Southern Telecom 1, Inc.
*10.52 First Assignment and Assumption of Fiber Optic Facility Lease
Agreement, dated February 1, 1997, by and between Interstate FiberNet
and Gulf States FiberNet.
+10.53 Telecommunications System Agreement, dated January 26, 1995, by and
between Interstate FiberNet and Sprint Communications Company L.P.
*10.54 Amendment to Telecommunications System Agreement, dated July 25, 1995,
by and between Gulf States FiberNet and Sprint Communications Company
L.P.
*+10.55 Amendment No. 2 to Telecommunications System Agreement, dated August
8, 1996, by and between Gulf States FiberNet and Sprint Communications
Company L.P.
*+10.56 Assignment of the Telecommunications System Agreement, dated July 25,
1995, between Interstate FiberNet, Gulf States FiberNet and Sprint
Communications Company, L.P.
*+10.57 Assignment of the Telecommunications System Agreement, dated February
27, 1997, between Sprint Communications Company L.P., Gulf States
FiberNet and Gulf States Transmission Systems, Inc.
*10.58 Fixed Fee Agreement for Exchange of Use and Maintenance of Six (6)
Fiber Optic Fibers with an Option of Two (2) Additional Fiber Optic
Fibers, dated July 25, 1997, by and between Interstate FiberNet, Gulf
States Transmission Systems, Inc. and ALLTEL Telephone Services
Corporation.
*+10.59 MCI Carrier Agreement, effective August 1, 1995, by and between MCI
Telecommunications Corporation and Associated Communications Companies
of America (ACCA).
*+10.60 First Amendment to MCI Carrier Agreement, dated as of March 20, 1996,
by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.61 Third Amendment to MCI Carrier Agreement, dated as of August 1, 1996,
by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*10.62 Fourth Amendment to MCI Carrier Agreement, dated as of May 1, 1996, by
and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.63 Fifth Amendment to MCI Carrier Agreement, dated as of April 10, 1996,
by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.64 Sixth Amendment to MCI Carrier Agreement, dated as of September 11,
1996, by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.65 Seventh Amendment to MCI Carrier Agreement, dated as of August 1,
1996, by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.66 Eighth Amendment to MCI Carrier Agreement, effective March 1, 1997, by
and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.67 Ninth Amendment to MCI Carrier Agreement, dated as of May 15, 1997, by
and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*10.68 Tenth Amendment to MCI Carrier Agreement, dated July 11, 1997, by
and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.69 Switched Reseller Services Agreement, dated January 25, 1994, by and
between DeltaCom, Inc. and Allnet Communication Services, Inc.
*+10.70 WilTel, Inc. Carrier Digital Services Agreement, dated September 1,
1995, by and between WorldCom Network Services, Inc. d/b/a WilTel,
Associated Communications Companies of America (ACCA) and the
individual members of ACCA referenced therein.
*+10.71 Amendment to WilTel, Inc. Carrier Digital Services Agreement, dated
April 1, 1996, by and between WorldCom Network Services, Inc. d/b/a
WilTel, Associated Communications Companies of America (ACCA) and
the individual members of ACCA referenced therein.
*+10.72 Amendment No. 2 to WilTel, Inc. Carrier Digital Services Agreement,
dated June 1, 1996, by and between WorldCom Network Services, Inc.
d/b/a WilTel, Associated Communications Companies of America (ACCA)
and the individual members of ACCA referenced therein.
*+10.73 Amendment No. 3 to WilTel, Inc. Carrier Digital Services Agreement,
dated May 1, 1997, by and between WorldCom Network Services, Inc.
d/b/a WilTel, Associated Communications Companies of America (ACCA)
and the individual members of ACCA referenced therein.
*+10.74 Marketing and Operating Agreement, dated as of October 6, 1994, by
and between Interstate FiberNet and DukeNet Communications, Inc.
*+10.75 Reseller Agreement, dated June 25, 1997, by and between DeltaCom,
Inc. and Total Network Services, a division of Cable & Wireless,
Inc.
*10.76 Sublease Agreement, dated as of January 1, 1995, by and between ITC
Holding Company, Inc. and ITC Transmission Systems, Inc.
10.77 $100,000,000 Credit Agreement, dated as of September 17, 1997, among
Interstate FiberNet, Inc., NationsBank of Texas, N.A. as
Administrative Lender and certain other Lenders identified therein
(the "IFN Credit Agreement").
10.78.1 $8,750,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
NationsBank of Texas, N.A.
10.78.2 $3,750,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Amsouth Bank.
10.78.3 $5,000,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Creditanstalt-Bankverein.
10.78.4 $5,000,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Meespierson Capital Corp.
10.78.5 $5,000,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
State Street Bank and Trust Company.
10.78.6 $7,500,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Corestates Bank, N.A.
10.78.7 $2,500,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
First Union National Bank.
10.78.8 $5,000,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Regions Bank.
10.78.9 $7,500,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Toronto Dominion (Texas), Inc.
10.79.1 $8,750,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of
NationsBank of Texas, N.A.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.79.2 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of
Creditanstalt-Bankverein.
10.79.3 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of
Meespierson Capital Corp.
10.79.4 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of State
Street Bank and Trust Company.
10.79.5 $7,500,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of Corestates
Bank, N.A.
10.79.6 $2,500,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of First
Union National Bank.
10.79.7 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of Regions
Bank.
10.79.8 $7,500,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of Toronto
Dominion (Texas), Inc.
10.79.9 $3,750,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of Amsouth
Bank.
10.80.1 Security Agreement, dated as of September 17, 1997, made by
Interstate FiberNet, Inc. in favor of NationsBank of Texas, N.A., as
Administrative Lender, and each other lender party to the IFN Credit
Agreement.
10.80.2 Security Agreement, dated as of September 17, 1997, made by
DeltaCom, Inc. in favor of NationsBank of Texas, N.A., as
Administrative Lender, and each other lender party to the IFN Credit
Agreement.
10.80.3 Security Agreement, dated as of September 17, 1997, made by Gulf
States Transmission Systems, Inc. in favor of NationsBank of Texas,
N.A., as Administrative Lender, and each other lender party to the
IFN Credit Agreement.
*12.1 Statement regarding Computation of Ratios.
*21.1 Subsidiaries of ITC/\DeltaCom, Inc.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of Martin Stuedeman & Associates P.C.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
*24.1 Power of attorney (included on signature page).
*25.1 Statement on Form T-1 of Eligibility of Trustee.
*27.1 Financial Data Schedule for the year ended December 31, 1996.
*27.2 Financial Data Schedule for the six month period ended June 30,
1997.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers, et al.
99.4 Form of Letter to Clients.
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been granted for this exhibit. The copy filed as
an exhibit omits the information subject to confidential treatment.
II-7
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are inapplicable
or the information required to be set forth therein is provided in the
Combined Financial Statements of the Company or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this Registration Statement when it became effective.
The undersigned registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
Registration Statement;
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-
effective amendment hereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement when it becomes
effective, and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
The undersigned registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned registrant hereby undertakes to remove from registration by
means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECURITIES ACT, THE COMPANY HAS DULY CAUSED
THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF WEST POINT, GEORGIA, ON THIS 24TH
DAY OF SEPTEMBER, 1997.
ITC/\DELTACOM, INC.
By /s/ Andrew M. Walker
-----------------------------------
ANDREW M. WALKER
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, IN THE CAPACITIES
INDICATED BELOW, ON THIS 24TH DAY OF SEPTEMBER, 1997.
SIGNATURE TITLE
* Chairman, Director
- -------------------------------------
CAMPBELL B. LANIER, III
/s/ Andrew M. Walker Chief Executive Officer and Director
- ------------------------------------- (Principal executive officer)
ANDREW M. WALKER
/s/ Douglas A. Shumate Senior Vice President and Chief
- ------------------------------------- Financial Officer (Principal
DOUGLAS A. SHUMATE financial officer and principal
accounting officer)
* Director
- -------------------------------------
DONALD W. BURTON
* Director
- -------------------------------------
MALCOLM C. DAVENPORT, V
* Director
- -------------------------------------
ROBERT A. DOLSON
* Director
- -------------------------------------
O. GENE GABBARD
II-9
<PAGE>
SIGNATURE TITLE
--------- -----
* Director
- -------------------------------------
WILLIAM T. PARR
* Director
- -------------------------------------
WILLIAM H. SCOTT, III
* Director
- -------------------------------------
WILLIAM B. TIMMERMAN
*By: /s/ Andrew M. Walker
---------------------------------
ANDREW M. WALKER
ATTORNEY-IN-FACT
II-10
<PAGE>
INDEX TO THE FINANCIAL STATEMENT SCHEDULE
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.)
ITC TRANSMISSION SYSTEMS II, INC.
GULF STATES TRANSMISSION SYSTEMS, INC.
EASTERN TELECOM, INC., d.b.a. INTERQUEST
DELTACOM, INC. (REORGANIZED AS ITC/\DELTACOM, INC.)
Report of Independent Public Accountants
Schedule II--Valuation and Qualifying Accounts
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
AS TO SCHEDULE
ToInterstate FiberNet, Inc. (formerly ITC Transmission Systems, Inc.),
ITC Transmission Systems II, Inc.,
Gulf States Transmission Systems, Inc.,
Eastern Telecom, Inc. d.b.a. InterQuest, and
DeltaCom, Inc.
We have audited in accordance with generally accepted auditing standards,
the combined financial statements of Interstate FiberNet, Inc. (formerly ITC
Transmission Systems, Inc.), ITC Transmission Systems II, Inc., Gulf States
Transmission Systems, Inc., Eastern Telecom, Inc., d.b.a. InterQuest, and
DeltaCom, Inc. included in this Registration Statement, and have issued our
report thereon dated March 27, 1997 (except with respect to the Credit
Facility and Debt Offering discussions in Note 16, as to which the date is
July 31, 1997). Our audits were 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 Companies' management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic combined financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
combined financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic combined financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
July 31, 1997
S-2
<PAGE>
INTERSTATE FIBERNET, INC. (FORMERLY ITC TRANSMISSION SYSTEMS, INC.),
ITC TRANSMISSION SYSTEMS II, INC.,
GULF STATES TRANSMISSION SYSTEMS, INC.,
EASTERN TELECOM, INC., D.B.A. INTERQUEST, AND
DELTACOM, INC.
(REORGANIZED AS ITC/\DELTACOM, INC.)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT BALANCE AT
BEGINNING CHARGED TO CHARGED TO END OF
DESCRIPTION OF PERIOD INCOME OTHER ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Provision for uncollect-
ible accounts
1994.................. $ 8,423 $412,030 $ 0 $339,042(2) $ 81,411
1995.................. 81,411 377,116 0 422,740(2) 35,787
1996.................. 35,787 458,210 1,209,329(1) 846,468(2) 856,858
</TABLE>
- --------
Notes:
(1) Represents a purchased reserve related to the acquisition of DeltaCom, Inc.
(2) Represents write-off of accounts considered to be uncollectible, less
recoveries of amounts previously written off.
S-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*1.1 Placement Agreement, dated as of May 29, 1997, among ITC/\DeltaCom,
Inc. and Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, First Union Capital Markets Corp. and
NationsBanc Capital Markets, Inc.
*2.1 Agreement and Plan of Merger, dated as of July 24, 1997, by and
between Eastern Telecom, Inc. and Interstate FiberNet, Inc.
*2.2 Agreement and Plan of Merger, dated as of July 24, 1997, by and
between ITC Transmission Systems II, Inc. and Interstate FiberNet,
Inc.
*2.3 Stock Assignment and Contribution Agreement, dated as of July 25,
1997, by and between ITC Holding Company, Inc. and ITC/\DeltaCom, Inc.
*2.4 Stock Assignment and Contribution Agreement, dated as of July 25,
1997, by and between ITC/\DeltaCom, Inc. and Interstate FiberNet, Inc.
*3.1 Certificate of Incorporation of ITC/\DeltaCom, Inc.
*3.2 Bylaws of ITC/\DeltaCom, Inc.
*4.1 Indenture dated June 3, 1997 between ITC/\DeltaCom, Inc. and United
States Trust Company of New York, as Trustee, relating to the 11%
Senior Notes Due 2007 of ITC/\DeltaCom, Inc.
*4.2 Registration Rights Agreement, dated June 3, 1997, among ITC/\DeltaCom,
Inc. and Morgan Stanley & Co. Incorporated, Merrill Lynch & Co., First
Union Capital Markets Corp. and NationsBanc Capital Markets, Inc.
*4.3 Pledge and Security Agreement dated as of June 3, 1997 from
ITC/\DeltaCom, Inc. as Pledgor to United States Trust Company of New
York as Trustee.
*4.4 Form of Exchange Note (contained in Indenture filed as Exhibit 4.1).
*4.5 Assignment and Assumption Agreement Pursuant to Pledge and Security
Agreement, dated as of July 25, 1997, by and among ITC/\DeltaCom, Inc.,
Interstate FiberNet, Inc. and United States Trust Company of New York,
as Trustee.
5.1 Opinion of Hogan & Hartson L.L.P.
*10.1 Capacity Agreement dated as of February 1, 1997 between Interstate
FiberNet and Entergy Technology Company.
*10.2 License Agreement dated February 1, 1997 between Interstate FiberNet
and Metropolitan Atlanta Rapid Transit Authority.
*10.3 Supply Agreement for Transmission Equipment dated March 26, 1993
between Interstate FiberNet and Northern Telecom, Inc.
*10.4 First Amendment to Supply Agreement for Transmission Equipment dated
as of September 9, 1993 between Interstate FiberNet and Northern
Telecom, Inc.
*10.5 Second Amendment to Supply Agreement for Transmission Equipment dated
as of January 19, 1994 between Interstate FiberNet and Northern
Telecom, Inc.
*10.6 Sixth Amendment to Supply Agreement for Transmission Equipment dated
as of November 21, 1996 between Interstate FiberNet and Northern
Telecom, Inc. (which supersedes the Third and the Fourth Amendment to
this Agreement).
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*10.7 Seventh Amendment to Supply Agreement for Transmission Equipment
dated as of April 15, 1997 between Interstate FiberNet and Northern
Telecom, Inc. (which supersedes the Fifth Amendment to this
Agreement).
*10.8 Master Capacity Lease dated July 22, 1996 between Interstate
FiberNet and InterCel PCS Services, Inc.
*10.9 First Amendment to Master Capacity Lease dated as of August 22, 1996
between Interstate FiberNet and InterCel PCS Services, Inc.
*10.10 Amended and Restated Loan Agreement dated as of March 27, 1997 by
and among Gulf States Transmission Systems, Inc., the Lenders
parties thereto and NationsBank, N.A.
*10.11 Promissory Note dated March 27, 1997 between Gulf States
Transmission Systems, Inc. and NationsBank, N.A.
*10.12 Amended and Restated Security Agreement dated as of March 27, 1997
between Gulf States Transmission Systems, Inc. and NationsBank, N.A.
*10.13 Assignment and Assumption Agreement dated as of March 27, 1997
between Gulf States FiberNet and Gulf States Transmission Systems,
Inc.
*10.14 Term Agreement dated as of August 11, 1994 between Gulf States
FiberNet and Illinois Central Railroad Company.
*10.15 Revised and Restated Fiber Optic Facilities and Services Agreement
dated as of June 9, 1995 among Southern Development and Investment
Group, Inc., on behalf of itself and as agent for Alabama Power
Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company, Savannah Electric and Power Company, Southern
Electric Generating Company and Southern Company Services, Inc., and
MPX Systems, Inc., which was assigned in part by MPX Systems, Inc.
to Gulf States FiberNet pursuant to an Assignment dated as of July
25, 1995.
*10.16 First Amendment to Revised and Restated Fiber Optic Facilities and
Services Agreement dated as of July 24, 1995 between Southern
Development and Investment Group, Inc. on behalf of itself and as
agent for others and MPX Systems, Inc.
*10.17 Partial Assignment and Assumption of Revised and Restated Fiber
Optic Facilities and Services Agreement dated July 25, 1995 between
MPX Systems, Inc. and Gulf States FiberNet.
*+10.17.1 Amendment to Revised and Restated Fiber Optic Facilities and
Services Agreement, dated July 15, 1997, by and among Southern
Development and Investment Group, Inc., on behalf of itself and its
agent for Alabama Power Company, Georgia Power Company, Gulf Power
Company, Mississippi Power Company, Savannah Electric and Power
Company, Southern Electric Generating Company and Southern Company
Services, Inc. (collectively "SES"), ITC Transmission Systems, Inc.
(as managing partner of Interstate FiberNet) and Gulf States
Transmission Systems, Inc.
*10.18 Consent for Assignment of Interest dated February 20, 1997 among
SCANA Communications, Inc., Gulf States FiberNet, Gulf States
Transmission Systems, Inc. and Southern Development and Investment
Groups, Inc.
*10.19 Second Partial Assignment and Assumption of Revised and Restated
Fiber Optic Facilities and Services Agreement dated March 27, 1997
between SCANA Communications, Inc. and ITC Holding Company, Inc.
*10.20 Fiber System Lease Agreement dated January 30, 1996 between CSW
Communications, Inc. and Gulf States FiberNet.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*10.21 Consent for Acquisition and Assignment dated January 13, 1997
between CSW Communications, Inc. and Gulf States FiberNet.
*10.22 Agreement for the Provision of Fiber Optic Services and Facilities
dated April 21, 1986 between SouthernNet, Inc. and MPX Systems, Inc.
*10.23 First Amendment to Agreement for the Provision of Fiber Optic
Services and Facilities dated May 8, 1992 between MPX Systems, Inc.
and MCI Telecommunications Corporation.
*10.24 Second Amendment to Agreement for the Provision of Fiber Optic
Services and Facilities dated January 30, 1996 between MPX Systems,
Inc. and MCI Telecommunications Corporation.
*10.25 Network Operating Agreement dated March 25, 1996 among Gulf States
FiberNet, TriNet, Inc., Hart Communications, Inc. and SCANA
Communications, Inc. (f/k/a MPX Systems, Inc.).
*10.26 Agreement for the Provision of Fiber Optic Facilities and Services
dated March 29, 1990 between Alabama Power Company and Southern
Interexchange Facilities, Inc.
*10.27 Amendment to the Agreement for Provision of Fiber Optic Facilities
and Services dated March 29, 1990 between Alabama Power Company and
Southern Interexchange Facilities, Inc.
*10.28 First Amendment to the Agreement for the Provision of Fiber Optic
Facilities and Services dated March 22, 1991 between Alabama Power
Company and Southern Interexchange Facilities, Inc.
*10.29 Second Amendment to the Agreement for the Provision of Fiber Optic
Facilities and Services dated December 1, 1991 between Alabama Power
Company and Southern Interexchange Facilities, Inc.
*10.30 Third Amendment to the Agreement for the Provision of Fiber Optic
Facilities and Services dated September 23, 1992 between Alabama
Power Company and Southern Interexchange Facilities, Inc.
*10.31 Fourth Amendment to the Agreement for the Provision of Fiber Optic
Facilities and Services dated January 1, 1994 between Alabama Power
Company and Southern Interexchange Facilities, Inc.
*10.32 Agreement dated March 6, 1990 between Tennessee Valley Authority and
Consolidated Communications Corporation (predecessor to DeltaCom,
Inc.).
*10.33 Interconnection Agreement signed March 12, 1997 between DeltaCom,
Inc. and BellSouth Telecommunications, Inc.
*10.34 Amendment to Interconnection Agreement relating to BellSouth loops
dated March 12, 1997 between DeltaCom, Inc. and BellSouth
Telecommunications, Inc.
*10.35 Amendment to Interconnection Agreement relating to resale of
BellSouth services dated March 12, 1997 between DeltaCom, Inc. and
BellSouth Telecommunications, Inc.
*10.35.1 Third Amendment to Interconnection Agreement, dated March 12, 1997,
by and between DeltaCom, Inc. and BellSouth Telecommunications, Inc.
10.35.2 Fourth Amendment to Interconnection Agreement, dated August 22,
1997, by and between DeltaCom, Inc. and BellSouth
Telecommunications, Inc.
*10.36 Master Equipment Lease Agreement dated October 30, 1995 between AT&T
Systems Leasing Co. and DeltaCom, Inc.
*10.37 Network Products Purchase Agreement dated January 24, 1996, as
amended through March 4, 1997, between DeltaCom, Inc. and Northern
Telecom, Inc.
*10.38 First Amendment to Product Attachment Carrier Network Products,
dated May 20, 1997.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*10.39 Agreement for Use of Optical Fiber System, Microwave Radio Tower Site
and Associated Facilities dated January 2, 1996 between DeltaCom, Inc.
and SCI Systems, Inc.
*10.40 Collocate Agreement dated January 7, 1991 between Williams
Telecommunications Services, Inc., and Southern Interexchange
Facilities, Inc. (including consent for change of control).
*10.41 Agreement dated January 14, 1997 between DeltaCom, Inc. and SCANA
Communications, Inc., for switch location in Columbia, South Carolina.
*10.42 Lease Agreement dated January 1, 1996 between Brindlee Mountain
Telephone Company and DeltaCom, Inc. for, among other purposes, switch
location in Arab, Alabama.
*10.43 Promissory Note dated March 27, 1997 between ITC Holding Company, Inc.
and SCANA Communications, Inc.
*+10.44 Agreement for the Provision of Telecommunications Services and
Facilities, dated January 27, 1996, by and between Interstate FiberNet
and Carolinas FiberNet, LLC.
*+10.45 Fiber Optic Facilities Agreement, dated November 15, 1996, by and
between Interstate FiberNet and Florida Power Corporation.
*+10.46 Fiber Optic Capacity Marketing and Operating Agreement, dated March
21, 1996, by and between Interstate FiberNet and Florida Power & Light
Company.
*+10.47 Addendum to Fiber Optic Capacity Marketing and Operating Agreement,
dated July 10, 1997, by and between Interstate FiberNet and Florida
Power & Light Company.
*+10.48 Master Service Agreement, dated May 6, 1996, by and between Interstate
FiberNet and MCI Telecommunications Corporation.
*+10.49 Telecommunications System Maintenance Agreement, dated as of January
26, 1995, by and between Interstate FiberNet and Sprint Communications
Company L.P.
*+10.50 Sprint Communications Company Facilities and Services Agreement, dated
January 26, 1995, by and between Interstate FiberNet and Sprint
Communications Company L.P.
*+10.51 Fiber Optic Facility Lease Agreement, dated as of January 31, 1997, by
and between Interstate FiberNet and Southern Telecom 1, Inc.
*10.52 First Assignment and Assumption of Fiber Optic Facility Lease
Agreement, dated February 1, 1997, by and between Interstate FiberNet
and Gulf States FiberNet.
+10.53 Telecommunications System Agreement, dated January 26, 1995, by and
between Interstate FiberNet and Sprint Communications Company L.P.
*10.54 Amendment to Telecommunications System Agreement, dated July 25, 1995,
by and between Gulf States FiberNet and Sprint Communications Company
L.P.
*+10.55 Amendment No. 2 to Telecommunications System Agreement, dated August
8, 1996, by and between Gulf States FiberNet and Sprint Communications
Company L.P.
*+10.56 Assignment of the Telecommunications System Agreement, dated July 25,
1995, between Interstate FiberNet, Gulf States FiberNet and Sprint
Communications Company, L.P.
*+10.57 Assignment of the Telecommunications System Agreement, dated February
27, 1997, between Sprint Communications Company L.P., Gulf States
FiberNet and Gulf States Transmission Systems, Inc.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*10.58 Fixed Fee Agreement for Exchange of Use and Maintenance of Six (6)
Fiber Optic Fibers with an Option of Two (2) Additional Fiber Optic
Fibers, dated July 25, 1997, by and between Interstate FiberNet, Gulf
States Transmission Systems, Inc. and ALLTEL Telephone Services
Corporation.
*+10.59 MCI Carrier Agreement, effective August 1, 1995, by and between MCI
Telecommunications Corporation and Associated Communications Companies
of America (ACCA).
*+10.60 First Amendment to MCI Carrier Agreement, dated as of March 20, 1996,
by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.61 Third Amendment to MCI Carrier Agreement, dated as of August 1, 1996,
by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*10.62 Fourth Amendment to MCI Carrier Agreement, dated as of May 1, 1996, by
and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.63 Fifth Amendment to MCI Carrier Agreement, dated as of April 10, 1996,
by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.64 Sixth Amendment to MCI Carrier Agreement, dated as of September 11,
1996, by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.65 Seventh Amendment to MCI Carrier Agreement, dated as of August 1,
1996, by and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.66 Eighth Amendment to MCI Carrier Agreement, effective March 1, 1997, by
and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.67 Ninth Amendment to MCI Carrier Agreement, dated as of May 15, 1997, by
and between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*10.68 Tenth Amendment to MCI Carrier Agreement, dated July 11, 1997, by and
between MCI Telecommunications Corporation and Associated
Communications Companies of America (ACCA).
*+10.69 Switched Reseller Services Agreement, dated January 25, 1994, by and
between DeltaCom, Inc. and Allnet Communication Services, Inc.
*+10.70 WilTel, Inc. Carrier Digital Services Agreement, dated September 1,
1995, by and between WorldCom Network Services, Inc. d/b/a WilTel,
Associated Communications Companies of America (ACCA) and the
individual members of ACCA referenced therein.
*+10.71 Amendment to WilTel, Inc. Carrier Digital Services Agreement, dated
April 1, 1996, by and between WorldCom Network Services, Inc. d/b/a
WilTel, Associated Communications Companies of America (ACCA) and the
individual members of ACCA referenced therein.
*+10.72 Amendment No. 2 to WilTel, Inc. Carrier Digital Services Agreement,
dated June 1, 1996, by and between WorldCom Network Services, Inc.
d/b/a WilTel, Associated Communications Companies of America (ACCA)
and the individual members of ACCA referenced therein.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*+10.73 Amendment No. 3 to WilTel, Inc. Carrier Digital Services Agreement,
dated May 1, 1997, by and between WorldCom Network Services, Inc.
d/b/a WilTel, Associated Communications Companies of America (ACCA)
and the individual members of ACCA referenced therein.
*+10.74 Marketing and Operating Agreement, dated as of October 6, 1994, by
and between Interstate FiberNet and DukeNet Communications, Inc.
*+10.75 Reseller Agreement, dated June 25, 1997, by and between DeltaCom,
Inc. and Total Network Services, a division of Cable & Wireless,
Inc.
*10.76 Sublease Agreement, dated as of January 1, 1995, by and between ITC
Holding Company, Inc. and ITC Transmission Systems, Inc.
10.77 $100,000,000 Credit Agreement, dated as of September 17, 1997, among
Interstate FiberNet, Inc., NationsBank of Texas, N.A. as
Administrative Lender and certain other Lenders identified therein
(the "IFN Credit Agreement").
10.78.1 $8,750,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
NationsBank of Texas, N.A.
10.78.2 $3,750,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Amsouth Bank.
10.78.3 $5,000,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Creditanstalt-Bankverein.
10.78.4 $5,000,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Meespierson Capital Corp.
10.78.5 $5,000,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
State Street Bank and Trust Company.
10.78.6 $7,500,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Corestates Bank, N.A.
10.78.7 $2,500,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
First Union National Bank.
10.78.8 $5,000,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Regions Bank.
10.78.9 $7,500,000 Revolving Promissory Note, dated as of September 17,
1997, made by Interstate FiberNet, Inc. payable to the order of
Toronto Dominion (Texas), Inc.
10.79.1 $8,750,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of
NationsBank of Texas, N.A.
10.79.2 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of
Creditanstalt-Bankverein.
10.79.3 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of
Meespierson Capital Corp.
10.79.4 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of State
Street Bank and Trust Company.
10.79.5 $7,500,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of Corestates
Bank, N.A.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.79.6 $2,500,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of First
Union National Bank.
10.79.7 $5,000,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of Regions
Bank.
10.79.8 $7,500,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of Toronto
Dominion (Texas), Inc.
10.79.9 $3,750,000 Term Promissory Note, dated as of September 17, 1997,
made by Interstate FiberNet, Inc. payable to the order of Amsouth
Bank.
10.80.1 Security Agreement, dated as of September 17, 1997, made by
Interstate FiberNet, Inc. in favor of NationsBank of Texas, N.A., as
Administrative Lender, and each other lender party to the IFN Credit
Agreement.
10.80.2 Security Agreement, dated as of September 17, 1997, made by
DeltaCom, Inc. in favor of NationsBank of Texas, N.A., as
Administrative Lender, and each other lender party to the IFN Credit
Agreement.
10.80.3 Security Agreement, dated as of September 17, 1997, made by Gulf
States Transmission Systems, Inc. in favor of NationsBank of Texas,
N.A., as Administrative Lender, and each other lender party to the
IFN Credit Agreement.
*12.1 Statement regarding Computation of Ratios.
*21.1 Subsidiaries of ITC/\DeltaCom, Inc.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of Martin Stuedeman & Associates P.C.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
*24.1 Power of attorney (included on signature page).
*25.1 Statement on Form T-1 of Eligibility of Trustee.
*27.1 Financial Data Schedule for the year ended December 31, 1996.
*27.2 Financial Data Schedule for the six month period ended June 30,
1997.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers, et al.
99.4 Form of Letter to Clients.
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been granted for this exhibit. The copy filed as
an exhibit omits the information subject to confidential treatment.
7
<PAGE>
EXHIBIT 5.1
September 24, 1997
ITC/\DeltaCom, Inc.
206 West Ninth Street
West Point, GA 31833
Ladies and Gentlemen:
This firm has acted as counsel to ITC/\DeltaCom, Inc., a Delaware
corporation (the "Company"), in connection with its Registration Statement on
Form S-4, as amended (File No. 333-31361) (the "Registration Statement"), filed
with the Securities and Exchange Commission relating to the proposed offering of
up to $200,000,000 in aggregate principal amount of 11% Senior Notes Due June 1,
2007 (the "Exchange Notes") in exchange for up to $200,000,000 in aggregate
principal amount of the Company's outstanding 11% Senior Notes Due June 1, 2007
(the "Senior Notes"). This opinion letter is furnished to you at your request
to enable you to fulfill the requirements of Item 601(b)(5) of Regulation S-K,
17 C.F.R. (S)229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. An executed copy of the Indenture dated June 3, 1997 (the
"Indenture"), by and between the Company and United States Trust
Company of New York, including the form of Exchange Note to be
issued pursuant thereto, as filed as Exhibit 4.4 to the
Registration Statement.
3. The Certificate of Incorporation of the Company, as certified by
the Secretary of State of the State of Delaware on May 28, 1997
and as certified by the Secretary of the Company on the date
hereof as being complete, accurate and in effect.
<PAGE>
September 24, 1997
Page 2
4. The By-laws of the Company, as certified by the Secretary of the
Company on the date hereof as being complete, accurate and in
effect.
5. Resolutions of the Board of Directors of the Company adopted on
May 12, 1997 and May 28, 1997, as certified by the Secretary of
the Company on the date hereof as being complete, accurate and in
effect, relating to the issuance and sale of the Exchange Notes
and arrangements in connection therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents, and the conformity to authentic original documents of
all documents submitted to us as copies (including telecopies). This opinion
letter is given, and all statements herein are made, in the context of the
foregoing.
This opinion letter is based as to matters of law solely on applicable
provisions of the General Corporation Law of the State of Delaware, as amended,
and the contract law of the State of New York (but not including any statutes,
ordinances, administrative decisions, rules or regulations of any political
subdivision of the State of New York). We express no opinion herein as to any
other laws, statutes, ordinances, rules or regulations not specifically referred
to above.
Based upon, subject to and limited by the foregoing, we are of the
opinion that the Exchange Notes have been duly authorized on behalf of the
Company and that, (i) following the effectiveness of the Registration Statement
and receipt by the Company of the Senior Notes in exchange for the Exchange
Notes as specified in the resolutions of the Board of Directors referred to
above, and (ii) assuming due execution, authentication, issuance and delivery of
the Exchange Notes as provided in the Indenture, the Exchange Notes will
constitute valid and binding obligations of the Company entitled to the benefits
of the Indenture and enforceable in accordance with their terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights (including, without limitation, the effect of
statutory and other law regarding fraudulent conveyances, fraudulent transfers
and preferential transfers) and as may be limited by the exercise of judicial
discretion and the application of principles of equity including, without
limitation, requirements of good faith, fair dealing, conscionability and
materiality (regardless of whether the Exchange Notes are considered in a
proceeding in equity or at law).
<PAGE>
September 24, 1997
Page 3
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE>
EXHIBIT 10.35.2
FOURTH AMENDMENT
TO
INTERCONNECTION AGREEMENT BETWEEN
DELTACOM, INC. AND
BELLSOUTH TELECOMMUNICATIONS, INC.
DATED MARCH 12, 1997
Pursuant to this Agreement (the "Fourth Amendment"), DeltaCom, Inc.
("DeltaCom") and BellSouth Telecommunications, Inc. ("BellSouth"), hereinafter
referred to collectively as the "Parties", hereby agree to further amend that
certain Interconnection Agreement, as heretofore amended, between the Parties
dated March 12, 1997 ("Interconnection Agreement").
NOW THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, DeltaCom and BellSouth hereby covenant and agree as
follows:
1. The Parties agree to delete in its entirety Section VIII(B) of the
Interconnection Agreement and substitute the following Section VIII(B).
For originating and terminating interexchange toll traffic, each Party
shall pay the other Party's tariffed switched network access service
rate elements on a per minute of use basis. Said rate elements shall
be as set out in the Parties' respective access services tariffs as
those tariffs are amended from time to time during the term of this
Agreement. The appropriate charges will be determined by the routing
of the call. If DeltaCom is the BellSouth end user's presubscribed
interexchange carrier or if the BellSouth end user uses DeltaCom as an
interexchange carrier on a 10XXX basis, BellSouth will charge DeltaCom
the appropriate tariff charges for originating network access
services. If BellSouth is serving as the DeltaCom end user's
presubscribed interexchange carrier or if the DeltaCom end user uses
BellSouth as an interexchange carrier on a 10XXX basis, DeltaCom will
charge BellSouth the appropriate BellSouth tariff charges for
originating network access services. However, in states where
DeltaCom has an effective access services tariff, the Parties agree
that DeltaCom will charge BellSouth the appropriate DeltaCom tariff
charges for originating network access services.
Page 1
<PAGE>
2. Except for Operator Provided Call Handling service provided by
BellSouth in Alabama, Georgia and Kentucky, the Parties agree to amend
Attachment C-10 of the Interconnection Agreement to include a rate of $1.17 per
work minute for Operator Provided Call Handling.
3. The Parties agree to delete in its entirety Section VI(B) of the
Interconnection Agreement and substitute the following Section VI(B):
With the exception of the local traffic specifically identified in
subsection (C) hereafter, each party agrees to terminate local traffic
originated and routed to it by the other party. Each Party will pay
the other for terminating its local traffic on the other's network the
local interconnection rate of $.009 per minute of use in all states.
Each Party will report to the other a Percent Local Usage ("PLU") and
the application of the PLU will determine the amount of local minutes
to be billed to the other party. Until such time as actual usage data
is available, the parties agree to utilize a mutually acceptable
surrogate for the PLU factor. For purposes of developing the PLU,
each party shall consider every local call and every long distance
call. Effective on the first of January, April, July and October of
each year, the parties shall update their PLU.
4. The Parties agree to delete in its entirety Section VI(C) of the
Interconnection Agreement and substitute the following Section VI(C):
If either party provides intermediary tandem switching and transport
services for the other party's connection of its end user to a local
end user of: (1) a CLEC other than DeltaCom; (2) an ILEC other than
BellSouth; or (3) another telecommunications company such as a
wireless telecommunications service provider, the party performing the
intermediary function will bill a $0.0015 per minute charge. However,
BellSouth agrees that DeltaCom may cross-connect directly to such
third Parties at the POI. In such an event, tariffed cross-connection
non-recurring charges will apply, and no transiting charge will apply.
5. Except for Number Services Intercept Access Service provided by
BellSouth in the state of Georgia, the Parties agree to amend Attachment C-11 of
the Interconnection Agreement to delete the rate of $0.30 per intercept query
and replace said rate with a rate of $0.25 per intercept query.
6. The Parties agree to amend the Interconnection Agreement to include
Attachment 1 to this Amendment and incorporated herein by this reference.
7. Amendment 1 to the Interconnection Agreement relating to resale,
executed on March 12, 1997, is deleted in its entirety and replaced with
Attachment 2, attached hereto and incorporated herein by this reference.
Page 2
<PAGE>
8. The Parties agree that all of the other provisions of the
Interconnection Agreement shall remain in full force and effect.
9. The Parties further agree that either or both of the Parties is
authorized to submit this Amendment to the appropriate state public service
commission or other regulatory body having jurisdiction over the subject matter
of this Amendment, for approval subject to Section 252(e) of the federal
Telecommunications Act of 1996.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed by their respective duly authorized representatives and made effective
on the date indicated below.
- -------------------------------- --------------------------------
DELTACOM, INC. BELLSOUTH TELECOMMUNICATIONS,
INC.
By: /s/ Tom Mullis By: /s/ Jerry Hendrix
----------------------------- ------------------------------
DATE: August 13, 1997 DATE: August 22, 1997
--------------- ----------------------------
Page 3
<PAGE>
ATTACHMENT 1
The prices reflected in this Attachment 1 and its Exhibits A,B,C and D shall be
"trued-up" (up or down) based on final prices either determined by further
agreement or by final order (including any appeals) of the relevant public
service commission or other body having jurisdiction over the subject matter of
this Agreement. The "true-up" will consist of comparing the actual volumes and
demand for each item, together with the price associated with such item by this
Amendment, with the final prices determined for each item. Each party shall
keep its own records upon which a "true-up" can be based and any final payment
from one party to other shall be in an amount agreed upon by the Parties based
on such records. In the event of any disagreement as between the records of the
Parties regarding the amount of such "true-up," the Parties agree that the body
having jurisdiction over the matter for the affected states shall be called upon
to resolve such differences or that they will submit the matter to commercial
arbitration in accordance with the terms contained in Section XXV. of the
Interconnection Agreememnt.
Page 4
<PAGE>
ALABAMA EXHIBIT A
1 of 6
Proposed Interim Network Element Rates
<TABLE>
<CAPTION>
PSC
Proposed
Unbundled Element True-up Price
<S> <C>
Network interface device (NID) $ 0.63
Unbundled Loops (per month)
2-wire analog voice grade loop $ 18.00
Nonrecurring-first/additional $ 55.20
4-wire analog voice grade loop $ 28.80
Nonrecurring-first/additional $ 55.20
2-wire ISDN digital grade loop $ 28.80
Nonrecurring-first/additional $ 55.20
2-wire ADSL/HDSL loop $ 28.80
Nonrecurring-first/additional $ 55.20
4-wire HDSL loop $ 28.80
Nonrecurring-first/additional $ 55.20
4-wire DS1 digital grade loop $ 64.19
Nonrecurring-first/additional $675/$315
Unbundled Exchange Access IOC-Voice Grade
0-8 miles, fixed per mo $ 30.00
per mile, per month $ 2.05
9-25 miles, fixed per mo $ 30.00
per mile, per month $ 2.00
Over 25 miles, fixed per mo $ 30.00
per mile, per month $ 1.95
Nonrecurring $ 97.00
Unbundled Local Switching
Unbundled Exchange Ports
2-wire analog per mo $ 2.50
Nonrecurring-first/additional $50/$18
4-wire analog (Coin) per mo $ 4.00
Nonrecurring-first/additional $50/$18
4-wire ISDN DS1 per mo $ 308.00
Nonrecurring-first/additional $230/$200
2-wire ISDN Digital per mo $ 11.91
Nonrecurring-first/additional $150/$120
2-wire analog hunting per line per mo $ 0.25
Nonrecurring $ 3.00
Unbundled Local Usage (Restructured Switching)
End office switching per mou $ 0.001700
Tandem switching per mou $ 0.001500
Common transport per mi/per mou $ 0.000040
Common transport facility termination per mou $ 0.000360
</TABLE>
Page 1 of 6
<PAGE>
EXHIBIT A
2 of 6
ALABAMA
Proposed Interim Network Element Rates
PSC
Proposed
Unbundled Element True-up Price
-INTENTIONALLY LEFT BLANK-
Page 2 of 6
<PAGE>
EXHIBIT A
3 of 6
ALABAMA
Proposed Interim Network Element Rates
<TABLE>
<CAPTION>
PSC
Proposed
Unbundled Element True-up Price
<S> <C>
Local Interconnection
End office switching per mou
Tandem switching per mou
Common transport per mi/per mou
Common transport facility termination per mou
Intermediary tandem per mou
Dedicated Transport - DS1 Only
Per mile per month
Facility termination per month
Facility termination, NRC
Per DS0 equivalent per terminal
Per DS0 equivalent per mile
Channelization System - For Unbundled Loops
Unbundled Loop System (DS1 to VG) per sys/per mo $ 400.00
Nonrecurring $ 525.00
Central office interface per circuit per month $ 1.15
Nonrecurring $ 8.00
CCS7 Signaling Transport Service
Signaling connection link, per month $ 155.00
Nonrecurring $ 510.00
Signaling termination (port), per month $ 355.00
Signaling usage, per 56 kbps facility per month $ 395.00
</TABLE>
Page 3 of 6
<PAGE>
EXHIBIT A
ALABAMA 4 of 6
Proposed Interim Network Element Rates
<TABLE>
<CAPTION>
PSC
Proposed
Unbundled Element True-up Price
<S> <C>
800 Access Ten Digit Screening Service
Per 800 call utilizing 800 access ten digit screening
service with 800 number delivery, per query $ 0.00360
Per 800 call utilizing 800 access ten digit screening
service with 800 number delivery, with optional complex
features, per query $ 0.00431
Per 800 call utilizing 800 access ten digit screening
service with POTS number delivery, per query $ 0.00431
Per 800 call utilizing 800 access ten digit screening
service with POTS number delivery, with optional complex
features, per query $ 0.00431
Nonrecurring (1st/additional)
Reservation charge per 800 number reserved $31.50/$0.50
Est charge 800 number est w/800 number delivery $69.90/1.50
Est charge per 800 number est w/POTS number delivery $69.90/1.50
Customized area of service per 800 number $3.00/$1.50
Multiple interLATA carrier routing per carrier requested
per 800 number $3.50/$2.00
Change charge per request $48.50/$0.50
Call handling and destination features per 800 number $ 3.00
Line Information Database Access Service
Common transport, per query, per month $ 0.00030
Validation, per query, per month $ 0.03800
Nonrecurring - establishment or charge $ 91.00
Operator Services
Operator Call Processing Access Service
Operator provided, per minute
Using BST LIDB $ 1.36
Using foreign LIDB $ 1.38
Fully automated, per attempt
Using BST LIDB $ 0.07
Using foreign LIDB $ 0.09
Inward Operator Services Access Service
Verification per call $ 0.90
Emergency interrupt, per call $ 1.95
Directory Assistance Access Service Calls
Per call $ 0.25
</TABLE>
Page 4 of 6
<PAGE>
EXHIBIT A
ALABAMA 5 of 6
Proposed Interim Network Element Rates
<TABLE>
<CAPTION>
PSC
Proposed
Unbundled Element True-up Price
<S> <C>
Directory Assistance Database Service
Use fee, per DADS customer's EU request/listing $ 0.035
Monthly recurring $ 150.00
Direct Access to Dir Asst Service (DADAS)
Database service charge, per month $ 5,000.00
Database query charge, per query $ 0.023
Nonrecurring - DADAS service establishment $ 1,000.00
DACC Access Service
Per call attempt $ 0.25
Number Services Intercept Access Service
Per intercept query $ 0.25
Directory Transport
Switched Common Transport
Per DA service call $ 0.00030
Switched Common Transport
Per DA service call mile $ 0.00004
Access Tandem Switched
Per DA service call $ 0.00055
Switched Local Channel - DS 1 level, per month $ 133.81
Nonrecurring - first/additional $866.87/$486.83
Switched Dedicated Transport - DS 1 level, per mi/per mo. $ 23.00
Facilities termination, per month $ 90.00
Nonrecurring $ 100.49
DA interconnection per DA access service call $ 0.00269
Installation
NRC - per trunk or signalling connection, first/additional $915/$10
Collocation
Application
Per arrangement/per location - nonrecurring $ 3,850.00
Space preparation fee - nonrecurring ICB
Space construction fee - nonrecurring $ 4,500.00
Cable installation - per entrance cable $ 2,750.00
Floor space zone A, per square foot, per month $ 7.50
Floor space zone B, per square foot, per month $ 6.75
Power per amp, per month $ 5.00
</TABLE>
Page 5 of 6
<PAGE>
EXHIBIT A
6 of 6
ALABAMA
Proposed Interim Network Element Rates
<TABLE>
<CAPTION>
PSC
Proposed
Unbundled Element True-up Price
<S> <C>
Cable support structure, per entrance cable $ 13.35
POT bay (optional point of termination bay)
Per 2-wire cross-connect, per month $ 0.40
Per 4-wire cross-connect, per month $ 1.20
Per DS1 cross-connect, per month $ 1.20
Per DS3 cross-connect, per month $ 8.00
Cross-Connects
2-wire analog, per month $ 0.30
4 wire analog, per month $ 0.50
Nonrecurring 2-wire and 4-wire $ 18.40
DS1, per month $ 8.00
Nonrecurring, first/additional $155/$27
DS3, per month $ 72.00
Nonrecurring, first/additional $155/$27
Security Escort
Basic - 1st half hour $ 41.00
Overtime - 1st half hour $ 48.00
Premium - 1st half hour $ 55.00
Basic - additional $ 25.00
Overtime - additional $ 30.00
Premium - additional $ 35.00
</TABLE>
Page 6 of 6
<PAGE>
EXHIBIT B
PAGE 1 OF 6
RATES AND CHARGES - GEORGIA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PROPOSED RATES
- ------------------------------------------------------------------------------------------------------------------------------------
CHECK LIST MONTHLY
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM NUMBER RATE ELEMENT RECURRING NONRECURRING
====================================================================================================================================
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
2. Nondiscriminatory Collocation - Physical*
- ------------------------------------------------------------------------------------------------------------------------------------
Access to Application Fee $ 3,850.00
- ------------------------------------------------------------------------------------------------------------------------------------
Network Elements Space Preparation Fee IC8
- ------------------------------------------------------------------------------------------------------------------------------------
Space Construction Fee $ 4,500.00
- ------------------------------------------------------------------------------------------------------------------------------------
Cable Installation - Per Entrance Cable $ 2,750.00
- ------------------------------------------------------------------------------------------------------------------------------------
Floor Space Zone A, Per Square Foot $ 7.50
- ------------------------------------------------------------------------------------------------------------------------------------
Floor Space Zone B, Per Square Foot $ 6.75
- ------------------------------------------------------------------------------------------------------------------------------------
Power, Per AMP $ 5.00
- ------------------------------------------------------------------------------------------------------------------------------------
Cable Support Structure, Per Entrance Cable $ 13.35
- ------------------------------------------------------------------------------------------------------------------------------------
POT Bay (Optional Point of Termination Bay)
- ------------------------------------------------------------------------------------------------------------------------------------
2-Wire $ 0.40
- ------------------------------------------------------------------------------------------------------------------------------------
4-Wire $ 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
DS1 $ 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
DS3 $ 8.00
- ------------------------------------------------------------------------------------------------------------------------------------
Cross-Connects
- ------------------------------------------------------------------------------------------------------------------------------------
2-Wire Analog Cross Connect $ 0.30 $ 12.60
- ------------------------------------------------------------------------------------------------------------------------------------
4-Wire Analog Cross Connect $ 0.50 $ 12.60
- ------------------------------------------------------------------------------------------------------------------------------------
DS1 Cross Connect $ 8.00 $ 155.00 - First
- ------------------------------------------------------------------------------------------------------------------------------------
$ 27.00 - Add'l
- ------------------------------------------------------------------------------------------------------------------------------------
DS3 Cross Connect $ 72.00 $ 155.00 - First
- ------------------------------------------------------------------------------------------------------------------------------------
$ 27.00 - Add'l
- ------------------------------------------------------------------------------------------------------------------------------------
Security Escort
- ------------------------------------------------------------------------------------------------------------------------------------
Basic - 1st half hour $ 41.00
- ------------------------------------------------------------------------------------------------------------------------------------
Overtime - 1st half hour $ 48.00
- ------------------------------------------------------------------------------------------------------------------------------------
Premium - 1st half hour $ 55.00
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Basic - additional $ 25.00
- ------------------------------------------------------------------------------------------------------------------------------------
Overtime - additional $ 30.00
- ------------------------------------------------------------------------------------------------------------------------------------
Premium - additional $ 35.00
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Collocation - Virtual Rates as set forth in Section 20 of BST's
- ------------------------------------------------------------------------------------------------------------------------------------
FCC Tariff No. 1.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Dark Fiber* , (2)
- ------------------------------------------------------------------------------------------------------------------------------------
- Per each four-fiber dry fiber arrangement - $ 1,808.19 - First
- ------------------------------------------------------------------------------------------------------------------------------------
$ 922.95 - Add'l
- ------------------------------------------------------------------------------------------------------------------------------------
- Per each fiber strand per route mile or fraction there of $ 241.00 -
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
* Indicates rates subject to true-up.
- ------------------------------------------------------------------------------------------------------------------------------------
Notes(s):
- ------------------------------------------------------------------------------------------------------------------------------------
1. The Intermediary Charge applies only to intermediary traffic and is applied in addition to applicable local interconnection
charges.
- ------------------------------------------------------------------------------------------------------------------------------------
2. Rates mirror Dry Fiber rates contained in Sec. 7 of 8ST's Interstate Access Tariff, FCC No. 1.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
EXHIBIT B
PAGE 2 OF 6
RATES AND CHARGES - GEORGIA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PROPOSED RATES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHECK LIST RATE
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM NUMBER RATE ELEMENT PER YEAR NONRECURRING
====================================================================================================================================
3. Access to Poles Access to Poles, Ducts, Conduits & Rights of Way*
- ------------------------------------------------------------------------------------------------------------------------------------
Ducts, Conduits - Poles $ 4.20
- ------------------------------------------------------------------------------------------------------------------------------------
and Rights of Way - Conduits, per foot $ 0.56
- ------------------------------------------------------------------------------------------------------------------------------------
- Work performed by BellSouth employees as developed Loaded labor rate as
- ------------------------------------------------------------------------------------------------------------------------------------
in accordance with FCC Accounting Rules developed in
- ------------------------------------------------------------------------------------------------------------------------------------
accordance with FCC
- ------------------------------------------------------------------------------------------------------------------------------------
Accounting Rules for
- ------------------------------------------------------------------------------------------------------------------------------------
work performed by
- ------------------------------------------------------------------------------------------------------------------------------------
BST employees
- -----------------------------------------------------------------------------------------===========================================
PROPOSED RATES
- ------------------------------------------------------------------------------------------------------------------------------------
MONTHLY
- ------------------------------------------------------------------------------------------------------------------------------------
RECURRING NONRECURRING
- -----------------------------------------------------------------------------------------===========================================
4. Local Loop Unbundled Exchange Access Loops*
- ------------------------------------------------------------------------------------------------------------------------------------
Transmission - 2 Wire Analog Voice Grade Loop $ 14.22 $ 50.00
- ------------------------------------------------------------------------------------------------------------------------------------
- 4 Wire Analog Voice Grade Loop $ 22.75 $ 75.00
- ------------------------------------------------------------------------------------------------------------------------------------
- 2 Wire ISDN Digital $ 14.22 $ 50.00
- ------------------------------------------------------------------------------------------------------------------------------------
- 2 Wire ASDL $ 14.22 $ 50.00
- ------------------------------------------------------------------------------------------------------------------------------------
- 4 Wire ASDL $ 22.75 $ 75.00
- ------------------------------------------------------------------------------------------------------------------------------------
- 4 Wire HDSL $ 22.75 $ 75.00
- ------------------------------------------------------------------------------------------------------------------------------------
- 4 Wire DS1 Digital Grade Loop $ 117.00 $ 665.00 - First
- ------------------------------------------------------------------------------------------------------------------------------------
$ 315.00 - Add'l
- ------------------------------------------------------------------------------------------------------------------------------------
Loop Distribution*, (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Per Line, per month $ 8.34
- ------------------------------------------------------------------------------------------------------------------------------------
Nonrecurring Charges $ 587.00 - First
- ------------------------------------------------------------------------------------------------------------------------------------
$ 255.00 - Add'l
- ------------------------------------------------------------------------------------------------------------------------------------
Loop Cross Connects*
- ------------------------------------------------------------------------------------------------------------------------------------
- 2 Wire Cross Connect $ 0.30 $ 12.60
- ------------------------------------------------------------------------------------------------------------------------------------
- 4 Wire Cross Connect $ 0.50 $ 12.60
- ------------------------------------------------------------------------------------------------------------------------------------
- DS1 Cross Connect $ 8.00 $ 155.00 - First
- ------------------------------------------------------------------------------------------------------------------------------------
$ 27.00 - Add'l
- ------------------------------------------------------------------------------------------------------------------------------------
- DS3 Cross Connect $ 72.00 $ 155.00 - First
- ------------------------------------------------------------------------------------------------------------------------------------
$ 27.00 - Add'l
- ------------------------------------------------------------------------------------------------------------------------------------
Loop Concentration (inside C.O.)*
- ------------------------------------------------------------------------------------------------------------------------------------
Loop Channelization System $ 400.00 $ 525.00
- ------------------------------------------------------------------------------------------------------------------------------------
Per Circuit $ 1.15 $ 8.00
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Network Interface Device $ 0.53
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
5. Local Transport Local Transport
- ------------------------------------------------------------------------------------------------------------------------------------
Common Transport*
- ------------------------------------------------------------------------------------------------------------------------------------
- Per LEG. per mou
- ------------------------------------------------------------------------------------------------------------------------------------
- Facility Termination, per mou
- ------------------------------------------------------------------------------------------------------------------------------------
Dedicated Transport, DSO equivalent*
- ------------------------------------------------------------------------------------------------------------------------------------
- LINK
- ------------------------------------------------------------------------------------------------------------------------------------
- Facility Termination, per mou
- ------------------------------------------------------------------------------------------------------------------------------------
Dedicated Transport - DS1 Level*
- ------------------------------------------------------------------------------------------------------------------------------------
- Per LINK
- ------------------------------------------------------------------------------------------------------------------------------------
- Facility Termination
- ------------------------------------------------------------------------------------------------------------------------------------
Tandem Switching, per mou*
====================================================================================================================================
* Indicates rates subject to true-up
- ------------------------------------------------------------------------------------------------------------------------------------
Note(s):
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Applies only to 2 Wire Analog Loops.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE>
EXHIBIT B
PAGE 3 OF 6
RATES AND CHARGES - GEORGIA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PROPOSED RATES
- -----------------------------------------------------------------------------------------------------------------------------
CHECK LIST MONTHLY
- -----------------------------------------------------------------------------------------------------------------------------
ITEM NUMBER RATE ELEMENT RECURRING NONRECURRING
=============================================================================================================================
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
6. Unbundled Local Unbundled Local Switching *
- -----------------------------------------------------------------------------------------------------------------------------
Switching End Office Switching, usage, per mou (1) $ 0.0016
- -----------------------------------------------------------------------------------------------------------------------------
Tandem Switching, per mou $ 0.0017
- -----------------------------------------------------------------------------------------------------------------------------
Unbundled Ports
- -----------------------------------------------------------------------------------------------------------------------------
- 2 Wire Analog Port, per line $ 1.13 $ 50.00 - First
- -----------------------------------------------------------------------------------------------------------------------------
$ 18.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- 4 Wire Analog Port, per line $ 1.13 $ 50.00 - First
- -----------------------------------------------------------------------------------------------------------------------------
$ 18.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- 2 Wire DID Port, per line $ 12.68 $ 50.00 - First
- -----------------------------------------------------------------------------------------------------------------------------
$ 18.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- 2 Wire DID Port, per line $ 120.00 $ 230.00 - First
- -----------------------------------------------------------------------------------------------------------------------------
$ 200.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- 2 Wire ISDN Port, per line $ 13.50 $ 150.00 - First
- -----------------------------------------------------------------------------------------------------------------------------
$ 120.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- 4 Wire ISDN Port, per line $ 308.00 $ 230.00 - First
- -----------------------------------------------------------------------------------------------------------------------------
$ 200.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- Rotary Service (hunting), per line $ 0.20 $ 3.00 - First
- -----------------------------------------------------------------------------------------------------------------------------
$ 3.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
7 (I) Access to 911 Access to 911 and E911 Services Billed to appropriate municipality
- -----------------------------------------------------------------------------------------------------------------------------
and E911 services
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
7 (II) Acess to DA Directory Assistance Access Service
- -----------------------------------------------------------------------------------------------------------------------------
DA Call Completion Access Service, per attempt* $ 0.05
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Number Services Intercept Access Service, per query* $ 0.04
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
DA Access Service Call, per call* $ 0.20
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Director Transport
- -----------------------------------------------------------------------------------------------------------------------------
- Sw. Local Channel - DS1 Level, per LC $ 133.81 $ 866.97 - First
- -----------------------------------------------------------------------------------------------------------------------------
$ 486.83 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- Sw. Dedicated Transport - DS1 Level, Per Mile* $ 23.50
- -----------------------------------------------------------------------------------------------------------------------------
- Facilities LINK* $0.00 $ 100.49
- -----------------------------------------------------------------------------------------------------------------------------
- Switched Common Transport, per DA Acc. Svc. Minute* $ 0.00067
- -----------------------------------------------------------------------------------------------------------------------------
- Switched Common Transport, per DA Acc. Svc. Call Mile* $0.00000
- -----------------------------------------------------------------------------------------------------------------------------
- Access Tandem Switching, per DA Acc. Svc. Minute* $ 0.0017
- -----------------------------------------------------------------------------------------------------------------------------
- DA Interconnection, per DA Acc. Svc. Call $ 0.00269
- -----------------------------------------------------------------------------------------------------------------------------
- Installation, trunk side svc., per trunk or $ 915.00 - First
- -----------------------------------------------------------------------------------------------------------------------------
signaling connection $ 100.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
DA Database Service
- -----------------------------------------------------------------------------------------------------------------------------
- Use Fee, per DADS customer's end user request $ 0.0350
- -----------------------------------------------------------------------------------------------------------------------------
- Monthly recurring charge $ 150.00
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Direst Access to DA Service
- -----------------------------------------------------------------------------------------------------------------------------
- DADAS Service Establishment Charge $ 1,000.00
- -----------------------------------------------------------------------------------------------------------------------------
- DADAS Database Service Charge, per month $ 5,000.00
- -----------------------------------------------------------------------------------------------------------------------------
- DADAS per Query Charge $ 0.023
- -----------------------------------------------------------------------------------------------------------------------------
=============================================================================================================================
* Indicates rates subject to true-up.
- -----------------------------------------------------------------------------------------------------------------------------
Note(s):
- -----------------------------------------------------------------------------------------------------------------------------
1. Does not include retail services. Retail services are available at wholesale rates.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3
<PAGE>
EXHIBIT B
PAGE 4 OF 6
RATES AND CHARGES - GEORGIA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED RATES
- -----------------------------------------------------------------------------------------------------------------------------------
CHECK LIST RATE ELEMENT MONTHLY
- -----------------------------------------------------------------------------------------------------------------------------------
ITEM NUMBER RECURRING NONRECURRING
===================================================================================================================================
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
7 (III) Access to Operator Services
- -----------------------------------------------------------------------------------------------------------------------------------
Operator Call - Operator Provided Call Handling, per min.* $ 0.30
- -----------------------------------------------------------------------------------------------------------------------------------
Completion svcs. - Fully Automated Call Handling, per attempt* $ 0.07
- -----------------------------------------------------------------------------------------------------------------------------------
- Busy Line Verification Service, per occurrence $ 0.90
- -----------------------------------------------------------------------------------------------------------------------------------
- Emergency Interrupt Service, per occurrence $ 1.95
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Centralized Message Distribution (CMDS)-Hosting
- -----------------------------------------------------------------------------------------------------------------------------------
- Message Distribution, per message $ 0.004
- -----------------------------------------------------------------------------------------------------------------------------------
- Data Transmission, per message $ 0.001
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Non-Sent Paid Report System (NSPRS)
- -----------------------------------------------------------------------------------------------------------------------------------
- Intrastate, per message $ 0.05
- -----------------------------------------------------------------------------------------------------------------------------------
- CATS, per message $ 0.05
- -----------------------------------------------------------------------------------------------------------------------------------
- Non-Conterminous, per message $ 0.16
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
OLEC Daily Usage File (ODUF)
- -----------------------------------------------------------------------------------------------------------------------------------
- Recording Service (only applied to unbundled operator
- -----------------------------------------------------------------------------------------------------------------------------------
services messages), per message $ 0.008
- -----------------------------------------------------------------------------------------------------------------------------------
- Message Distribution, per message $ 0.004
- -----------------------------------------------------------------------------------------------------------------------------------
- Data Transmission, per message $ 0.001
- -----------------------------------------------------------------------------------------------------------------------------------
8. White Page Subscriber Listing Information (1) No charge for customers' primary
- -----------------------------------------------------------------------------------------------------------------------------------
Directory Listings listings.
- -----------------------------------------------------------------------------------------------------------------------------------
(2) Additional listings and optional
- -----------------------------------------------------------------------------------------------------------------------------------
listings are provided at rates set
- -----------------------------------------------------------------------------------------------------------------------------------
forth in BST's Intrastate General
- -----------------------------------------------------------------------------------------------------------------------------------
Subscriber Service Tariff.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
9. Access to Tele- Access to Numbers No Charge
- -----------------------------------------------------------------------------------------------------------------------------------
phone Numbers
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
10. Nondiscriminatory Unbundled Signaling*
- -----------------------------------------------------------------------------------------------------------------------------------
Access to CCS7 Signaling Connections (Links)
- -----------------------------------------------------------------------------------------------------------------------------------
Databases & "A" Link, per link, per month $ 19.97 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Associated Signal- "B" Link, per link, per month $ 25.25 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
ing Necessary for Signal Transfer Point, per message $ 0.00005
- -----------------------------------------------------------------------------------------------------------------------------------
Call Routing & Signal Control Points/Databases, per message $ 0.00075
- -----------------------------------------------------------------------------------------------------------------------------------
Completion
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Service Control Points
- -----------------------------------------------------------------------------------------------------------------------------------
LID8 Validation*
- -----------------------------------------------------------------------------------------------------------------------------------
- LID8 Validation, per msg. $ 0.00075
- -----------------------------------------------------------------------------------------------------------------------------------
- Orig. Point Code Establishment or Change, per estab.
- -----------------------------------------------------------------------------------------------------------------------------------
or change $ 91.00
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
*Indicates rates subject to true-up.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 4
<PAGE>
EXHIBIT B
PAGE 5 OF 6
RATES AND CHARGES - GEORGIA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED RATES
- -----------------------------------------------------------------------------------------------------------------------------------
CHECK LIST MONTHLY
- -----------------------------------------------------------------------------------------------------------------------------------
ITEM NUMBER RATE ELEMENT RECURRING NONRECURRING
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10. (Cont'd) Service Control Points (Cont'd)
- -----------------------------------------------------------------------------------------------------------------------------------
800 Access Ten Digit Screening Service
- -----------------------------------------------------------------------------------------------------------------------------------
- Per 800 Call Utilizing 800 Acc. Ten Digit Screening
- -----------------------------------------------------------------------------------------------------------------------------------
Svc. w/800 Number Delivery, per message * $ 0.00075
- -----------------------------------------------------------------------------------------------------------------------------------
- Per 800 Call Utilizing 800 Acc. Ten Digit Screening
- -----------------------------------------------------------------------------------------------------------------------------------
Svc. w/800 Number Delivery, for 800 Numbers,
- -----------------------------------------------------------------------------------------------------------------------------------
w/ Optional Complex Features, per message * $ 0.00075
- -----------------------------------------------------------------------------------------------------------------------------------
- Per 800 Call Utilizing 800 Acc. Ten Digit Screening
- -----------------------------------------------------------------------------------------------------------------------------------
Svc. w/POTS Number Delivery, per message * $ 0.00075
- -----------------------------------------------------------------------------------------------------------------------------------
- Per 800 Call Utilizing 800 Acc. Ten Digit Screening
- -----------------------------------------------------------------------------------------------------------------------------------
Svc. w/POTS Number Delivery, w/Optional Complex
- -----------------------------------------------------------------------------------------------------------------------------------
Features, per message * $ 0.00075
- -----------------------------------------------------------------------------------------------------------------------------------
- Reservation Charge per 800 Number reserved $ 27.50 - First
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0.50 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------------
- Establishment Charge per 800 number established $ 63.00 - First
- -----------------------------------------------------------------------------------------------------------------------------------
w/ 800 Number Delivery $ 2.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------------
- Est. Charge per 800 number est. w/POTS Number Delivery $ 63.00 - First
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------------
- Customized Area of Service Per 800 Number $ 3.00 - First
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1.50 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------------
- Multiple InterLATA Carrier Routing per carrier
- -----------------------------------------------------------------------------------------------------------------------------------
requested, per 800 number $ 3.50 - First
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2.00 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------------
- Change Charge per request $ 42.00 - First
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0.50 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------------
- Call Handling and Destination Features per 800 number $ 3.00
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Selective Routing *
- -----------------------------------------------------------------------------------------------------------------------------------
Line or PBX Trunk, each $0.00 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
*Indicates rates subject to true-up.
- --------------------------------------------------------------------------------
Page 5
<PAGE>
EXHIBIT B
PAGE 6 OF 6
RATES AND CHARGES - GEORGIA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED RATES
- -----------------------------------------------------------------------------------------------------------------------------------
CHECK LIST MONTHLY
- -----------------------------------------------------------------------------------------------------------------------------------
ITEM NUMBER RATE ELEMENT RECURRING NONRECURRING
===================================================================================================================================
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
11. Number Portability Interim Number Portability
- -----------------------------------------------------------------------------------------------------------------------------------
Direct inward Dialing (DID)
- -----------------------------------------------------------------------------------------------------------------------------------
- Business, per number ported $ 0.01 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
- Residence, per number ported $ 0.01 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
- Rate per order, per end user location $ 25.00
- -----------------------------------------------------------------------------------------------------------------------------------
- SPNP-DID Trunk Termination, per trunk $ 13.00 $ 164.00 - Initial
- -----------------------------------------------------------------------------------------------------------------------------------
$ 83.00 - Subsequent
- -----------------------------------------------------------------------------------------------------------------------------------
- DS1 Local Channel, per Local Channel (1), (2) $ 133.81 $ 866.97 - First
- -----------------------------------------------------------------------------------------------------------------------------------
$ 486.83 - Add'l
- -----------------------------------------------------------------------------------------------------------------------------------
- DS1 Dedicated Transport (1), (2)
- -----------------------------------------------------------------------------------------------------------------------------------
- Per mile $ 23.50
- -----------------------------------------------------------------------------------------------------------------------------------
- Facilities LINK $0.00 $ 100.49
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
*Indicates rates subject to true-up.
- -----------------------------------------------------------------------------------------------------------------------------------
Note(s):
- -----------------------------------------------------------------------------------------------------------------------------------
1. Rates are displayed at the DS1 level.
- -----------------------------------------------------------------------------------------------------------------------------------
2. May not be required if the OLEC is collocated at the ported number end office.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 4
<PAGE>
EXHIBIT C
PAGE 1 OF 5
RATES AND CHARGES - KENTUCKY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Proposed Price - Proposed Price
NETWORK LOCAL INTERCONNECTION/ELEMENT Existing Tariff True-Up
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unbundled Loops
2-Wire Analog Voice Grade Loop, Per Month $25.00 $17.00
Nonrecurring ($140.00 1st/45.00 add'l)* $58.40
4-Wire Analog Voice Grade Loop, Per Month $45.00 $27.20
Nonrecurring ($140.00 1st/45.00 add'l)* $58.40
2-Wire ISDN Digital Grade Loop, Per Month $27.20
Nonrecurring $58.40
2-Wire ADSL/HDSL Loop, Per Month $17.00
Nonrecurring $58.40
4-Wire HDSL Loop, Per Month $27.20
Nonrecurring $58.40
4-Wire DS1 Digital Grade Loop, Per Month $140.00
Nonrecurring ($775.00 1st/335.00 add'l)
Unbundled Exchange Access IOC
0 - 8 Miles, Fixed Per Month $30.00
Per Mile, Per Month $2.05
9 - 25 Miles, Fixed Per Month $30.00
Per Mile, Per Month $2.00
Over 25 Miles, Fixed Per Month $30.00
Per Mile, Per Month $1.95
Nonrecurring
Unbundled Local Switching*
Unbundled Exchange Ports
2-wire Analog, Per Month $2.70
Nonrecurring $50.00 1st/18.00 add'l
4-wire Analog (Coin), Per Month $4.00
Nonrecurring $50.00 1st/18.00 add'l
4-wire ISDN DS 1, Per Month $333.00
Nonrecurring $230.00 1st/200.00 add'l
2-Wire ISDN Digital, Per Month $15.00
Nonrecurring $150.00 1st/120.00 add'l
2-Wire Analog Hunting - per line - Per Month $.30
Nonrecurring $3.00
</TABLE>
*Nonrecurring rates for unbundled loops have been adjusted downward during
negotiations and are not tariffed rates.
1
<PAGE>
EXHIBIT C
PAGE 2 OF 5
<TABLE>
<CAPTION>
RATES AND CHARGES - KENTUCKY
- ---------------------------------------------------------------------------------------------------
Proposed Price - Proposed Price
NETWORK LOCAL INTERCONNECTION/ELEMENT Existing Tariff True-Up
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unbundled Local Usage (Restructured Switching)
End Office Switching
Per MOU $.00566
Tandem Switching
Per MOU $.000676
Common Transport
Per Mile/MOU $.00004
Common Transport
Facilities Termination Per Month $.00036
Local Interconnection (NOTE 1)
End Office Switching Per MOU
Tandem Switching Per MOU
Common Transport Per Mile/MOU
Common Transport - Facility Termination Per MOU
Intermediary Tandem Per MOU*
Dedicated Transport - DSI
Per Mile Per Month
Facility Termination Per Month
Nonrecurring
Channelization System - For Unbundled Loops
Unbundled Loop System (DS1 to VG) per sys./per mo. $400.00
Nonrecurring $525.00
Central Office Interface Per Circuit Per Month $1.15
Nonrecurring $8.00
CCS7 Signaling Transport Service
Signaling Connection Link, Per Month $155.00 56Kbps/mo.
Nonrecurring $510.00
Signaling Termination (Port), Per Month $355.00 STP Port/mo.
Signalling Usage, Per 56 Kbps Facility, Per Month $395.00
800 Access Ten Digit Screening Service
800/POTS Number Delivery, Per Query $.00383
800/POTS Number Delivery with
Optional complex Features, Per Query $.00431
* The tandem intermediary charge applied only to intermediary traffic
and is applied in addition to applicable local interconnection charges.
Note 1: Local interconnection is defined as the transport and termination of
local traffic between facility based carriers.
- ---------------------------------------------------------------------------------------------------
Cable Information Database Access Service
Common Transport, Per Query $.00030
</TABLE>
2
<PAGE>
EXHIBIT C
PAGE 3 OF 5
RATES AND CHARGES - KENTUCKY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Proposed Price - Proposed Price
NETWORK LOCAL INTERCONNECTION/ELEMENT Existing Tariff True-Up
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Validation Per Query $.03800
Nonrecurring - Establishment or Change $91.00
Operator Services
Operator Call processing Access Service
Operator Provided, Per Minute
Using BST LIDB $1.60
Using Foreign LIDB $1.62
Fully Automated, Per Attempt
Using BST LIDB $.09
Using Foreign LIDB $.11
Inward Operator Services Access Service
Verification, Per Call $.90
Emergency Interrupt, Per Call $1.95
Directory Assistance Access Service Calls
Per Call $.271744
Directory Assistance Database Service
Use Fee, Per DADS Cust's EU Request/Listing $.035
Monthly Recurring $150.00
Direct Access to Directory Assistance Service (DADAS)
Database Service Charge, Per Month $5,000.00
Database Query Charge, Per Query $0.023
Nonrecurring - DADAS Service Establishment $1,000.00
DACC Access Service
Per Call Attempt $.25
Recording Cost Per Announcement
Loading Cost Per Audio Unit
Number Services Intercept Access Service
Per Intercept Query $.25
- ----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
EXHIBIT C
PAGE 4 OF 5
RATES AND CHARGES - KENTUCKY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Proposed Price - Proposed Price -
NETWORK LOCAL INTERCONNECTION/ELEMENT Existing Tariff True-Up
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Directory Transport
Switched Common Transport
Per DA Service Call $.00030
Switched Common Transport
Per DA Service Call Mile $.00004
Access Tandem Switched
Per DA Service Call $.00055
Sw. Local Channel - DS 1 Level, Per Month 133.81/mo.
Nonrecurring $866.91 1st/486.83 add'l
Sw. Dedicated Transport - DS 1 level, Per Mi/Per Mo. $23.00
Facilities Termination, Per Month $90.00
Nonrecurring $100.49
DA Interconnection per DA Service Call $0.00269
Installation
NRC - Per Trunk or Signaling Connection $915.00 1st/100.00 add'l
Collocation
Application
Per Arrangement / Per Location - Nonrecurring $3,850.00
Space Preparation Fee - Nonrecurring ICB
Space Construction Fee - Nonrecurring $4,500.00
Cable Installation - Per Entrance Cable $2,750.00
Floor Space Zone A, Per Square Foot, Per Month $7.50
Floor Space Zone B, Per Square Foot, Per Month $6.75
Power Per AMP, Per Month $5.00
Cable Support Structure,Per Entrance Cable $13.35
POT Bay (Optional Point of Termination Bay)
Per 2-Wire Cross - Connect, Per Month $0.40
Per 4-Wire Cross - Connect, Per Month $1.20
Per DS1 Cross - Connect, Per Month $1.20
Per DS3 Cross - Connect, Per Month $8.00
Cross-Connects
2-Wire Analog, Per Month $0.30
4-Wire Analog, Per Month $0.50
Nonrecurring 2-wire and 4-wire $16.00
DS1, Per Month $8.00
Nonrecurring $155 1st/27.00 add'l
DS3, Per Month $72.00
Nonrecurring $155 1st/27.00 add'l
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
EXHIBIT C
PAGE 5 OF 5
RATES AND CHARGES - KENTUCKY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Proposed Price - Proposed Price
NETWORK LOCAL INTERCONNECTION/ELEMENT Existing Tariff True-Up
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Security Escort
Basic - 1st half hour $41.00
Overtime - 1st half hour $48.00
Premium - 1st half hour $55.00
Basic - additional $25.00
Overtime - additional $30.00
Premium - additional $35.00
- ---------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
EXHIBIT D
Attachment C-17 PAGE 1 OF 6
Unbundled Products and Services and New Services
Service: Unbundled Exchange Ports
Description: An exchange port is the capability derived from the central office
switch hardware and software required to permit end users to
transmit or receive information over BellSouth's public switched
network. It provides service enabling and network features and
functionality such as translations, a telephone number, switching,
announcements, supervision and touch-tone capability.
In addition, a BellSouth provided port with outgoing network access
also provides access to other services such as operator services,
long distance service, etc. It may also be combined with other
services available in BellSouth's Intrastate Access Service Tariffs
as technically feasible.
When an Unbundled Port is connected to BellSouth provided
collocated loops, cross-connection rate elements are required as
set forth in Section 20 of BellSouth Telecommunication's, Inc.'s
Interstate Access Tariff, FCC No. 1.
<TABLE>
<CAPTION>
Florida
---------------------------
Rate Elements Rates
---------------------------
<S> <C>
Monthly
Residence Port $2.00
Business Port $4.50
PBX Trunk Port $7.50
Rotary Service $2.00
Usage-(STS)
- int. min. $0.0275
- add'l min. $0.0125
---------------------------
</TABLE>
NOTES:
(1) Nonrecurring Charges, as displayed in Table 1 on Page 3, and Usage Charges,
as displayed on this page, apply in addition to monthly rates.
(2) Applies per outgoing, incoming or 2-way trunk port.
(3) DID requires rates and charges as indicated in Table II on Page 3 in
addition to the PBX Trunk Port rates.
(4) IOD requires rates and charges as indicated in Table III on Page 3 in
addition to the PBX Trunk Port rates.
(5) Applies per outgoing, incoming or 2-way voice grade equivalent.
(6) Primary rate ISDN requires a primary rate interface in addition to the
primary rate ISDN NASxx. Additional charges also apply per Primary Rate
B-Channel. Call-by-Call Integrated Service Access Services Selection and
incoming Call Identification. See Table IV on Page 3 for rates and charges.
(7) In addition to the local calling described in A3 of BellSouth's General
Subscriber Service Tariff, if any wire carrier in an exchange is located
within 40 miles of any wire carrier in the originating exchange, local
calling will be provided from the entire originating exchange to the entire
terminating exchange. The usage charges for Band G are applicable for
distances greater than 40 miles.
<PAGE>
EXHIBIT D
PAGE 2 OF 6
Attachment C-17
Unbundled Products and Services and New Services
Service: Unbundled Exchange Ports (Cont'd)
<TABLE>
<CAPTION>
Louisiana
--------------------------------------------------------------------
Rate Elements Rate Per
--------------------------------------------------------------------
<S> <C> <C>
Monthly
Residence Port $2.50
Business Port $7.00
PBX Trunk Port $7.00
Rotary Service $3.50
Usage - Mileage Bands
0 (0 miles) $0.02 Init. Min.
$0.01 Add'l min.
A (1-10 miles) $0.04 Init. Min.
$0.02 Add'l min.
B (11-16 miles) $0.06 Init. Min.
$0.04 Add'l min.
C (17-22 miles) $0.10 Init. Min.
$0.07 Add'l min.
D (23-30 miles Basic LCA and $0.14 Init. Min.
Intra Parish Expanded LCA) $0.10 Add'l min.
E (Greater than 30 miles Basic LCA $0.14 Init. Min.
and Intra Parish Expanded LCA) $0.14 Add'l min.
F (23-30 miles Inter-Parish $0.14 Init. Min.
Expanded LCA) $0.10 Add'l min.
G (31-40 miles Inter-Parish $0.14 Init. Min.
Expanded LCA) $0.14 Add'l min.
H (Greater than 40 miles $0.14 Init. Min.
Inter-Parish) $0.14 Add'l min.
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mississippi N. Carolina S. Carolina
- ------------------------------------------------------------------------------------------------------------------------------------
Rate Elements Rates Per Rate Elements Rates Rate Elements Rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Monthly Monthly Monthly
Residence Port $3.75 Residence Port $2.00 Residence Port $4.00
Business Port $7.50 Business Port $6.00 Business Port $10.50
PBX Trunk Port $7.50 PBX Trunk Port $8.00 PBX Trunk Port $10.50
Rotary Service $3.75 Rotary Service $1.50 Rotary Service $3.00
Usage - Mile Bands Usage - (STS) Usage - (STS)
A (0 miles) $0.02 Init. min. - Init. min. $0.05 - Basic Svc. Area $0.02
$0.01 Add'l min. - Add'l min. $0.02 - Expanded Svc. Area $0.12
B (1-10 miles) $0.04 Init. min.
C (11-16 miles, existing LCA desc- $0.02 Add'l min.
ribed in A3.6 greater than 16 miles,
and calls to county seat greater $0.06 Init. min.
than 16 miles) $0.04 Add'l min.
D (17-30 miles) $0.09 Init. min.
$0.07 Add'l min.
E (31-55 miles Biloxi LATA) $0.09 Init. min.
$0.07 Add'l min.
F (31-55 miles Jackson LATA) $0.12 Init. min.
$0.10 Add'l min.
G (56-85 miles Biloxi LATA) $0.18 Init. min.
$0.14 Add'l min.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tennessee
- --------------------------------------------------------------
Rate Elements Rates Per
- --------------------------------------------------------------
<S> <C> <C>
Monthly
Residence Port $4.00
Business Port $10.00
PBX Trunk Port $10.00
Rotary Service $8.50
Usage - Mile Bands
A (0-16 miles) $0.02 mou
B (17-30 miles) $0.05 mou
C greater than 30 miles $0.10 mou
- --------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT D
PAGE 3 OF 6
Attachment C-17
Unbundled Products and Services and New Services
Service: Unbundled Exchange Ports (Cont'd)
State: Alabama
PORT ANCILLARY SERVICES
<TABLE>
<CAPTION>
TABLE II - DID
- -------------------------------------------------------------------------
Nonrecurring Monthly
Rate Element Charge Rate
- -------------------------------------------------------------------------
<S> <C> <C>
Per Group of 20 Numbers $480.00 $3.00
Per Trunk Port $50.00 $20.00
Per Trunk w/MF or DTMF $0.00 $7.50
- -------------------------------------------------------------------------
<CAPTION>
TABLE III - IOD
- -------------------------------------------------------------------------
Nonrecurring Monthly
Rate Element Charge Rate
- -------------------------------------------------------------------------
<S> <C> <C>
Per First 10 Trunk Ports $675.00 $350.00
Trunk Ports 11 thru 50, ea. $68.00 $34.00
Ea. Trunk Port after 50th $27.00 $8.10
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT D
PAGE 4 OF 6
Interim UDL-4W Rates
- --------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATE RECURRING NON-RECURRING
1ST ADD'L
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ALABAMA $27.00 $475.00 $325.00
FLORIDA $30.50 $510.00 $350.00
GEORGIA $25.50 $525.00 $375.00
KENTUCKY $36.00 $550.00 $375.00
LOUISIANA $34.00 $500.00 $350.00
MISSISSIPPI $24.50 $475.00 $325.00
N. CAROLINA $24.00 $525.00 $350.00
S. CAROLINA $27.50 $525.00 $350.00
TENNESSEE $25.00 $500.00 $350.00
- --------------------------------------------------------------------------------
</TABLE>
These rates are for a 4-wire Unbundled Digitial Loop capable of 56kbps or 64kbps
data traffic. The loop extends from the Network Interface Device (NID) at the
customer's premises to the Main Distribution Frame (MDF) at that customer's
central office.
These rates do not include any other Unbundled Network Element (UNE) or any
cross-connects to such UNEs or collocation space.
Additional Loop Rates
- ---------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATE 2-WIRE ISDN 4-WIRE DS1 DIGITIAL
Monthly NR Monthly NR
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA $40.00 $306.00/1st $80.00 $540.00/1st
$283.00/Add'l $465.00/Add'l
---------------------------------------------------------
- --------------------------------------------------------------------------------
N. CAROLINA $27.20 $33.00 $238.00 $837.92/1st
$494.19/Add'l
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT D
PAGE 5 OF 6
Dedicated Transport - DS1 Level
-------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------
STATE Monthly NR
- ----------------------------------------------------------
<S> <C> <C> <C>
FLORIDA $1.60 - per mile $100.49
$59.75 - fac. term.
- ----------------------------------------------------------
- ----------------------------------------------------------
NORTH CAROLINA $23.00 - per mile
$90.00 - fac. term. $100.49
- ----------------------------------------------------------
</TABLE>
Interim Cross-Connect Rates
---------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
STATE 2-WIRE ANALOG 4-WIRE ANALOG
Monthly NR Monthly NR
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
FLORIDA $.30 $15.20 $.50 $15.20
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
LOUISIANA $.30 $20.80 $.50 $20.80
- -----------------------------------------------------------------
MISSISSIPPI $.30 $13.00 $.50 $13.00
- -----------------------------------------------------------------
N. CAROLINA $.30 $11.60 $.50 $11.60
- -----------------------------------------------------------------
S. CAROLINA $.30 $8.00 $.50 $8.00
- -----------------------------------------------------------------
TENNESSEE $.30 $19.20 $.50 $19.20
- -----------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT D
PAGE 6 OF 6
Unbundled Packet Switching UNE Proxy Pricing
Until cost studies are completed, BST will use the following rates on an interim
basis.
The following rates will apply for Frame Relay UNEs in Florida.
<TABLE>
<CAPTION>
Non-Recurring Recurring
<S> <C> <C>
User Network Interface-56 Kbps $300 $ 62
User Network Interface-64 Kbps 300 70
User Network Interface-1.536 Mbps 410 294
User Network Interface-44.210 Mbps 1,050 2,426
Network Network Interface-56 Kbps 300 62
Network Network Interface-64 Kbps 300 70
Network Network Interface-1.536 Mbps 410 294
Network Network Interface-44.210 Mbps 1,050 2,426
Data Link Connection Identifier 25 1.50
Committed Information Rate 0 Bps 0 0
1-32 Kbps 0 7
33-56 Kbps 0 12
57-64 Kbps 0 13
65-128 Kbps 0 18
129-256 Kbps 0 24
257-384 Kbps 0 28
385-512 Kbps 0 32
513-768 Kbps 0 36
769 Kbps-1.536 Mbps 0 55
1.537-4 Mbps 0 120
5-10 Mbps 0 160
11-16 Mbps 0 226
17-34 Mbps 0 250
35-44.210 Mbps 0 370
</TABLE>
<PAGE>
ATTACHMENT
Agreement Between BellSouth Telecommunications, Inc. and DeltaCom, Inc.
Regarding The Sale of BellSouth Telecommunications Services to Reseller
For The Purposes of Resale
THIS AGREEMENT is by and between BellSouth Telecommunications, Inc.,
("BellSouth or Company"), a Georgia corporation, and DeltaCom, Inc.
("Reseller"), an Alabama corporation, and shall be deemed effective as of the
execution date of this Fourth Amendment.
WITNESSETH
WHEREAS, BellSouth is a local exchange telecommunications company
authorized to provide telecommunications services in the states of Alabama,
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina, and Tennessee; and
WHEREAS, Reseller is or seeks to become an alternative local exchange
telecommunications company authorized to provide telecommunications services in
the states of Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North
Carolina, South Carolina, and Tennessee; and
WHEREAS, Reseller desires to resell BellSouth's telecommunications
services; and
WHEREAS, BellSouth has agreed to provide such services to Reseller for
resale purposes and pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the mutual premises and
promises contained herein, BellSouth and Reseller do hereby agree as follows:
I. Term of the Agreement
A. The term of this Agreement shall begin with the execution of this
Fourth Amendment and extend to June 30, 1999 and shall apply to all of
BellSouth's serving territory as of January 1, 1996 in the state(s) of
Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North
Carolina, South Carolina, and Tennessee.
B. This Agreement shall be automatically renewed for two additional one
year periods unless either party indicates its intent not to renew the
Agreement. Notice of such intent must be provided, in writing, to the other
party no later than 60 days prior to the end of the then-existing contract
period. The terms of this Agreement shall remain in effect after the term
of the existing agreement has expired and while a new agreement is being
negotiated.
C. The rates pursuant by which Reseller is to purchase services from
BellSouth for resale shall be at a discount rate off of the retail rate for
the telecommunications service. The discount rates shall be as set forth in
Exhibit A, attached hereto and incorporated herein by this reference. Such
discount shall reflect the costs avoided by BellSouth when selling a
service for wholesale purposes.
II. Definition of Terms
A. CUSTOMER OF RECORD means the entity responsible for placing
application for service; requesting additions, rearrangements, maintenance
or discontinuance of service; payment in full of charges incurred such as
non-recurring, monthly recurring, toll, directory assistance, etc.
B. DEPOSIT means assurance provided by a customer in the form of cash,
surety bond or bank letter of credit to be held by the Company.
<PAGE>
ATTACHMENT
C. END USER means the ultimate user of the telecommunications services.
D. END USER CUSTOMER LOCATION means the physical location of the premises
where an end user makes use of the telecommunications services.
E. NEW SERVICES means functions, features or capabilities that are not
currently offered by BellSouth. This includes packaging of existing
services or combining a new function, feature or capability with an
existing service.
F. OTHER LOCAL EXCHANGE COMPANY (OLEC) means a telephone company
certificated by the public service commissions of the Company's franchised
area to provide local exchange service within the Company's franchised
area.
G. RESALE means an activity wherein a certificated OLEC, such as Reseller
subscribes to the telecommunications services of the Company and then
reoffers those telecommunications services to the public (with or without
"adding value").
H. RESALE SERVICE AREA means the area, as defined in a public service
commission approved certificate of operation, within which an OLEC, such as
Reseller, may offer resold local exchange telecommunications service.
III. General Provisions
A. Reseller may resell the tariffed local exchange and toll
telecommunications services of BellSouth contained in the General
Subscriber Service Tariff and Private Line Service Tariff subject to the
terms, and conditions specifically set forth herein. Notwithstanding the
foregoing, the exclusions and limitations on services available for resale
will be as set forth in Exhibit B, attached hereto and incorporated herein
by this reference.
BellSouth shall make available telecommunications services for resale at
the rates set forth in Exhibit A to this agreement and subject to the
exclusions and limitations set forth in Exhibit B to this agreement. It
does not however waive its rights to appeal or otherwise challenge any
decision regarding resale that resulted in the discount rates contained in
Exhibit A or the exclusions and limitations contained in Exhibit B.
BellSouth reserves the right to pursue any and all legal and/or equitable
remedies, including appeals of any decisions. If such appeals or challenges
result in changes in the discount rates or exclusions and limitations, the
parties agree that appropriate modifications to this Agreement will be made
promptly to make its terms consistent with the outcome of the appeal.
B. The provision of services by the Company to Reseller does not
constitute a joint undertaking for the furnishing of any service.
C. Reseller will be the customer of record for all services purchased
from BellSouth. Except as specified herein, the Company will take orders
from, bill and expect payment from Reseller for all services.
D. Reseller will be the Company's single point of contact for all
services purchased pursuant to this Agreement. The Company shall have no
contact with the end user except to the extent provided for herein.
<PAGE>
ATTACHMENT
E. The Company will continue to bill the end user for any services that
the end user specifies it wishes to receive directly from the Company.
F. The Company maintains the right to serve directly any end user within
the service area of Reseller. The Company will continue to directly market
its own telecommunications products and services and in doing so may
establish independent relationships with end users of Reseller.
G. Neither Party shall interfere with the right of any person or entity
to obtain service directly from the other Party.
H. Current telephone numbers may normally be retained by the end user.
However, telephone numbers are the property of the Company and are assigned
to the service furnished. Reseller has no property right to the telephone
number or any other call number designation associated with services
furnished by the Company, and no right to the continuance of service through
any particular central office. The Company reserves the right to change such
numbers, or the central office designation associated with such numbers, or
both, whenever the Company deems it necessary to do so in the conduct of its
business.
I. The Company may provide any service or facility for which a charge
is not established herein, as long as it is offered on the same terms to
Reseller.
J. Service is furnished subject to the condition that it will not be
used for any unlawful purpose.
K. Service will be discontinued if any law enforcement agency advises
that the service being used is in violation of the law.
L. The Company can refuse service when it has grounds to believe that
service will be used in violation of the law.
M. The Company accepts no responsibility to any person for any unlawful
act committed by Reseller or its end users as part of providing service
to Reseller for purposes of resale or otherwise.
N. The Company will cooperate fully with law enforcement agencies with
subpoenas and court orders for assistance with the Company's customers.
Law enforcement agency subpoenas and court orders regarding end users of
Reseller will be directed to Reseller. The Company will bill Reseller for
implementing any requests by law enforcement agencies regarding Reseller
end users.
O. The characteristics and methods of operations of any circuits,
facilities or equipment provided by any person or entity other than the
Company shall not:
1. Interfere with or impair service over any facilities of the
Company, its affiliates, or its connecting and concurring carriers
involved in its service:
2. Cause damage to their plant:
<PAGE>
ATTACHMENT
3. Impair the privacy of any communications; or
4. Create hazards to any employees or the public.
P. Reseller assumes the responsibility of notifying the Company regarding
less than standard operations with respect to services provided by
Reseller.
Q. Facilities and/or equipment utilized by BellSouth to provide service to
Reseller remain the property of BellSouth.
R. White page directory listings will be provided in accordance with
regulations set forth in Section A6 of the General Subscriber Service
Tariff and will be available for resale.
S. BellSouth will provide customer record information to the Reseller
provided the Reseller has the appropriate Letter(s) of Authorization.
BellSouth may provide customer record information via one of the
following methods: US mail, fax, or by electronic interface. BellSouth
will provide customer record information via US mail or fax on an interim
basis only.
Reseller agrees to compensate BellSouth for all BellSouth incurred
expenditures associated with providing such information to Reseller.
Reseller will adopt and adhere to the BellSouth guidelines associated
with each method of providing customer record information.
T. BellSouth's retail voice mail services may be made available for resale
at rates, terms and conditions as mutually agreed to by the parties.
IV. BellSouth's Provision of Services to Reseller
A. Reseller agrees that its resale of BellSouth services shall be as
follows:
1. The resale of telecommunications services shall be limited to
users and uses conforming to the class of service restrictions.
2. To the extent Reseller is a telecommunications carrier that
serves greater than 5 percent of the Nation's presubscribed access
lines, Reseller shall not jointly market its interLATA services with
the telecommunications services purchased from BellSouth pursuant to
this Agreement in any of the states covered under this Agreement.
For the purposes of this subsection, to jointly market means any
advertisement, marketing effort or billing in which the
telecommunications services purchased from BellSouth for purposes
of resale to customers and interLATA services offered by Reseller
are packaged, tied, bundled, discounted or offered together in any
way to the end user. Such efforts include, but are not limited to,
sales referrals, resale arrangements, sales agencies or billing
agreements. This subsection shall be void and of no effect for a
particular state covered under this Agreement as of February 8,
1999 or on the date BellSouth is authorized to offer interLATA
services in that state, whichever is earlier.
<PAGE>
ATTACHMENT
3. Hotel and Hospital PBX service are the only telecommunications
services available for resale to Hotel/Motel and Hospital end users,
respectively. Similarly, Access Line Service for Customer Provided
Coin Telephones is the only local service available for resale to
Independent Payphone Provider (IPP) customers. Shared Tenant Service
customers can only be sold those telecommunications services
available in the Company's A23 Shared Tenant Service Tariff.
4. Reseller is prohibited from furnishing both flat and measured
rate service on the same business premises to the same subscribers
(end users) as stated in A2 of the Company's Tariff except for
backup service as indicated in the applicable state tariff Section
A3.
5. If telephone service is established and it is subsequently
determined that the class of service restriction has been violated,
Reseller will be notified and billing for that service will be
immediately changed to the appropriate class of service. Service
charges for changes between class of service, back billing, and
interest as described in this subsection shall apply at the
Company's sole discretion. Interest at a rate as set forth in
Section A2 of the General Subscriber Service Tariff and Section B2
of the Private Line Service Tariff for the applicable state,
compounded daily for the number of days from the back billing date
to and including the date that Reseller actually makes the payment
to the Company may be assessed.
6. The Company reserves the right to periodically audit services
purchased by Reseller to establish authenticity of use. Such audit
shall not occur more than once in a calendar year. Reseller shall
make any and all records and date available to the Company or the
Company's auditors on a reasonable basis. The Company shall bear the
cost of said audit.
B. Resold services can only be used in the manner as specified in the
Company's Tariff. Resold services are subject to the same terms and
conditions as are specified for such services when furnished to an
individual end user of the Company in the appropriate section of the
Company's Tariffs. Specific tariff features, e.g. a usage allowance per
month, shall not be aggregated across multiple resold services. Resold
services cannot be used to aggregate traffic from more than one end user
customer except as specified in Section A23. of the Company's Tariff
referring to Shared tenant Service.
C. Reseller may resell services only within the specific resale service
area as defined in its certificate.
D. Telephone numbers transmitted via any resold service feature are
intended solely for the use of the end user of the feature. Resale of
this information is prohibited.
E. No patent, copyright, trademark or other proprietary right is
licensed, granted or otherwise transferred by this Agreement. Reseller
is strictly prohibited from any use, including but not limited to sales,
marketing or advertising, of any BellSouth name or trademark.
V. Maintenance of Services
A. Reseller will adopt and adhere to the standards contained in the
applicable BellSouth Work Center Interface Agreement regarding
maintenance and installation of service.
B. Services resold under the Company's Tariffs and facilities and
equipment provided by the Company shall be maintained by the Company.
<PAGE>
ATTACHMENT
C. Reseller or its end users may not rearrange, move, disconnect, remove
or attempt to repair any facilities owned by the Company, other than by
connection or disconnection to any interface means used, except with the
written consent of the Company.
D. Reseller accepts responsibility to notify the Company of situations
that arise that may result in a service problem.
E. Reseller will be the Company's single point of contact for all
repairs calls on behalf of Reseller's end users. The parties agree to
provide one another with toll-free contact numbers for such purposes.
F. Reseller will contact the appropriate repair centers in accordance
with procedures established by the Company.
G. For all repair requests, Reseller accepts responsibility for
adhering to the Company's prescreening guidelines prior to referring the
trouble to the Company.
H. The Company will bill Reseller for handling troubles that are found
not to be in the Company's network pursuant to its standard time and
material charges. The standard time and material charges will be no more
than what BellSouth charges to its retail customers for the same services.
I. The Company reserves the right to contact Reseller's customers, if
deemed necessary, for maintenance purposes.
VI. Establishment of Service
A. After receiving certification as a local exchange company from the
appropriate regulatory agency, Reseller will provide the appropriate
Company service center the necessary documentation to enable the Company to
establish a master account for Reseller. Such documentation shall include
the Application for Master Account, proof of authority to provide
telecommunications services, an Operating Company Number ("OCN") assigned
by the National Exchange Carriers Association ("NECA") and a tax exemption
certificate, if applicable. When necessary deposit requirements are met,
the Company will begin taking orders for the resale of service.
B. Service orders will be in a standard format designated by the
Company.
C. When notification is received from Reseller that a current customer
of the Company will subscribe to Reseller's service, standard service
order intervals for the appropriate class of service will apply.
D. The Company will not require end user confirmation prior to
establishing service for Reseller's end user customer. Reseller must,
however, be able to demonstrate end user authorization upon request.
E. Reseller will be the single point of contact with the Company for all
subsequent ordering activity resulting in additions or changes to resold
services except that the Company will accept a request directly from the
end user for conversion of the end user's service from Reseller to the
Company or will accept a request from
<PAGE>
ATTACHMENT
another OLEC for conversion of the end user's service from the Reseller to
the other LEC. The Company will notify Reseller that such a request has
been processed.
F. If the Company determines that an unauthorized change in local service
to Reseller has occurred, the Company will reestablish service with the
appropriate local service provider and will assess Reseller as the OLEC
initiating the unauthorized change, the unauthorized change charge
described in F.C.C. Tariff No. 1, Section 13. Appropriate nonrecurring
charges, as set forth in Section A4, of the General Subscriber Service
Tariff, will also be assessed to Reseller. These charges can be adjusted if
Reseller provides satisfactory proof of authorization.
G. The Company may, in order to safeguard its interest, require Reseller
to make a deposit to be held by the Company as a guarantee of the payment
of rates and charges, unless satisfactory credit has already been
established. Any such deposit may be held during the continuance of the
service as security for the payment of any and all amounts accruing for the
service.
H. Such deposit may not exceed two months' estimated billing.
I. The fact that a deposit has been made in no way relieves Reseller from
complying with the Company's regulations as to advance payments and the
prompt payment of bills on presentation nor does it constitute a waiver or
modification of the regular practices of the Company providing for the
discontinuance of service for non-payment of any sums due the Company.
J. The Company reserves the right to increase the deposit requirements
when, in its sole judgment, the conditions justify such action.
K. In the event that Reseller defaults on its account, service to
Reseller will be terminated and any deposits held will be applied to its
account.
L. In the case of a cash deposit, interest at the rate of six percent per
annum shall be paid to Reseller during the continuance of the deposit.
Interest on a deposit shall accrue annually and, if requested, shall be
annually credited to Reseller by the accrual date.
VII. Payment And Billing Arrangements
A. When the initial service is ordered by Reseller, the Company will
establish an accounts receivable master account for Reseller.
B. The Company shall bill Reseller on a current basis all applicable
charges and credits.
C. Payment of all charges will be the responsibility of Reseller.
Reseller shall make payment to the Company for all services billed. The
Company is not responsible for payments not received by Reseller from
Reseller's customer. The Company will not become involved in billing
disputes that may arise between Reseller and its customer. Payment made to
the Company as payment on account will be credited to an accounts
receivable master account and not to an end user's account.
<PAGE>
ATTACHMENT
D. The Company will render bills each month on established bill days for
each of Reseller's accounts.
E. The Company will bill Reseller, in advance, charges for all services to be
provided during the ensuing billing period except charges associated with
service usage, which charges will be billed in arrears. Charges will be
calculated on an individual end user account level, including, if applicable,
any charges for usage or usage allowances. BellSouth will also bill any charges,
including but not limited to 911 and E911 charges, telecommunications relay
charges, and franchise fees, to Reseller.
F. The payment will be due by the next bill date (i.e., same date in the
following month as the bill date) and is payable immediately available funds.
Payment is considered to have been made when received by the Company.
If the payment due date falls on a Sunday or on a Holiday which is
observed on a Monday, the payment due date shall be the first non-Holiday day
following such Sunday or Holiday. If the payment due date falls on a Saturday or
on a Holiday which is observed on Tuesday, Wednesday, Thursday, or Friday, the
payment due date shall be the last non-Holiday day preceding such Saturday or
Holiday. If payment is not received by the payment due date, a late payment
penalty, as set forth in I, following, shall apply.
G. Upon proof of tax exempt certification from Reseller, the total amount
billed to Reseller will not include any taxes due from the end user. Reseller
will be solely responsible for the computation, tracking, reporting and payment
of all federal, state and/or local jurisdiction taxes associated with the
services resold to the end user.
H. As the customer of record, Reseller will be responsible for, and remit to
the Company, all charges applicable to its resold services for emergency
services (E911 and 911) and Telecommunications Relay Service (TRS) as well as
any other charges of a similar nature.
I. If any portion of the payment is received by the Company after the payment
due date as set forth preceding, or if any portion of the payment is received by
the Company in funds that are not immediately available to the Company, then a
late payment penalty shall be due to the Company. The late payment penalty shall
be the portion of the payment not received by the payment due date times a late
factor. The late factor shall be set forth in Section A2 of the General
Subscriber Service Tariff and Section B2 of the Private Line Service Tariff.
J. Any switched access charges associated with interexchange carrier to the
resold local exchange lines will be billed by, and due to, the Company. No
additional charges are to be assessed to Reseller.
K. The Company will not perform billing and collection services for Reseller
as a result of the execution of this Agreement. All requests for billing
services should be referred to the appropriate entity or operational group
within the Company.
L. Pursuant to 47 CFR Section 51.617, the Company will bill Reseller end
user common line charges identical to the end user common line charges the
Company bills its end users.
M. In general, the Company will not become involved in disputes between
Reseller and Reseller's end user customers over resold services. If a dispute
does arise that cannot be settled without the involvement of the Company,
Reseller shall contact the designated Service Center for resolution. The Company
will make every
<PAGE>
ATTACHMENT
effort to assist in the resolution of the dispute and will work with
Reseller to resolve the matter in as timely a manner as possible. Reseller
may be required to submit documentation to substantiate the claim.
VIII. Discontinuance of Service
A. The procedures for discontinuing service to an end user are as
follows:
1. Where possible, the Company will deny service to Reseller's end
user on behalf of, and at the request of, Reseller. Upon restoration
of the end user's service, restoral charges will apply and will be
the responsibility of Reseller.
2. At the request of Reseller, the Company will disconnect a
Reseller end user customer.
3. All requests by Reseller for denial or disconnection of an end
user for nonpayment must be in writing.
4. Reseller will be made solely responsible for notifying the end
user of the proposed disconnection of the service.
5. The Company will continue to process calls made to the
Annoyance Call Center and will advise Reseller when it is determined
that annoyance calls are originated from one of their end user's
locations. The Company shall be indemnified, defended and held
harmless by Reseller and/or the end user against any claim, loss or
damage arising from providing this information to Reseller. It is the
responsibility of Reseller to take the corrective action necessary
with its customers who make annoying calls. Failure to do so will
result in the Company's disconnecting the end user's service.
B. The procedures for disconnecting service to Reseller are as follows:
1. The Company reserves the right to suspend or terminate service
for nonpayment or in the event of prohibited, unlawful or improper
use of the facilities or service, abuse of the facilities, or any
other violation or noncompliance by Reseller of the rules and
regulations of the Company's Tariffs.
2. If payment of account is not received by the bill day in the
month after the original bill day, the Company may provide written
notice to Reseller, that additional applications for service will be
refused and that any pending orders for service will not be completed
if payment is not received by the fifteenth day following the date of
the notice. If the Company does not refuse additional applications
for service on the date specified in the notice, and Reseller's
noncompliance continues, nothing contained herein shall preclude the
Company's right to refuse additional applications for service without
further notice.
3. If payment of account is not received, or arrangements made, by
the bill day in the second consecutive month, the account will be
considered in default and will be subject to denial or disconnection,
or both.
4. If Reseller fails to comply with the provisions of this
Agreement, including any payments to be made by it on the dates and
times herein specified, the Company may, on thirty days written
notice to the person designated by Reseller to receive notices of
noncompliance, discontinue the provision of existing
<PAGE>
ATTACHMENT 2
services to Reseller at any time thereafter. In the case of such
discontinuance, all billed charges, as well as applicable
termination charges, shall become due. If the Company does not
discontinue the provision of the services involved on the date
specified in the thirty days notice, and Reseller's noncompliance
continues, nothing contained herein shall preclude the Company's
right to discontinue the provision of the services to Reseller
without further notice.
5. If payment is not received or arrangements made for payment by
the date given in the written notification, Reseller's services
will be discontinued. Upon discontinuance of service on a
Reseller's account, service to Reseller's end users will be denied.
The Company will also reestablish service at the request of the end
user or Reseller upon payment of the appropriate connection fee and
subject to the Company's normal application procedures. Reseller is
solely responsible for notifying the end user of the proposed
disconnection of the service.
6. If within fifteen days after an end user's service has been
denied no contact has been made in reference to restoring service,
the end user's service will be disconnected.
IX. Liability
A. The liability of the Company for damages arising out of mistakes
omissions, interruptions, preemptions, delays, errors or defects in
transmission, or failures or defects in facilities furnished by the
Company, occurring in the course of furnishing service or other facilities
and not caused by the negligence of Reseller, or of the Company in failing
to maintain proper standards of maintenance and operation and to exercise
reasonable supervision shall in no event exceed an amount equivalent to the
proportionate charge to Reseller for the period of service during which
such mistake, omission, interruption, preemption, delay, error or defect in
transmission or defect or failure in facilities occur. The Company shall
not be liable for damage arising out of mistakes, omission, interruptions,
preemptions, delays, errors or defects in transmission or other injury,
including but not limited to injuries to persons or property from voltages
or currents transmitted over the service of the Company, (1) caused by
customer-provided equipment (except where a contributing cause is the
malfunctioning of a Company-provided connecting arrangement, in which event
the liability of the Company shall not exceed an amount equal to a
proportional amount of the Company billing for the period of service during
which such mistake, omission, interruption, preemption, delay, error,
defect in transmission or injury occurs), or (2) not prevented by customer-
provided equipment but which would have been prevented had Company-provided
equipment been used.
B. The Company shall be indemnified and saved harmless by Reseller
against any and all claims, actions, causes of action, damages, liabilities
or demands (including the costs, expenses and reasonable attorneys' fees, on
account thereof) of whatever kind or nature that may be made by any third
party as a result of the Company's furnishing of service to Reseller.
C. The Company shall be indemnified, defended and held harmless by
Reseller and/or the end user against any claim, loss or damage arising from
the use of services offered for resale involving:
1. Claims for libel, slander, invasion of privacy or infringement
of copyright arising from Reseller's or end user's own
communications.
2. Claims for patent infringement arising from acts combining or
using Company services in connection with facilities or equipment
furnished by the end user or Reseller.
<PAGE>
ATTACHMENT
3. All other claims arising out of an act or omission of Reseller
or its end user in the course of using services.
D. Reseller accepts responsibility for providing access for maintenance
purposes of any service resold under the provisions of this Tariff. The
Company shall not be responsible for any failure on the part of Reseller
with respect to any end user of Reseller.
X. Treatment of Proprietary and Confidential Information
A. Both parties agree that it may be necessary to provide each other
during the term of this Agreement with certain confidential information,
including trade secret information, including but not limited to,
technical and business plans, technical information, proposals,
specifications, drawings, procedures, customer account data and like
information (hereinafter collectively referred to as "Information"). Both
parties agree that all Information shall either be in writing or other
tangible format and clearly marked with a confidential, private or
proprietary legend, or when the Information is communicated orally, it
shall also be communicated that the Information is confidential, private or
proprietary. The Information will be returned to the owner within a
reasonable time. Both parties agree that the Information shall not be
copied or reproduced in any form. Both parties agree to receive such
Information and not disclose such Information. Both parties agree to
protect the Information received from distribution, disclosure or
dissemination to anyone except employees of the parties with a need to know
such Information and which employees agree to be bound by the terms of this
Section. Both parties will use the same standard of care to protect
Information received as they would use to protect their own confidential
and proprietary Information.
B. Notwithstanding the foregoing, both parties agree that there will be
no obligation to protect any portion of the Information that is either: 1)
made publicly available by the owner of the Information or lawfully
disclosed by a nonparty to this Agreement; 2) lawfully obtained from any
source other than the owner of the Information; or 3) previously known to
the receiving party without an obligation to keep it confidential.
XI. Resolution of Disputes
Except as otherwise stated in this Agreement, the parties agree that if any
dispute arises as to the interpretation of any provision of this Agreement or as
to the proper implementation of this Agreement, the parties will petition the
applicable stat Public Service Commission for a resolution of the dispute.
However, each party reserves any rights it may have to seek judicial review of
any ruling made by that Public Service Commission concerning this Agreement.
XII. Limitation of Use
The parties agree that this Agreement shall not be proffered by either
party in another jurisdiction as evidence of any concession or as a waiver of
any position taken by the other party in that jurisdiction or for any other
purpose.
XIII.Waivers
Any failure by either party to insist upon the strict performance by the
other party of any of the provisions of this Agreement shall not be deemed a
waiver of any of the provisions of this Agreement and each party,
notwithstanding such failure, shall have the right thereafter to insist upon the
specific performance of any and all of the provisions of this Agreement.
<PAGE>
ATTACHMENT:
XIV. Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Georgia, without regard to its
conflict of laws principles.
XV. Arm's Length Negotiations
This Agreement was executed after arm's length negotiations between the
undersigned parties and reflects the conclusion of the undersigned that this
Agreement is in the best interests of all parties.
XVI. More Favorable Provisions
A. The parties agree that if --
1. the Federal Communications Commission ("FCC") or the Commission
finds that the terms of this Agreement are inconsistent in one or
more material respects with any of its or their respective decisions,
rules or regulations, or
2. the FCC or the Commission preempts the effect of this Agreement,
then, in either case, upon such occurrence becoming final and no
longer subject to administrative or judicial review, the parties
shall immediately commence good faith negotiations to conform this
Agreement to the requirements of any such decision, rule, regulation
or preemption. The revised agreement shall have an effective date
that coincides with the effective date of the original FCC or
Commission action giving rise to such negotiations. The parties agree
that the rates, terms and conditions of any new agreement shall not
be applied retroactively to any period prior to such effective date
except to the extent that such retroactive effect is expressly
required by such FCC or Commission decision, rule, regulation or
preemption.
B. In the event that BellSouth, either before or after the effective
date of this Agreement, enters into an agreement with any other
telecommunications carrier (an "Other Resale Agreement") which provides
for the provision within the state(s) of Alabama, Florida, Georgia,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, and
Tennessee of any of the arrangements covered by this Agreement upon rates,
terms or conditions that differ in any material respect from the rates,
terms and conditions for such arrangements set forth in this Agreement
("Other Terms"), BellSouth shall be deemed thereby to have offered such
other Resale Agreement to Reseller in its entirety. In the event that
Reseller accepts such offer, such Other Terms shall be effective between
BellSouth and Reseller as of the date on which Reseller accepts such
offer.
C. In the event that after the effective date of this Agreement the FCC
or the Commission enters an order (a "Resale Order") requiring BellSouth
to provide within the state(s) of Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee any
of the arrangements covered by this agreement upon Other Terms, then upon
such Resale Order becoming final and not subject to further administrative
or judicial review, BellSouth shall be deemed to have offered such
arrangements to Reseller upon such Other Terms, in their entirety, which
Reseller may only accept in their entirety, as provided in Section XVI.E.
In the event that Reseller accepts such offer, such Other Terms shall be
effective between BellSouth and Reseller as of the date on which Reseller
accepts such offer.
<PAGE>
ATTACHMENT
D. In the event that after the effective date of this Agreement
BellSouth files and subsequently receives approval for one or more
intrastate tariffs (each, a "Resale Tariff") offering to provide within
the state(s) of Alabama, Florida, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina, South Carolina, and Tennessee any of the
arrangements covered by this Agreement upon Other Terms, then upon such
Resale Tariff becoming effective, BellSouth shall be deemed thereby to
have offered such arrangements to Reseller upon such Other Terms, which
Reseller may accept as provided in Section XVI.E. In the event that
Reseller accepts such offer, such Other Terms shall be effective between
BellSouth and Reseller as of the date on which Reseller accepts such
offer.
E. The terms of this Agreement, other than those affected by the Other
Terms accepted by Reseller, shall remain in full force and effect.
F. Corrective Payment. In the event that -
1. BellSouth and Reseller revise this Agreement pursuant to
Section XVI.A, or
2. Reseller accepts a deemed offer of an Other Resale Agreement or
Other Terms, then BellSouth or Reseller, as applicable, shall make a
corrective payment to the other party to correct for the difference
between the rates set forth herein and the rates in such revised
agreement or Other Terms for substantially similar services for the
period from the effective date of such revised agreement or Other
Terms until the date that the parties execute such revised agreement
or Reseller accepts such Other Terms, plus simple interest at a rate
equal to the thirty (30) day commercial paper rate for high-grade,
unsecured notes sold through dealers by major corporations in
multiples of $1,000.00 as regularly published in the The Wall Street
Journal.
XVII. Notices
A. Every notice, consent, approval, or other communications required or
contemplated by this Agreement shall be in writing and shall be delivered
in person or given by postage prepaid mail, address to:
BellSouth Telecommunications, Inc. DeltaCom, Inc.
OLEC Account Team General Counsel
3535 Colonnade Pkwy. Room E4E1 700 Boulevard South, Suite 101
Birmingham, AL 35243 Huntsville, AL 35802
or at such other address as the intended recipient previously shall have
designated by written notice to the other party.
B. Where specifically required, notices shall be by certified or
registered mail. Unless otherwise provided in this Agreement, notice by
mail shall be effective on the date it is officially recorded as
delivered by return receipt or equivalent, and in the absence of such
record of delivery, it shall be presumed to have been delivered the fifth
day, or next business day after the fifth day, after it was deposited in
the mails
XVIII. Amendments
<PAGE>
ATTACHMENT 2
This Agreement may be amended at any time upon written agreement of both
parties.
XIX. Entire Agreement
This Agreement sets forth the entire understanding and supersedes prior
agreements between the parties relating to the subject matter contained herein
and merges all prior discussions between them, and neither party shall be bound
by any definition, condition, provision, representation, warranty, covenant or
promise other than as expressly stated in this Agreement or as is
contemporaneously or subsequently set forth in writing and executed by a duly
authorized officer or representative of the party to be bound thereby.
<PAGE>
ATTACHMENT
EXHIBIT "A"
APPLICABLE DISCOUNTS
The telecommunications services available for purchase by Reseller for
the purposes of resale to Reseller end users shall be available at the following
discount off of the retail rate.
<TABLE>
<CAPTION>
DISCOUNT
--------
STATE RESIDENCE BUSINESS
----- --------- --------
<S> <C> <C>
ALABAMA 17% 17%
FLORIDA 21.83% 16.81%
GEORGIA 20.3% 17.3%
KENTUCKY 16.79% 15.54%
LOUISIANA* 20.72% 20.72%
MISSISSIPPI 15.75% 15.75%
NORTH CAROLINA 21.5% 17.6%
SOUTH CAROLINA 14.8% 14.8%
TENNESSEE** 16% 16%
</TABLE>
* Effective as of the Commission's Order in Louisiana Docket No. U-22020 dated
November 12, 1996.
** The Wholesale Discount is set as a percentage off the tariffed rates. If OLEC
provides its own operator services and directory services, the discount shall be
21.56%. These rates are effective as of the Tennessee Regulatory Authority's
Order in Tennessee Docket No. 90-01331 dated January 17, 1997.
Version: April 24, 1997
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AL FL GA KY LA
Type of --------------------------------------------------------------------------------------------------
Service Resale? Discount? Resale? Discount? Resale? Discount? Resale? Discount? Resale? Discount?
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Grandfathered Services Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
2 Contract Service Arrangements Yes Yes Yes Yes Yes No Yes No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
3 Promotions - greater than
90 Days Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
4 Promotions - less than
90 Days Yes No Yes No Yes No No No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
5 Lifeline/Link Up Services Yes Yes Yes Yes Yes Yes No No Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
6 911/E911 Services Yes Yes Yes Yes Yes Yes Yes Yes No No
- ------------------------------------------------------------------------------------------------------------------------------------
7 N11 Services Yes Yes Yes Yes Yes Yes No No No No
- ------------------------------------------------------------------------------------------------------------------------------------
8 Non-Recurring Charges Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
MS NC SC TN
Type of ------------------------------------------------------------------------------
Service Resale? Discount? Resale? Discount? Resale? Discount? Resale? Discount?
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Grandfathered Services Yes Yes Yes Yes Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------
2 Contract Service Arrangements Yes No Yes Yes Yes No Yes Yes
- ----------------------------------------------------------------------------------------------------------------
3 Promotions - greater than
90 Days Yes Yes Yes Yes Yes Yes Yes No
- ----------------------------------------------------------------------------------------------------------------
4 Promotions - less than
90 Days Yes No No No Yes No No No
- ----------------------------------------------------------------------------------------------------------------
5 Lifeline/Link Up Services Yes Yes Yes Yes Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------
6 911/E911 Services Yes Yes Yes Yes Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------
7 N11 Services No No No No Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------
8 Non-Recurring Charges Yes Yes Yes Yes Yes Yes Yes No
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Additional Comments:
1 Grandfathered services can be resold only to existing subscribers of the
grandfathered service.
2 Where available for resale, promotions will be made available only to end
users who would have qualified for the promotion had it been provided by
BellSouth directly.
3 Lifeline/Link Up services may be offered only to those subscribers who meet
the criteria that BellSouth currently applies to subscribers of these
services. In Tennessee, Reseller shall purchase BellSouth's Message Rate
Service at the stated tariff rate, less the wholesale discount. Reseller must
further discount the wholesale Message Rate Service to LifeLine customers
with a discount which is no less than the minimum discount that BellSouth now
provides. Reseller is responsible for recovering the Subscriber Line Charge
from the National Exchange Carriers Association interstate toll settlement
pool just as Bell South does today.
4 In Louisiana and Mississippi, all Contract Service Arrangements entered into
by BellSouth or terminating after the effective date of the Commission Order
will be subject to resale without the wholesale discount. All CSAs which are
in place as of the effective date of the Commission order will not be
eligible for resale.
5 In North Carolina, only those Contract Service Arrangements entered into after
April 15, 1997 will be available for resale.
<PAGE>
EXHIBIT 10.53
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[_____]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.***
TELECOMMUNICATIONS SYSTEM AGREEMENT
THIS TELECOMMUNICATIONS SYSTEM AGREEMENT ("AGREEMENT"), made and entered
into this 26th day of January, 1995, by and between Interstate FiberNet, a
Georgia General Partnership (hereinafter referred to as "IFN"), having an office
at 910 First Avenue, West Point, GA 31833 and Sprint Communications Company
L.P., a Delaware Limited Partnership, having an office at 903 East 104th Street,
Kansas City, MO 64131 ("Sprint", which expression shall include its successors
and permitted assigns), IFN and Sprint being collectively referred to herein as
the "Parties".
WHEREAS Sprint and Radians Telecommunications, Inc. entered into a
Telecommunication System Agreement dated October 20, 1993 which was assigned to
IFN and Amended on July 27, 1994; and
WHEREAS Sprint and IFN have agreed to substantially change the content of
the original Telecommunication System Agreement dated October 20, 1993, to the
extent that this Agreement will supersede and amend in its entirety the original
Telecommunication System Agreement dated October 20, 1993 and all associated
Amendments; and
WHEREAS, IFN will lease to Sprint [______________________] dark fibers on
the portion of the route from [_______________________________________________];
and [_________] dark fibers [__________________________________________________
_________________________] (collectively "Sprint Fibers"); and
WHEREAS, Sprint has agreed to accept the leased fibers in accordance with
the terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual promises and covenants herein
contained, the Parties mutually agree as follows:
Article 1. SCOPE OF AGREEMENT
1.1 IFN shall design, engineer, construct or cause to be constructed,
facilities and acquire appropriate interests in real property or other rights,
all as may be required to provide, operate, and maintain a fiber optics
transmission system (the "System") between Sprint's locations in [____________]
and [___________] ("Route"), as more fully defined in Exhibit A-1, Preliminary
System Route Diagram. The System will be constructed [________________________
__________________________________________________________________], to a point
near [__________]. From this point on the Route to [____________], the [_____]
will be [_____]. All of the Sprint Fibers will be [____________________________
__________________________________________________________________________
________________________]. All fiber cable shall contain a minimum of [_
________________________________________________________]. IFN has acquired or
shall acquire appropriate interests in real property or other rights, all as are
or may be required to provide a physical route for the installation and
operation of the System. IFN's construction and maintenance obligations shall be
performed in accordance with
PAGE 1
<PAGE>
industry standards and the following Exhibits attached hereto, which by this
reference are incorporated herein.
Exhibit A-1 Preliminary System Route Diagram
Exhibit A-2 Final System Route Diagram (to be provided by IFN no later
than [______________], and subject to Sprint's approval)
Exhibit A-3 Cable Vendor List
Exhibit B Optical Fiber Cable Specification for [_________________
__________________].
Exhibit C Outside Plant and Cable Splicing Specifications
Exhibit D [_________________________] Criteria and Maintenance
Specifications
Exhibit E Leased Fiber Optic Specifications
Exhibit F [___________________________________________]
Telecommunications
Exhibit G Nondisclosure Agreements
Exhibit H Telecommunications System Maintenance Agreement
Exhibit I Facilities and Services Agreement
Exhibit J Specifications for Maintenance of Fiber Regenerator Sites
1.2 Sprint shall provide IFN with a list of fiber optic cable vendors,
which list will include the following: at least two vendors for [________], and
three vendors of in-ground buried cable (a copy of which is attached hereto as
Exhibit A-3), from which list IFN shall select its cable vendors. Sprint will
have the right to participate in such selection, with the final vendor
selections being made at IFN's sole discretion. All engineering documentation
and drawings shall be submitted to Sprint prior to construction and such
documents and drawings shall require Sprint's prior written approval, which
shall not be unreasonably withheld or delayed. Sprint shall make its best
efforts to provide such approval within thirty (30) days of receipt of said
documents and drawings. IFN agrees to engineer the System in accordance with
Exhibits A through F. Changes to engineering plans must be approved by Sprint in
writing.
1.3 IFN shall maintain and update on a daily basis as-built drawings
during the construction. Sprint shall be provided access at all times to such
as-built drawings for the purpose of data verification and accuracy.
1.4 IFN shall use the [_____________________] to cross all navigable
waters
PAGE 2
<PAGE>
along the buried cable portion of the Route except for the crossings at the
following rivers: [___________________], and the [___]. IFN shall cross these
rivers pursuant to specifications set forth in Exhibit C.
1.5 During the construction, Sprint has the right, but not the obligation,
to have on-site inspectors monitor construction activity. In addition, the
Parties shall conduct periodic program review meetings throughout the
construction period for the purpose of determining program status, and
identifying and resolving problem areas. These meetings shall be conducted at
mutually agreeable intervals. Any desired modifications to the approved
engineering plans and drawings (referenced in 1.2) shall require Sprint's prior
written approval which shall not be unreasonably withheld or delayed.
1.6 IFN shall provide, at its sole cost, facilities, [____________________
_________________________], site access and outdoor security and lighting and
all other necessary and normal facility requirements at all IFN Sites
substantially as set forth in Exhibit D, but in no event less than the current
prevailing industry standards for like facilities. IFN shall maintain the IFN
Sites substantially as set forth in Exhibit J, but in no event less than the
current prevailing industry standards for like facilities.
1.7 Construction and Acceptance of the Sprint Fibers, as defined in
Article 5, may be in segments as set forth and defined as follows: "[___________
_______________________________________________________________________];
"System Segment - [___________________]" is that portion of the Route between
and including the Sprint Site at [____________] and the Sprint switch site in
[_________]; "System Segment - [_____________________]" is that portion of the
Route between and including the Sprint Sites at [____________] and [_________,
__]; and "Interim System Segment - [___________________]" is the that portion of
the Route between and including the Sprint Site at [____________] and the Sprint
switch site in [_________] that is temporarily provided to Sprint on existing
IFN fibers.
a) IFN shall complete construction of the System and perform any acts
required by IFN to be performed for Sprint to Accept the Sprint Fibers, as
set forth in Article 5, no later than [_________]. If delivery of Sprint
Fibers does not occur on or before this date or if after delivery of the
Sprint Fibers, Sprint notifies IFN of non-Acceptance, IFN shall pay to
Sprint liquidated damages in the amounts as set forth below until the
Sprint Fibers are Accepted by Sprint as set forth in Article 5.1. If the
Sprint Fibers are not Accepted by [_________], Sprint shall maintain the
right to continue using the Accepted System Segment(s) as set forth above
and specified below, at no cost or expense to Sprint until the end of a
ninety (90) day period or until Acceptance of the Sprint Fibers, whichever
occurs first. Should Acceptance of the Sprint Fibers not occur within this
time frame, and Sprint has not terminated the Agreement or cured the event
of default as provided for in Article 12, Sprint shall be allowed to
continue using the Accepted System Segment(s) specified above, at the
monthly recurring rates specified hereinafter for each such Accepted System
Segment for an additional ninety (90) days or until earlier Acceptance of
the Sprint Fibers. Should Acceptance of the Sprint Fibers not occur within
this one hundred eighty (180) day time frame, and Sprint has not terminated
the Agreement or cured the
PAGE 3
<PAGE>
event of default as contemplated in Article 12, IFN's liability for the
liquidated damages set forth below shall terminate and Sprint shall be
allowed to continue using such Accepted System Segment(s) and Sprint and
IFN will negotiate a reasonable lease payment for the Accepted System
Segment(s) or portions thereof (as required by Sprint). Said lease payment
shall be the lesser of IFN's lowest rate offered for similar fiber or the
then current market rate.
b) IFN shall complete construction of the [______] Extension and perform
any acts required by IFN to be performed for Sprint to Accept the Sprint
Fibers in System Segment - [________] Extension, as set forth in Article 5,
on or before [_________________]. Commencing upon Acceptance thereof,
Sprint agrees to pay the lease amount for the [_______] Extension as set
forth in Article 4.1. If delivery of Sprint Fibers for the [______]
Extension does not occur on or before this date or if after delivery of the
Sprint Fibers for the [_______] Extension, Sprint notifies IFN of non-
Acceptance, IFN shall pay to Sprint liquidated damages in the amount of
[______________________________] per day until the System Segment - [_____]
Extension is Accepted by Sprint as set forth in Article 5.1.
c) IFN shall provide [_____________] fibers for the Interim System Segment
- [________] to [____________], and any acts required by IFN to be
performed for Sprint to Accept the Interim System Segment - [_________] to
[___________] shall be completed on or before [_________________]. Sprint
acknowledges that this Interim System Segment-[________________________] is
a part of IFN's existing network and is on single mode non-dispersion
shifted fiber and agrees to waive the requirements in the Agreement and
Exhibits which are based upon use of dispersion shifted fibers instead of
single mode fibers for this Interim System Segment -[____________________].
Notwithstanding the aforementioned wavier, IFN warrants that the Interim
System Segment -[_____________________] will meet all performance measures
as required in the Exhibits (e.g., Bit Error Rate Performance) of the
Agreement, provided that such performance measures do not require
[___________________________]. In consideration for this Interim System
Segment -[________________________], if delivered on or before
[_________________], Sprint agrees to pay on [_______________] a one time
fee of [_________________________________________]. In addition, beginning
on [________________], Sprint shall pay a recurring fee of [______________
__________________________] per month for the use thereof, pursuant to the
conditions set forth In Article 4.1. Such recurring fee will cease upon
Acceptance of the Sprint Fibers or on [_____________], whichever occurs
first. If delivery of Sprint Fibers for the Interim System Segment -
[_____________________] does not occur on or before this date or if after
delivery of the Sprint Fibers, Sprint notifies IFN of non-Acceptance of the
interim System Segment - [___________________], IFN shall pay to Sprint
liquidated damages in the amount of [____________________________________
______] per day until the interim System Segment-[______________________]
is Accepted by Sprint as set forth in Article 5.1. In addition, the one
time fee of [_____________________________________________________________]
will be reduced by [__________________________________________] per day
from [_______________] through [_________________________________________
______________________] per day from [_________________] through [________
________] and [_______________________________________________] per day
from [________________], until Acceptance of the Interim System Segment -
[______________________].
PAGE 4
<PAGE>
d) Construction of [_________________] fibers for the System Segment -
[______________________ and any acts required by IFN to be performed for
Sprint to Accept the System Segment- [_______________________], shall be
completed by IFN on or before [________________]. Sprint agrees to pay
commencing on [________________________________________________________]
per month pursuant to the conditions set forth in Article 4.1. Such payment
will cease upon Acceptance of the Sprint Fibers or [___________], whichever
occurs first. If delivery of Sprint Fibers for the System Segment -
[_______________________] does not occur on or before this date or if after
delivery of the Sprint Fibers, Sprint notifies IFN of non-Acceptance of the
System Segment - [_______________________], IFN shall pay to Sprint
liquidated damages in the amount of [_____________________________] per day
until the System Segment - [_______________________] is Accepted by Sprint
as set forth in Article 5.1.
e) Construction of [__________________] fibers for the System Segment -
[____________________] and any acts required by IFN to be performed for
Sprint to Accept the System Segment - [_____________________], shall be
completed by IFN on or before [______________], with the exception of the
fiber from the IFN [________] regen site in [___________], to the Sprint
Switch Site at [____________________________], which shall be completed by
IFN on or before [___________]. If delivery of Sprint Fibers for the System
Segment - [____________________] does not occur on or before the dates
described above or if after delivery of the Sprint Fibers, Sprint notifies
IFN of non-Acceptance of the System Segment - [____________________] IFN
shall pay to Sprint liquidated damages in the amount of
[_____________________________] per day until the System Segment -
[____________________] is Accepted by Sprint as set forth in Article 5.1.
f) Upon Acceptance of the Sprint Fibers by Sprint, IFN shall allow Sprint
continued use of the Interim System Segment - [______________________],
without cost to Sprint, to allow reasonable time to transfer traffic from
the Interim System Segment - [____________________] to the Accepted System.
In addition, IFN shall reasonably cooperate with such transfer.
g) Each deadline for completion as set forth above shall be extended for
a period not to exceed thirty (30) days to the extent such delays are due
to causes beyond the control and without the fault of IFN, including Acts
of God, fires, floods, or inability to obtain materials; provided, however,
that the thirty (30) day extension of time for completion and Acceptance
shall be granted to IFN only after delivery of written notification to
Sprint of such delays. Notice must be delivered within fifteen (15) days
after the end of the month in which the delay occurred.
h) As a result of Accepting the System Segments of the Sprint Fibers as
set forth above, the Maintenance Agreement providing for the maintenance of
the System (Telecommunications System Maintenance Agreement, Exhibit H of
the Agreement) shall be enforced with the following exceptions until
Acceptance of the Sprint Fibers: i) when Sprint Accepts System Segment -
[_______] Extension and Interim System Segment - [_____________________],
Sprint will waive the
PAGE 5
<PAGE>
Routine Maintenance charges to IFN. ii) when Sprint Accepts System Segment
- [_________________________],Sprint will adjust the charge to IFN for
Routine Maintenance to [_______________________________________] per month,
for which Sprint's obligation as set forth in Exhibit H is limited to
Routine and Demand Maintenance on the Accepted System Segment - [________
_____________] and Accepted System Segment - [___________________].
i) Sprint will waive the requirement for the Letter of Credit Agreement
as set forth in Article 5.1 until Acceptance of the Sprint Fibers or June
1, 1995, whichever occurs first. At IFN's option, IFN may substitute a
Letter of Guarantee in a form acceptable to Sprint which fulfills the
requirements set forth in Article 5.1, issued by SCANA Corporation
("SCANA") for sixty-six and two third's percent (66 2/3's %) of the
obligation and ITC Holding Company, Inc. ("ITC") for thirty-three and one
third percent (33 1/3 %) of the obligation, upon the condition that SCANA
and ITC maintain, at a minimum, substantially the same financial condition
as represented in the Financial Statements attached as Exhibit B to the
Assignment, executed on July 27, 1994.
1.8 Sprint shall, subject to Sprint's sole discretion and IFN entering
into and maintaining in good standing Sprint's Facilities and Services Agreement
attached hereto as Exhibit I, provide to IFN the use of, and collocation in,
environmentally controlled floor space and DC power at Sprint's POP sites in
[____________], [____________], and [____________],and the Sprint switch site in
[____________].
1.9 Upon completion of the System, IFN shall lease to Sprint [_________
__________] dark fibers on the portion of the Route from [______________] to
Sprint's switch site in [_____________]; and [________________________] dark
fibers from Sprint's POP site located on [_____________], in [__________] to
Sprints switch site in [_________ __________________].
1.10 IFN hereby grants Sprint access to the Sprint Fibers to exercise any
indicia of ownership, including, but not limited to, drop and insert
capabilities, upgrade capacity and replacement of the Sprint Electronics. Such
replacement of the Sprint Electronics will not result in a modification of the
payment obligations of Sprint to IFN.
1.11 The Demarcation Point between IFN and Sprint shall be the [__________
___________________] or the [_____________________________________], located
within IFN's Site or Sprint's Site.
ARTICLE 2. DEFINITIONS
Unless otherwise defined herein, the terms used in this Agreement shall
have their normal or customary meanings. In addition, for the purpose of this
Agreement, the following terms shall have the meanings set forth:
POP Point of Presence, the point of Interface between the
interexchange network and the local network.
[_____] [____________________________]
PAGE 6
<PAGE>
Bona Fide Offer An offer to give valuable consideration, made in good
faith.
Regenerator Site in which incoming signals are regenerated and
retransmitted on an outgoing circuit.
Sprint Electronics The fiber optic telecommunications equipment owned and
used by Sprint to facilitate the transmission of
communications over the Sprint Fibers.
Sprint Fibers [________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
____________________________].
IFN Sites All POP, Regenerator, or other facilities, except Sprint
Sites, where IFN Electronics are housed.
IFN Fibers All non-Sprint Fibers contained within a fiber optic
cable installed by IFN between [_______________________
_______________________________________________________
______________________________] and non-Sprint Fibers
contained within a fiber optic cable installed by IFN
between Sprint's [_____________________________________
_______________________________________________________
____________].
Sprint Sites The Sprint POPs located at [___________________________
_______________________________________________________
_______________________________________________________
__________________________________].
IFN Electronics The fiber optic telecommunications equipment used to
facilitate the transmission of [______________] over the
fiber optic cable owned by IFN hereunder and not
including the Sprint Electronics.
Right-of-Way (ROW) Easement or right to use real property owned by
railroads, individual property owners, or other entities.
System The fiber optic telecommunications network constructed by
IFN hereunder, including, but not limited to, all fiber
cables, environmental systems, the Right-of-Way, all
Sites and facilities.
Prime The Prime Rate as published in the Wall Street Journal.
PAGE 7
<PAGE>
Entrance Facilities Telecommunications cable that may or may not have
electronic equipment for the purpose of transport of
telecommunication services from carrier to carrier or
from customer to carrier. Such telecommunications cable
may be provided from a local operation company or other
companies licensed to provide cable for
telecommunications.
ARTICLE 3. TERM/TERMINATION
The initial Term of this Agreement shall commence as of the date and year
first above written and shall continue for a period of eleven (11) years from
the date of Acceptance, as defined in Article 5. Thereafter, Sprint will have
[_______________] year options to extend the Term. Each option to extend the
Term shall be exerciseable by Sprint as set forth in Article 4.2.
Upon termination of this Agreement, both Parties will be provided access,
upon prior written notice, to the others' sites for removal of their equipment
ARTICLE 4. COMPENSATION
4.1 Lease of Fiber Dark
-------------------
During the Term Of this Agreement, Sprint shall pay [___________________
____________________________________________] per month to IFN for the lease of
[__________________] Sprint Fibers, and [____] per month for lease of the
[_________] Extension for a total of [______] per month, beginning thirty (30)
days after Acceptance of the Sprint Fibers, as defined in Article 5, and monthly
thereafter for the term of the Agreement, including all extensions. Except as
provided in 5.2, there shall be no payments by Sprint during the construction
phase. Except as expressly otherwise provided herein, both Sprint's and IFN's
efforts shall be carried out at each company's sole cost.
Sprint shall send all payments payable hereunder, via wire transfer, to:
ITC Holding Company
Bank ABA# 061109487
Account #707788
First National Bank
10th Street
West Point, GA 31833
Any amounts not paid by Sprint within ten (10) days after receipt of
written notice from IFN shall be subject to a late payment charge calculated
from the invoice due date to the date paid, with interest calculated at Prime
plus 2%.
PAGE 8
<PAGE>
IFN represents and warrants to Sprint that the prices charged to Sprint are
the lowest prices charged by IFN for dark fiber leases on this System between
[____________________________].
4.2 Options for Extension of Dark Fiber Lease
-----------------------------------------
Sprint is granted [_______________] year options for renewal of this Dark
Fiber Lease upon the following terms and conditions:
Sprint shall provide at least twelve (12) months advance written notice to
IFN of its intent to exercise an option to renew.
At the beginning of the third and fourth option periods (specifically, the
date when Sprint must provide written notice to IFN of its intent to exercise
its option to renew), if IFN is unable to provide to Sprint use of Sprint Fibers
which will meet the performance specifications attached hereto for 20% or more
of the Route, then the Parties agree to negotiate a remedy (e.g., IFN's
replacement of the defective portion of the Route with a financial contribution
from Sprint).
Should Sprint elect to exercise any of its options to renew, the lease
price per month for the Sprint Fibers for the extended term will be as follows:
First Option [______] per month
Second Option [______] per month
Third Option [______] per month
Fourth Option [______] per month
The lease price to renew the [_____] Extension shall be [_________________].
4.3 Others Payments
---------------
Sprint shall pay to IFN the sum of [________] payable as follows:
[________] upon Acceptance of the System Segment - [______________________] and
[______] upon Acceptance of the System Segment - [___________________]. Payment
shall be due and payable by wire transfer within five (5) business days of each
Acceptance.
ARTICLE 5. ACCEPTANCE
5.1 IFN shall perform testing on the System to determine the performance
level of the System after installation is complete. Sprint shall have the right
to have technicians present when testing is performed. IFN shall provide Sprint
with a copy of the test results. Based on Sprint's review of the test results,
the Parties shall mutually agree upon a list of items to be corrected. IFN will
correct any such items at IFN's sole cost. Sprint will provide a Notice of
Acceptance of the Sprint Fibers ("Acceptance"), in writing, when 1) the Parties
mutually agree the results are in conformance with the Exhibits and all product
specifications; 2) the Parties have executed a Maintenance Agreement
substantially in the form attached hereto as Exhibit H, providing, at a
PAGE 9
<PAGE>
minimum, that Sprint provide routine maintenance (for the term of this Agreement
as extended) of all [__________] at a monthly rate of [_____] throughout the
initial term of the Maintenance Agreement; and 3) IFN has delivered to Sprint an
annually renewable Letter of Credit Agreement maintained for the duration of the
initial Term of this Agreement and thereafter as may be required by Sprint in
the amount of [________________] naming Sprint as the beneficiary from a
commercial bank on which the S & P bond rating is at or above A-. The Letter of
Credit Agreement shall provide that payment shall be made to Sprint upon
Sprint's presentment of a Certificate stating that IFN has defaulted on the
terms of this Agreement.
5.2 In the event non-service effecting deficiencies are identified, Sprint
shall conditionally Accept the Sprint Fibers and shall commence payment of the
fees as set forth in Article 4, subject to the conditions precedent for
Acceptance identified in 5.1 hereinabove.
IFN shall correct any such non-service effecting deficiencies within ninety
(90) days of Conditional Acceptance. Should any such identified deficiencies
remain uncorrected at the end of the 90 days, Sprint has the right to correct
such deficiencies, at IFN's expense. Sprint may offset the reimbursement owed
for correcting any deficiencies against the Fees to be paid hereunder.
5.3 The Parties expressly agree that Sprint may retest the Sprint Fibers,
using its own equipment, provided that such re-testing shall be at Sprint's sole
cost.
5.4 Nothing contained herein shall prevent Sprint from electing to Accept
the Sprint Fibers in segments, in which event, Sprint shall pay the rates as set
forth in Article 1.7.
ARTICLE 6. ENTRANCE FACILITIES
6.1 Each Party shall be responsible for providing/arranging for their own
Entrance Facilities at any location where either Party desires to terminate
traffic and hand it off to a local telephone company or alternative access
provider.
6.2 Should Sprint determine that it has excess facilities at its POP sites
along the Route, then Sprint agrees to make such excess facilities available to
IFN at a cost to be determined by Sprint.
ARTICLE 7. CONFIDENTIAL INFORMATION
IFN shall preserve, with the same degree of care accorded its own proprietary
information, but in no event less than reasonable care, this Agreement and
Sprint confidential or proprietary information obtained in leasing to Sprint the
Sprint Fibers, and shall execute the Nondisclosure Agreement attached as Exhibit
G. IFN shall not, without the prior written consent of Sprint, in any manner
advertise or publish the fact that Sprint has entered into this Agreement. It is
understood and agreed by Sprint that IFN has the right to disclose this
Agreement to governmental agencies having
PAGE 10
<PAGE>
requisite governmental authority over the terms of this Agreement, provided that
IFN has given Sprint prior written notice of impending disclosure, and Sprint
has a reasonable opportunity to defend against such disclosure. Notwithstanding
the foregoing, it is understood and agreed by Sprint that IFN has the right to
disclose in writing all or part of the financial terms and conditions of this
Agreement to IFN's proposed financing sources, provided that Sprint has the
right to approve in advance such written disclosures (which approval will not be
unreasonably withheld), and further provided that Sprint's name shall not be
disclosed by IFN in such written disclosure statement without Sprint's express
written authorization. This Article 7 shall survive the termination or
expiration of the Agreement for a period of three (3) years.
ARTICLE 8. WARRANTIES
8.1 The Warranties and remedies set forth in this Agreement constitute the
only warranties and remedies with respect to this Agreement. Such Warranties are
in lieu of all other warranties, written or oral, statutory, express or implied,
including without limitation the Warranty of merchantability and the Warranty of
fitness for a particular purpose or use.
8.2 IFN represents and warrants to Sprint that it has the right to perform
as required hereunder and/or provide to Sprint the Sprint Fibers specified
herein, and that it is an entity, duly organized, validly existing and in good
standing under the laws of its origin, with all requisite power to enter into
and perform its obligations under this Agreement in accordance with its terms.
8.3 IFN represents and warrants to Sprint that all performance obligations
rendered by it hereunder shall be designed, produced, installed, furnished and
in all respects provided and maintained in conformance and compliance with
applicable federal, state and local laws, administrative and regulatory
requirements, and any other authorities having jurisdiction over the subject
matter of this Agreement that were in effect at the time of such design,
production, installation or furnishing, and it shall be responsible for applying
for, obtaining and maintaining all registrations and certifications which may be
required by such authorities.
8.4 Each Party represents that it is not aware of any facts that would
justify a complaint to the Federal Communications Commission or any state
regulatory authority concerning the prices, terms or conditions of the
transactions contemplated by this Agreement. The Parties also agree that in the
event a decision by a telecommunications regulatory authority at the federal,
state or local level necessitates modifications in this Agreement, the Parties
will negotiate in good faith to modify this Agreement in light of such decision.
8.5 IFN shall obtain all required regulatory authorizations, construction
permits, and appropriate agreements for installation and use of the System in
ducts, on poles, and/or in trenches on public or private property prior to
commencement of construction. It is expressly understood that the System may be
installed in or on ROW, the use of which is licensed or leased to IFN by others.
IFN shall acquire such
PAGE 11
<PAGE>
ROW (including any necessary renewals or new licenses or leases) and obtain for
Sprint the right to use, maintain and access the System without interruption and
a guarantee of non disturbance during the Term of this Agreement and any
renewals thereof, including, but not limited to, sufficient ingress and egress
rights to all IFN Sites. IFN shall immediately inform Sprint in the event that
IFN is unable, after diligent and good faith efforts, to obtain renewals of
existing licenses or leases, new licenses or new leases, in order to enable
Sprint to protect its rights to use, maintain and access the System provided
hereunder during the Term of this Agreement.
8.6 IFN represents and warrants, to Sprint, that the System has been
installed in a workmanlike manner and in accordance with the Exhibits to this
Agreement. IFN shall further warrant that the System will operate in accordance
with Exhibit B and E, Technical Specifications for the term of the Agreement (as
extended). In the event that the System fails to perform in accordance with
Exhibit B and E, Technical Specifications, Sprint shall have the rights and
remedies as set forth in Article 12.4.
ARTICLE 9. INDEMNIFICATION
Each Party agrees to indemnify and hold harmless the other Party from
claims by persons not a party to this Agreement for personal injury or damage to
personal property from the negligent or willful actions of the indemnifying
Party's employees, agents, contractors, or representatives.
ARTICLE 10. LIABILITIES
Neither party shall be liable for any consequential, incidental, indirect,
special, or punitive damages, or for lost profits. This provision shall not
affect Sprint's right to liquidated damages as provided in Article 1 and Article
12.
ARTICLE 11. INSURANCE
If IFN is to perform work on Sprint premises. IFN shall obtain and maintain
in force [for the Term] Services Commercial General Liability Insurance,
including coverage for contractual liability and personal insurance, personal
injury or death, or property damage, in the amount not less than [_________] per
occurrence, insuring IFN and naming Sprint as an additional insured, and waiving
all of insurer's rights of subrogation against Sprint. Before commencing work on
Sprint premises, IFN will provide satisfactory evidence of the required
insurance and stating that no policy may be canceled or materially altered
without first giving Sprint thirty (30) days written notice.
ARTICLE 12. DEFAULT
12.1 IFN shall be in default of this Agreement if: 1) IFN becomes
insolvent, liquidates, is adjudicated as bankrupt, makes an assignment for the
benefit of
PAGE 12
<PAGE>
creditors, invokes any provision of law for the relief of debtors, or initiates
any proceeding seeking protection from its creditors; or 2) IFN violates any
applicable laws or other legal requirements which results in a material impact
on the System or System Segments; or 3) IFN fails to acquire and/or maintain
necessary Right-of-Way for the uninterrupted use of the System as required under
this Agreement; 4) IFN fails to perform any material obligation, which is not
associated with the physical operation of the System, under the terms of this
Agreement; 5) IFN fails to perform any material obligation regarding the
physical operation of the System under the terms of this Agreement.
Such failure shall not be considered a default however if it is the result
of a material default on behalf of Sprint in its obligations under the
Maintenance Agreement.
12.2 In the event of a default as described in (3) and (5) of Article 12.1
above, Sprint has the right, without the duty, and solely at its discretion to
cure the default if IFN is not using best faith efforts to cure the same. In
such event, IFN hereby appoints Sprint as its authorized agent, with authority
to negotiate and obtain licenses, lease renewals, or rights-of-way to allow for
the completion of construction or to allow for Sprint's uninterrupted use of the
System. IFN shall reimburse Sprint for any costs associated with curing such
default at a rate of two times Sprint's direct cost for labor and services and
one and one half times Sprint's direct costs for materials and fees. Sprint may
offset such reimbursement against any fees due and owing hereunder by Sprint.
Sprint shall provide an itemized invoice to IFN for any amounts offset.
12.3 If any event of default continues for thirty (30) days after written
notice thereof, Sprint has the right, but not the duty, and solely at its
discretion to initiate any of the actions that follow:
a) To terminate the Agreement. As time is of the essence for the
completion of the System, termination shall be immediate and effective upon
notice. In such event, IFN hereby releases and discharges Sprint of and from any
and all claims, causes of action, damages or liabilities, known or unknown,
incurred by reason of or in any way growing out of the use of the System and
Route or related to this Agreement. IFN's liability for the liquidated damages
set forth in Section 1.7 shall cease upon termination of the Agreement.
b) To cure the event of default to the extent Sprint deems necessary to
allow for the continued use of the Sprint Fibers by Sprint or to complete
construction of the System for use by Sprint. In such event, IFN hereby appoints
Sprint as its authorized agent, with authority to negotiate and obtain licenses,
lease renewals, or rights-of-way to allow for the completion of construction or
to allow for Sprint's uninterrupted use of the Sprint Fibers. IFN shall
reimburse Sprint for any costs associated with curing such default at a rate of
two times Sprint's direct cost for labor and services and one and one half times
Sprint's direct costs for materials and fees. Sprint may offset such
reimbursement against any fees due and owing hereunder by Sprint. Sprint shall
provide an itemized invoice to IFN for any amounts offset.
PAGE 13
<PAGE>
12.4 If any portion of the System experiences performance which fails the
material requirements as set forth in the Exhibits or in industry standards of
comparable systems with current and like technology, which results in an
interruption in Sprint's ability to use or a material degradation of the System,
then Sprint's obligation for payment here under shall immediately cease for the
duration of such interruption or degradation on a pro rata basis in one
sixteenth increments for each Sprint Fiber affected (one twenty fourth
increments for each Sprint Fiber affected on the Accepted System Segment -
[_____] Extension) until the same is cured, as demonstrated by IFN to the
reasonable satisfaction of Sprint. Notwithstanding any other provision of this
Agreement to the contrary, if Sprint exercises its remedy to cease payment of
its monthly obligation to IFN due to an alleged material default by IFN, then
IFN shall have the right to draw upon its Letter of Credit referenced in Article
5 hereof to satisfy IFN's monthly financial obligations related to the System,
provided that IFN may not reduce the available balance under the Letter of
Credit to an amount less than [__________] pursuant to this Article 12 without
the prior written consent of Sprint. Additionally, the amount available under
the Letter of Credit must be reinstated to the maximum amount required pursuant
to Article 5 hereof within twelve (12) months after the date IFN first makes any
draw under the Letter of Credit pursuant to this Article 12.
12.5 Sprint shall be in default of this Agreement if: 1) Sprint becomes
insolvent, liquidates, is adjudicated as bankrupt, makes an assignment for the
benefit of creditors, invokes any provision of law for the relief of debtors, or
initiates any proceeding seeking (including payment obligation) protection from
its creditors; or 2) Sprint fails to perform any material obligation under the
terms of this Agreement. If any such event of default continues for thirty (30)
days after written notice thereof, IFN has the right, but not the duty, solely
at its discretion to terminate this Agreement. Such termination shall be
immediate and effective upon notice. In such event, Sprint hereby releases and
discharges IFN of and from any and all claims, causes of action, damages or
liabilities, known or unknown, incurred by reason of or in any way growing out
of the use of the System and Route or related to this Agreement. It is not
intended that Sprint release IFN from claims relating to this Agreement such
that IFN caused or contributed to Sprint's material default hereunder.
ARTICLE 13. UTILITIES
13.1 IFN's responsibility for utilities at IFN's Sites
------------------------------------------------
IFN hereby agrees to pay any and all charges for utility services rendered
to any IFN Site along the Route. Such charges can include, but are not limited
to; electric power necessary for common alarms, interior and exterior lighting,
environmental systems (air-conditioning), Sprint Electronics, and IFN
Electronics; any water necessary for the operation of the site; any sewer
charges necessary for operation of the site; any trash/garbage fees assessed for
the IFN Sites.
13.2 Sprint's responsibility for utilities at Sprint Sites
-----------------------------------------------------
Sprint hereby agrees to pay any and all charges for utility services
rendered to
PAGE 14
<PAGE>
Sprint Sites. Such charges can include, but are not limited to: electric power
necessary for common alarms, interior and exterior lighting, environmental
systems (air-conditioning), Sprint Electronics, and IFN Electronics; any water
necessary for the operation of the site; any sewer charges necessary for
operation of the site; any trash/garbage fees assessed for the Sprint POP site.
ARTICLE 14. TAXES
IFN shall be fully responsible for the payment of any and all ad valorem,
property, franchise, gross receipts, sales, use and other taxes directly
applicable to the leasing of the Sprint Fibers to Sprint and the maintenance
services it purchases pursuant to the Maintenance Agreement between the Parties
(except income taxes on the revenue of Sprint).
ARTICLE 15. ARBITRATION
15.1 Dispute Resolution. In the event of any dispute, controversy or
------------------
claim of any kind or nature arising under or in connection with this Agreement
or the provision of the Services by IFN that the Parties are unable to resolve
through informal discussions or negotiations, the Parties agree to submit such
dispute, controversy or claim to arbitration in accordance with the following
procedures:
(a) Either party may demand arbitration by giving the other party written
notice to such effect, which notice shall (i)describe, in reasonable
detail, the nature of the dispute, controversy or claim, and (ii)
name an arbitrator who is experienced in the subject matter of the
issue in dispute.
(b) Within thirty (30) days after the other party's receipt of such
demand, such other party shall name a second arbitrator who is
experienced in the subject matter of the issue in dispute.
(c) The two arbitrators so named shall promptly select a third arbitrator
who also is experienced in the subject matter of the issue in
dispute. The arbitration shall be heard by a panel of the three
arbitrators so chosen (the "Arbitration Panel"), and the resolution
of the dispute, controversy or claim shall be determined by a
majority vote of the Arbitration Panel. The Commercial Arbitration
Rules of the American Arbitration Association shall govern the
conduct of the arbitration.
(d) Sprint and IFN shall each bear 50% of all fees, costs and expenses of
the arbitration, and each party shall bear its own legal fees and
expenses, and costs of all experts and witnesses; provided, however,
that if the claim of either party is upheld by the Arbitration Panel
in all material respects, then the Arbitration Panel may apportion
between the Parties as the Arbitration Panel may deem equitable the
costs incurred by the prevailing party.
PAGE 15
<PAGE>
(e) The party demanding arbitration shall request the Arbitration Panel
to (i) allow for the Parties to request reasonable discovery pursuant
to the rules then in effect under the Federal Rules of Civil
Procedure for a period not to exceed sixty (60) days prior to such
arbitration and (ii) require the testimony to be transcribed. No
findings of fact or opinions of law shall be required to be made by
the arbitrators.
(f) Any award rendered by the Arbitration Panel shall be final,
conclusive and binding upon the Parties and any judgment thereon may
be entered and enforced in any court of competent jurisdiction.
15.2 Exclusive Remedy. Other than any action necessary to enforce the
----------------
award of the Arbitration Panel, the Parties agree that the provisions of this
Article 15 are a complete defense to any suit, action or other proceeding
instituted in any court or before any administrative tribunal with respect to
any dispute, controversy or claim arising under or in connection with this
Agreement or the provisions of the Services by IFN. Nothing in this Article 15
prevents the Parties from exercising their rights to terminate this Agreement in
accordance with this Agreement.
ARTICLE 16. MISCELLANEOUS
16.1 Any work performed by either party on the premises of the other party
shall be performed while taking all necessary precautions to prevent the
occurrence of any injury to persons or property during the progress of such work
and shall adhere to Sprint security procedures, policies and operation.
16.2 Each party shall immediately notify the other party by telephone
(followed by written confirmation within twenty-four hours) of any product used
in providing services hereunder which fails to comply with any applicable safety
rules or standards of concerned governmental agencies (including the
Environmental Protection Agency), or which contains a defect which could create
or present a substantial risk to stored data or software, or which presents a
substantial risk to the public health or of injury to the public or to the
environment.
16.3 Except as specifically provided herein, this agreement does not
constitute either Party as the agent or legal representative of the other Party,
and does not create a partnership or joint venture between the Parties. Each
Party may engage in and possess other business ventures that are competitive
with the services under this Agreement. This Agreement is not intended to be an
exclusive Agreement for any services.
16.4 This Agreement, together with all Exhibits, shall constitute the
entire agreement and no negotiations or discussions prior to execution shall be
of any effect.
16.5 The invalidity in whole or in part of any provision shall not affect
the validity of any other provision.
PAGE 16
<PAGE>
16.6 The right and remedies of the parties shall be cumulative and in
addition to any other rights and remedies provided by law or equity. A waiver of
a breach of any provision hereof shall not constitute a waiver of any other
breach. The laws of the state of Kansas shall govern this Agreement.
16.7 No subsequent agreement concerning the System shall be effective
unless made in writing and executed by authorized representatives of the
Parties.
16.8 Notices shall be in writing, mailed certified with return receipt
requested, effective upon receipt and sent to:
Sprint: Sprint Communications Company L.P.
903 East 104th Street
Kansas City, Missouri 64131
ATTN.: Network Contracts and
Real Property Administration
Copy to: Sprint Communications Company L.P.
8140 Ward Parkway
Kansas City, Missouri 64114
ATTN.: Law Department
Interstate Fibernet: Interstate Fibernet
910 First Avenue
P.O. Box 510
West Point,GA 31833
Attn.: Steve Moses
Copy to: Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, DC 20004
Attn.: James J. Rosenhauer
or to replacement addresses that may be later designated in writing.
16.9 Neither Party may assign this Agreement without the prior written
consent of the other Party which assignment shall not be unreasonably withheld,
except that Sprint may assign its rights and obligations hereunder to a legal
entity which is a successor, assign, subsidiary or affiliate of Sprint
Corporation without notice or consent, provided that such entity is of a
financial condition that will allow it to meet all obligations under this
agreement.
16.10 Sprint hereby consents to the assignment by IFN of the Agreement in
its entirety to an entity of which MPX Systems, Inc. ("MPX") and a corporation
that is, directly or indirectly, a wholly-owned subsidiary of ITC Holding
Company, Inc. ("ITC Holding") are owners holding a controlling interest, so long
as SCANA Corporation and ITC Holding continue to guarantee financing for such
assignee. For this purpose,
PROPRIETARY INFORMATION PAGE 17
<PAGE>
"controlling interest" shall mean retention by MPX and such ITC Holding
subsidiary of at least fifty-one percent (51%) of the ownership interest in such
entity, and the ability to control the selection of management. This consent
shall terminate if such assignment does not occur on or before [______________].
ARTICLE 17. EQUIPMENT PURCHASE BY IFN
IFN shall purchase and deliver to Sprint, on or before December 31, 1994,
the equipment identified below including all right, title and interest thereto,
free and clear from any liens or encumbrances.
A. [_____________________________________________________
_____________________
_______________________________
__________
__________________
_________________________
_______________________________________
__________________________________
______________________________________]
B. [____________________________________
________________________________________________]
IFN shall ensure that all manufacturer's warranties are fully transferable
to Sprint.
ARTICLE 18. COUNTERPARTS
To facilitate execution, this Amendment may be executed in as many
counterparts as may be required, it shall not be necessary that the signature of
or on behalf of each party appears on each counterpart, but it shall be
sufficient that the signature of or on behalf of each party appears on one or
more of the counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in any proof of the Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of or on behalf of all of the parties.
PAGE 18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year below written, but effective as of the day and year first set forth
above.
INTERSTATE FIBERNET, SPRINT COMMUNICATIONS COMPANY L.P.,
A GEORGIA GENERAL PARTNERSHIP A DELAWARE LIMITED PARTNERSHIP
- ----------------------------- ------------------------------------
By: /s/ Steve Moses By: /s/ George N. Fuciu
-------------------------- --------------------------------
Name: Steve Moses Name: George Fuciu
Title: General Manager Title: Senior Vice President, Network
Date: 1/30/95 Date: 1/26/95
------------------------ -------------------------------
STATE OF Georgia
--------------------)
COUNTY OF Troup ) ss
--------------------)
On this 30th day of January 1995, Steve Moses, General Manager, Interstate
Fibernet, a Georgia General Partnership executed the foregoing instrument. IN
TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year aforesaid
/s/ Martha B. Quinton
-----------------------------------
Notary Public
STATE OF Missouri Notary Public, Troup County, Georgia
---------------------)
COUNTY OF Jackson ) ss My Commission Expires March 23, 1998.
--------------------)
On this 26th day of January 1996, George Fuciu, Senior Vice President,
Network Sprint Communications Company L.P., a Delaware Limited Partnership
executed the foregoing instrument. IN TESTIMONY WHEREOF, I have hereunto set my
hand and affixed my official seal the day and year aforesaid.
[SEAL APPEARS HERE] /s/ Janet S. Rynard
---------------------------------------
Notary Public
MPX SYSTEMS, ITC TRANSMISSION SYSTEMS, INC:
A SOUTH CAROLINA CORPORATION A DELAWARE CORPORATION
- -------------------------------- ---------------------------------------
By: /s/ Michael D. Blackwell By: /s/ Steve Moses
----------------------------- ------------------------------------
Name: Michael D. Blackwell Name: Steve Moses
Title: Executive vice President Title: Vice President
AS GENERAL PARTNER FOR
INTERSTATE FIBERNET,
A GEORGIA GENERAL PARTNERSHIP
Date: 1/30/95 Date:__________________________________
--------------------------
STATE OF SC
------------------------)
COUNTY OF Lexington ) ss
-----------------------)
On this 31 day of January 1996, Michael D. Blackwell, Executive Vice
President, MPX Systems, a South Carolina Corporation executed the foregoing
instrument. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year aforesaid.
/s/ [SIGNATURE ILLEGIBLE]
---------------------------------------
Notary Public
STATE OF Georgia My Commission Expires 4/30/2002
------------------------)
COUNTY OF Troup ) ss
-----------------------)
On 30th day January, 1996, Steve Moses, Vice President, ITC Transmission
Systems, Inc, a Delaware Corporation executed the foregoing instrument. IN
TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year aforesaid.
/s/ Martha B. Quinton
---------------------------------------
Notary Public
Notary Public, Troup County, Georgia
My Commission Expires March 23, 1998.
PAGE 19
<PAGE>
***INFORMATION IN THIS EXHIBIT A-1 DIAGRAM HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***
Exhibit A-1
Preliminary System Route Diagram
[___________________]
<PAGE>
EXHIBIT A-2
FINAL SYSTEM ROUTE DIAGRAM
[___________________]
(to be provided by IFN no later than January 27, 1995 and subject to Sprint's
approval)
<PAGE>
[LOGO] Sprint 903 East 104th Street
P.O. Box 8490
Kansas City MO 64114-0490
(816) 854-7081
April 5, 1995
Mr. Frank Wilcox
Director of Operations
Gulf States FiberNet
208 West Ninth Street
P.O. Box 510
West Point, GA 31833
Reference: [________________] Contract, Exhibit A-2
Dear Mr. Wilcox:
The proposal in your letter of March 30, 1995 is acceptable to us. As stated in
your letter, [_________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
___________________________________________________________].
Sincerely,
/s/ Wayne C. Young
Wayne C. Young
Contract Negotiator
cc. O.A.Bell
<PAGE>
EXHIBIT A-3
CABLE VENDOR LIST
[___________________]
[__________________________________________________________________________
___________________________________________].
[____]
- ------
[_______]
[________]
[_______________]
[____]
- ------
[_______________]
[_______________]
<PAGE>
***INFORMATION IN THIS EXHIBIT B (PAGES 1-25) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***
EXHIBIT B
- --------------------------------------------------------------------------------
OPTICAL FIBER CABLE SPECIFICATION FOR
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<C> <S>
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
</TABLE>
1
<PAGE>
***INFORMATION IN THIS EXHIBIT C (PAGES 1-9) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***
Exhibit C
OUTSIDE PLANT AND CABLE SPLICING SPECIFICATIONS
[___________________]
<PAGE>
***INFORMATION IN THIS EXHIBIT D (PAGES 1-12) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***
EXHIBIT D
[__________________]
CRITERIA AND SPECIFICATION
[___________________]
<PAGE>
***INFORMATION IN THIS EXHIBIT E (PAGES 1+2) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT E
Leased Fiber Optic Specifications
<PAGE>
***INFORMATION IN THIS EXHIBIT F (PAGES 1-10) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***
EXHIBIT F
- --------------------------------------------------------------------------------
[___________________________________________]
Telecommunications
<PAGE>
EXHIBIT G
AGREEMENT FOR USE AND NON-DISCLOSURE
OF CONFIDENTIAL INFORMATION
THIS AGREEMENT, made effective as of the 26th day of January 1995, by and
between Sprint Communications Company L.P., a Delaware Limited Partnership
("Sprint"), having an office at 903 East 104th Street, Kansas City, MO 64131,
and Interstate FiberNet, a Georgia General Partnership ("Carrier"), having an
office at 910 First Avenue, West Point, GA 31833, is to assure the protection
and preservation of the confidential and/or proprietary nature of information to
be disclosed or made available to each other in connection with an agreement
regarding telecommunications services contemplated by Carrier and Sprint ("the
Party(ies)").
WHEREAS, the Parties contemplate entering into business and/or technical
discussions relating to:
Telecommunications Services
NOW, THEREFORE, in reliance upon and in consideration of the following
undertakings, the Parties, for themselves, their subsidiaries and their
affiliates, agree as follows:
1. All information disclosed to the other Party shall be deemed to be
confidential and proprietary (hereinafter referred to as "Proprietary
Information") provided that written information is clearly marked in a
conspicuous place as confidential or proprietary, and verbal
information is immediately confirmed in writing as confidential or
proprietary.
2. Each Party agrees to use the Proprietary Information received from the
other Party only for the purpose stated above. No other rights, and
particularly licenses, to trademarks, inventions, copyrights, or
patents are implied or granted under this Agreement.
3. Proprietary Information supplied shall not be reproduced in any form
except as required to accomplish the intent of this Agreement.
4. The receiving Party shall provide the same care to avoid disclosure or
unauthorized use of the Proprietary Information as it provides to
protect its own proprietary information, but in any event at least
reasonable care. It is agreed that all Proprietary Information shall be
retained by the receiving Party in a secure place with access limited
to only such of the receiving Party's employees or agents who need to
know such information for purposes stated above.
5. All Proprietary Information, unless otherwise specified in writing,
shall remain the property of the disclosing Party, shall be used by the
receiving Party only for the purpose intended, and such Proprietary
Information, including all copies thereof, shall be returned to the
disclosing Party or destroyed after the receiving Party's need for it
has expired or upon request of the disclosing Party, or, in any event,
upon termination of this Agreement.
6. It is understood that the term "Proprietary Information" does not
include information which:
a) has been published or is now or may become in the public
domain through no fault of the receiving Party;
b) prior to disclosure hereunder is property within the
legitimate possession of the receiving Party;
c) subsequent to disclosure hereunder is lawfully received from
a third party having no obligation not to disclose;
d) is independently developed by the receiving Party through
parties who have not had, either directly or indirectly,
access to or knowledge of such Proprietary Information;
e) is transmitted to the receiving Party after the disclosing
Party has received written notice from the receiving Party
that it does not desire to receive further Proprietary
Information.
f) is required to be disclosed pursuant to court order or as
otherwise required by law, on the condition that reasonable
written notice of the requirements for such disclosure is
given to the disclosing party as soon as possible prior to
making any disclosure and the receiving party to such
requirements cooperates as the other may reasonably request in
resisting the disclosure or disclosing only under a protective
court order or other entity or agency.
7. Each Party agrees not to reveal this relationship with the other Party
to any third parties except as contemplated by Paragraph 4 of this
Agreement.
8. Damages, being difficult to ascertain in the event of violation of this
Agreement, the Parties agree that, without limiting any other rights
and remedies of each other, upon breech hereof, an injunction may be
sought by the non-breaching Party to protect its rights hereunder.
9. This Agreement shall continue in full force and effect so long as
either Party shall possess the Proprietary Information of the other
Party. This Agreement may be terminated at any time by mutual
agreement, or by either Party upon sixty (60) days written notice to
the other Party; provided that such unilateral termination of this
Agreement shall not relieve the recipient Party of its obligations
under this Agreement with respect to Proprietary Information exchanged
prior to the effective date of termination.
Sprint Communications Company L.P. Interstate FiberNet
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
----------------------------
Date: Date:
----------------------------- -----------------------------
<PAGE>
EXHIBIT H
TELECOMMUNICATIONS SYSTEM MAINTENANCE AGREEMENT
[THIS EXHIBIT IS INCORPORATED BY REFERENCE TO AN EXECUTED VERSION OF
THAT CERTAIN TELECOMMUNICATIONS SYSTEM MAINTENANCE AGREEMENT, DATED AS OF
JANUARY 26, 1995, BETWEEN INTERSTATE FIBERNET AND SPRINT COMMUNICATIONS COMPANY
L.P., FILED AS EXHIBIT NO. 10.49 TO AMENDMENT NO. 1 TO THE COMPANY'S
REGISTRATION STATEMENT OF FORM S-4 (REGISTRATION NO. 333-31361). CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF SUCH EXHIBIT. THE EXECUTED VERSION
FILED AS EXHIBIT NO. 10.49 OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIAL
TREATMENT REQUEST.]
<PAGE>
EXHIBIT I
SPRINT COMMUNICATIONS COMPANY FACILITIES
AND SERVICES AGREEMENT
[THIS EXHIBIT IS INCORPORATED BY REFERENCE TO AN EXECUTED
VERSION OF THAT CERTAIN SPRINT COMMUNICATIONS COMPANY FACILITIES AND SERVICES
AGREEMENT, DATED AS OF JANUARY 26, 1995, BETWEEN INTERSTATE FIBERNET AND SPRINT
COMMUNICATIONS COMPANY L.P., FILED AS EXHIBIT NO. 10.50 TO AMENDMENT NO. 1 TO
THE COMPANY'S REGISTRATION STATEMENT ON FORM S-4 (REGISTRATION NO. 333-31361).
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF SUCH EXHIBIT. THE
EXECUTED VERSION FILED AS EXHIBIT NO. 10.50 OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIAL TREATMENT REQUEST.]
<PAGE>
***INFORMATION IN THIS EXHIBIT J (PAGES 1-7) HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***
EXHIBIT J
SPECIFICATIONS FOR MAINTENANCE OF FIBER REGENERATOR SITES
[__________________]
<PAGE>
Exhibit 10.77
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$100,000,000
CREDIT AGREEMENT
Among
INTERSTATE FIBERNET, INC.
And
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender
and
LENDERS
Dated as of September 17, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
$100,000,000
INTERSTATE FIBERNET, INC.
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS
1.01. Definitions......................................................... 1
1.02. Accounting and Other Terms.......................................... 20
ARTICLE II. THE LOAN FACILITY
2.01. The Loans........................................................... 20
2.02. Making Advances..................................................... 21
2.03. Evidence of Debt for Borrowed Money................................. 23
2.04. Optional Prepayments................................................ 23
2.05. Mandatory Prepayments............................................... 24
2.06. Repayment........................................................... 25
2.07. Interest............................................................ 25
2.08. Default Interest.................................................... 26
2.09. Continuation and Conversion Elections............................... 26
2.10. Fees................................................................ 27
2.11. Reduction of Commitment............................................. 28
2.12. Funding Losses...................................................... 29
2.13. Computations and Manner of Payments................................. 29
2.14. Yield Protection; Changed Circumstances............................. 30
2.15. Use of Proceeds..................................................... 33
2.16. Collateral and Collateral Call...................................... 33
ARTICLE III. LETTERS OF CREDIT
3.01. Issuance of Letters of Credit....................................... 34
3.02. Letters of Credit Fee............................................... 35
3.03. Reimbursement Obligations........................................... 35
3.04. Lenders' Obligations................................................ 36
3.05. Administrative Lender's Obligations................................. 37
ARTICLE IV. CONDITIONS PRECEDENT
4.01. Conditions Precedent to Closing and the Initial Advance............. 38
4.02. Conditions Precedent to All Revolving Advances, Initial Advances
under the Term Loan and Letters of Credit........................... 40
<PAGE>
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.01. Representations and Warranties...................................... 42
5.02. Survival of Representations and Warranties.......................... 49
ARTICLE VI. GENERAL COVENANTS
6.01. Preservation of Existence and Similar Matters....................... 49
6.02. Business; Compliance with Applicable Law. .......................... 49
6.03. Maintenance of Properties........................................... 50
6.04. Accounting Methods and Financial Records............................ 50
6.05. Insurance........................................................... 50
6.06. Payment of Taxes and Claims......................................... 50
6.07. Visits and Inspections.............................................. 50
6.08. Payment of Debt for Borrowed Money.................................. 51
6.09. Use of Proceeds..................................................... 51
6.10. Indemnity........................................................... 51
6.11. Environmental Law Compliance........................................ 52
6.12. Acquisitions, Generally............................................. 52
ARTICLE VII. INFORMATION COVENANTS
7.01. Quarterly Financial Statements and Information...................... 53
7.02. Annual Financial Statements and Information; Certificate of No
Default............................................................. 53
7.03. Compliance Certificates............................................. 54
7.04. Copies of Other Reports and Notices................................. 54
7.05. Notice of Litigation, Default and Other Matters..................... 55
7.06. ERISA Reporting Requirements........................................ 55
ARTICLE VIII. NEGATIVE COVENANTS
8.01. Financial Covenants................................................. 57
8.02. Debt for Borrowed Money............................................. 58
8.03. Liens............................................................... 59
8.04. Investments......................................................... 59
8.05. Liquidation, Disposition or Acquisition of Assets, Merger, New
Subsidiaries........................................................ 60
8.06. Guaranties; Contingent Liabilities.................................. 61
8.07. Restricted Payments................................................. 61
8.08. Affiliate Transactions.............................................. 63
8.09. Compliance with ERISA............................................... 63
8.10. Capital Stock....................................................... 63
8.11. Sale and Leaseback.................................................. 64
<PAGE>
8.12. Sale or Discount of Receivables..................................... 64
8.13. Limitation on Restrictive Agreements................................ 64
8.14. Amendment of Senior Notes. ........................................ 64
8.15. The Interest Reserve Escrow Account................................. 64
ARTICLE IX. EVENTS OF DEFAULT
9.01. Events of Default................................................... 65
9.02. Remedies upon Default............................................... 68
9.03. Cumulative Rights................................................... 69
9.04. Waivers............................................................. 69
9.05. Performance by Administrative Lender or any Lender.................. 69
9.06. Expenditures........................................................ 69
9.07. Control............................................................. 70
ARTICLE X. THE ADMINISTRATIVE LENDER
10.01. Authorization and Action............................................ 70
10.02. Administrative Lender's Reliance, Etc............................... 70
10.03. NationsBank of Texas, N.A. and Affiliates........................... 71
10.04. Lender Credit Decision.............................................. 71
10.05. Indemnification by Lenders.......................................... 71
10.06. Successor Administrative Lender..................................... 72
ARTICLE XI. MISCELLANEOUS
11.01. Amendments and Waivers.............................................. 72
11.02. Notices............................................................. 73
11.03. Parties in Interest................................................. 75
11.04. Assignments and Participations...................................... 75
11.05. Sharing of Payments................................................. 76
11.06. Right of Set-off.................................................... 76
11.07. Costs, Expenses, and Taxes.......................................... 77
11.08. Rate Provision...................................................... 78
11.09. Severability........................................................ 78
11.10. Exceptions to Covenants............................................. 78
11.11. Counterparts........................................................ 79
11.12. GOVERNING LAW; WAIVER OF JURY TRIAL................................. 79
11.13. ENTIRE AGREEMENT.................................................... 79
<PAGE>
Table of Schedules and Exhibits
Schedules
---------
Schedule 2.16(a) - Certain Excluded Assets from Collateral
Schedule 5.01(a) - Jurisdictions of Qualification, Ownership and Capital
Structure - Borrower
Schedule 5.01(f) - Non-Compliance with FCC or any applicable PUC
Schedule 5.01(h) - Existing Litigation
Schedule 5.01(r) - Description of Pledged Stock
Schedule 8.02 - Existing Debt and Liabilities
Schedule 8.03 - Existing Liens
Schedule 8.04 - Existing Investments
Schedule 8.08 - Permitted Affiliate Non-Market Transactions
Exhibits
--------
Exhibit A - Form of Revolving Note
Exhibit B - Form of Term Loan Note
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Borrowing Notice
Exhibit E - Form of Conversion/Continuation Notice
Exhibit F - Form of Assignment and Acceptance
Exhibit G - Form of Unlimited Guaranty
Exhibit H - Form of Pledge Agreement
<PAGE>
- --------------------------------------------------------------------------------
$100,000,000
INTERSTATE FIBERNET, INC.
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of September 17, 1997, among INTERSTATE
FIBERNET, INC., a Delaware corporation (the "Borrower"), the Lenders (as defined
below) and NATIONSBANK OF TEXAS, N.A., as a Lender and Administrative Lender.
BACKGROUND.
WHEREAS, Borrower and Administrative Lender have agreed to enter into a
Credit Agreement which provides for one revolving loan facility in the amount of
$50,000,000 (which such loan facility shall also include a letter of credit
availability of not more than $2,500,000), and one multi-draw term loan facility
in the amount of $50,000,000.
AGREEMENT.
NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I. DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms have
the respective meanings indicated below (such meanings to be applicable equally
to both the singular and plural forms of such terms):
"Administrative Lender" means NationsBank of Texas, N.A., in its capacity
as Administrative Lender hereunder, or any successor Administrative Lender
appointed pursuant to Section 10.06 hereof.
"Advance" means an advance made by a Lender to the Borrower pursuant to
Section 2.01 hereof, which shall include both Revolving Advances and Term
Advances.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled By or is Under Common Control with
another Person.
"Agreement" means this Credit Agreement, as hereafter amended, modified,
increased, extended, restated or supplemented from time to time.
1
<PAGE>
"Annualized Operating Cash Flow" means the product of (a) Operating Cash
Flow for the most recently completed six month period, times (b) two.
"Applicable Law" means (a) in respect of any Person, all provisions of Laws
of Tribunals applicable to such Person, and all orders and decrees of all courts
and arbitrators in proceedings or actions to which the Person in question is a
party and (b) in respect of contracts made or performed in the State of Texas,
"Applicable Law" also means the laws of the United States of America, including,
without limiting the foregoing, 12 USC Sections 85 and 86, as amended to the
date hereof and as the same may be amended at any time and from time to time
hereafter, and any other statute of the United States of America now or at any
time hereafter prescribing the maximum rates of interest on loans and extensions
of credit, and the laws of the State of Texas, including, without limitations,
Articles 5069-1.04 and 5069-1.07(a), Title 79, Revised Civil Statutes of Texas,
1925, as amended ("Art. 1.04"), and any other statute of the State of Texas now
or at any time hereafter prescribing maximum rates of interest on loans and
extensions of credit; provided however, that pursuant to Article 5069-15.10(b),
-------- -------
Title 79, Revised Civil Statutes of Texas, 1925, as amended, the Borrower agrees
that the provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas,
1925, as amended, shall not apply to the Advances hereunder.
"Applicable Margin" means, (a) with respect to LIBOR Advances, 2.75% per
annum, and (b) with respect to Base Advances, 1.75% per annum provided that, so
long as there exists no Event of Default, the Applicable Margin will be adjusted
as set forth in the last paragraph of this definition to the following per annum
percentages applicable in the following situations:
<TABLE>
<CAPTION>
LIBOR Advance Base Advance
Applicability Percentage Percentage
------------- ---------- ----------
<S> <C> <C>
(i) If the Total 2.75% 1.75%
Leverage Ratio is
greater than or equal to
8.00 to 1.00
(ii) If the Total 2.50% 1.50%
Leverage Ratio is less
than 8.00 to 1.00 but
is greater than or equal to
6.00 to 1.00
(iii) If the Total 2.25% 1.25%
Leverage Ratio is less
than 6.00 to 1.00 but
is greater than or equal to
5.00 to 1.00
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
(iv) If the Total 2.00% 1.00%
Leverage Ratio is less
than 5.00 to 1.00
but is greater than or equal
to 4.00 to 1.00
(v) If the Total 1.75% 0.75%
Leverage Ratio is less
than 4.00 to 1.00
</TABLE>
The Applicable Margin payable by the Borrower shall be subject to reduction or
increase, as applicable and as set forth in the table above, on a quarterly
basis according to the performance of the Parent, the Borrower and the
Subsidiaries of Borrower as tested by the Total Leverage Ratio. Except as set
forth in the following sentence, any such increase or reduction in the
Applicable Margin provided for herein shall be effective three Business Days
after receipt by Administrative Lender of the applicable financial statements
and corresponding Compliance Certificate. If financial statements and a
Compliance Certificate of the Borrower setting forth the Total Leverage Ratio
are not received by the Administrative Lender by the date required pursuant to
Section 7.01 or 7.02 hereof, the Applicable Margin shall be determined as if the
Total Leverage Ratio exceeds 8.00 to 1.00 until such time as such financial
statements and Compliance Certificate are received. For the final quarter of
any fiscal year of the Borrower, the Borrower may provide the unaudited
financial statements of the Borrower, subject only to year-end adjustments, for
the purpose of adjusting the Applicable Margin.
"Application" means any stand-by letter of credit application delivered to
Administrative Lender for or in connection with any stand-by Letter of Credit
pursuant to Article III hereof, in Administrative Lender's standard form for
stand-by letters of credit.
"Art. 1.04" has the meaning specified in the definition of "Applicable
Law".
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and an assignee in accordance with the terms and conditions of
Section 11.04 hereof, and accepted by Administrative Lender, in the form of
Exhibit F hereto.
- ---------
"Auditor" means Arthur Andersen, L.L.P., or other independent certified
public accountants selected by the Borrower and acceptable to Administrative
Lender.
"Authorized Officer" means, with respect to the Parent, the Borrower and
its Subsidiaries respectively, any of the Chief Executive Officer, the
President, the Chief Financial Officer, the Vice President of Finance, the
General Counsel or the Treasurer of the Borrower.
"Bank Affiliate" means the holding company of any Lender, or any wholly
owned direct or indirect subsidiary of such holding company or of such Lender.
3
<PAGE>
"Base Advance" means an Advance under the Revolving Loan or the Term Loan
bearing interest at the Base Rate.
"Base Rate" means a per annum interest rate equal to the lesser of (a) the
Highest Lawful Rate, and (b) the sum of the Applicable Margin plus the higher of
(i) a fluctuating rate per annum as shall be in effect from time to time
announced or published by NationsBank of Texas, N.A. as its prime rate, and
which may not necessarily be the lowest interest rate charged by NationsBank of
Texas, N.A., and (ii) the Federal Funds Rate in effect at such time plus .50%.
"Borrowing" means a borrowing of the same Type made on the same day.
"Borrowing Notice" has the meaning set forth in Section 2.02(a) hereof.
"Business Day" means a day on which banks are open for the transaction of
business as required by this Agreement in Dallas, Texas and, with respect to any
LIBOR Advance, a domestic business day in London, England and a day on which
commercial banks are open for international business in London, England
(including dealings in United States dollar deposits), and as otherwise relevant
to the determination to be made or the action to be taken.
"Capital Expenditures" means capital expenditures, as defined in accordance
with GAAP.
"Capital Leases" means capital leases and subleases, as defined in
accordance with GAAP.
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
of any Person that is a corporation, each class of partnership interests
(including without limitation, general, limited and preference units) in any
Person that is a partnership, and each membership interest in any Person that is
a limited liability company.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
reference to any provision of the Code shall include all successor provisions
thereto.
"Collateral" has the meaning ascribed thereto in Section 2.16(a) hereof.
"Commitment" means, with respect to the Revolving Loan, $50,000,000 as
reduced pursuant to Section 2.11 hereof.
"Commitment Fee" means the fee described in Section 2.10(b) hereof.
4
<PAGE>
"Communications Act" means, collectively, the Communications Act of 1934,
as amended by the Telecommunications Act of 1996, and as further amended, and
the rules and regulations promulgated thereunder, as from time to time in
effect.
"Compliance Certificate" means a certificate of an Authorized Officer in
the form of Exhibit C hereto, (a) certifying that such individual has no
---------
knowledge that a Default or Event of Default has occurred and is continuing, or
if a Default or Event of Default has occurred and is continuing, a statement as
to the nature thereof and the action being taken or proposed to be taken with
respect thereto, (b) setting forth detailed calculations with respect to the
covenants described in Section 8.01 hereof and (c) certifying to the appropriate
Applicable Margin.
"Consequential Loss" with respect to (a) the Borrower's payment of all or
any portion of the then-outstanding principal amount of a LIBOR Advance on a day
other than the last day of the related Interest Period, including, without
limitation, payments made as a result of the acceleration of the maturity of a
Note, (b) subject to Administrative Lenders' prior consent, a LIBOR Advance made
on a date other than the date on which the Advance is to be made according to
Section 2.02(a) or Section 2.09 hereof to the extent such Advance is made on
such other date at the request of the Borrower, or (c) any of the circumstances
specified in Section 2.04 hereof on which a Consequential Loss may be incurred,
means any loss, cost or expense incurred by any Lender as a result of the timing
of the payment or Advance or in liquidating, redepositing, redeploying or
reinvesting the principal amount so paid or affected by the timing of the
Advance or the circumstances described in Section 2.04 hereof, which amount
shall be the sum of (i) the interest that, but for the payment or timing of
Advance, such Lender would have earned in respect of that principal amount,
reduced, if such Lender is able to redeposit, redeploy, or reinvest the
principal amount, by the interest earned by such Lender as a result of
redepositing, redeploying or reinvesting the principal amount plus (ii) any
expense or penalty incurred by such Lender by reason of liquidating,
redepositing, redeploying or reinvesting the principal amount. Each
determination by each Lender of any Consequential Loss is, in the absence of
manifest error, presumptive evidence of the validity of such claim.
"Contingent Liability" means, as to any Person, any obligation or Guaranty,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Debt or obligation of any other Person in any manner,
whether directly or indirectly, including without limitation any obligation of
such Person, direct or indirect, (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt, (b)
to purchase Property or services for the purpose of assuring the owner of such
Debt of its payment, or (c) to maintain the solvency, working capital, equity,
cash flow, fixed charge or other coverage ratio, or any other financial
condition of the primary obligor so as to enable the primary obligor to pay any
Debt or to comply with any agreement relating to any Debt or obligation, but
excluding endorsement of checks, drafts and other instruments in the ordinary
course of business, provided that this definition of "Contingent Liability"
shall not include Guaranties by the Borrower or any Subsidiary of the Borrower
of any obligations of the
5
<PAGE>
Borrower or any wholly owned Subsidiary of the Borrower that has executed an
Unlimited Guaranty.
"Continue," "Continuation" and "Continued" each refer to the continuation
pursuant to Section 2.09 hereof of a LIBOR Advance from one Interest Period to
the next Interest Period.
"Control" or "Controlled By" or "Under Common Control" mean possession,
direct or indirect, of power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided that, in any event (a) any Person which beneficially owns
--------
(i) 10% or more (in number of votes) of the securities having ordinary voting
power for the election of directors of a corporation shall be conclusively
presumed to control such corporation and (ii) 10% or more of the interest in
capital or profits of a partnership shall be conclusively presumed to control
such partnership, and (b) no Person shall be deemed to be an Affiliate of a
corporation solely by reason of his being an officer or director of such
corporation.
"Controlled Group" means, as to any Person, all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
which are under common control with such Person and which, together with such
Person, are treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code.
"Conversion or Continuance Notice" has the meaning set forth in Section
2.09(b) hereof.
"Debt" means all obligations, contingent or otherwise, which in accordance
with GAAP are required to be classified on the balance sheet as liabilities, and
in any event including (without duplication) (a) Capital Leases, (b) Contingent
Liabilities that are required to be disclosed and quantified in notes to
consolidated financial statements in accordance with GAAP, (c) liabilities
secured by any Lien on any Property, regardless of whether such secured
liability is with or without recourse, and (d) installment payment non-compete
agreements.
"Debt for Borrowed Money" means, as to any Person, at any date, without
duplication, all Debt of such Person that constitutes (a) all obligations of
such Person for borrowed money, letters of credit (or applications for letters
of credit) or other similar instruments, (b) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (d) all obligations under Capital Leases, (e) installment payment non-
compete agreements, and (f) all Contingent Liabilities relating to obligations
of another Person (other than a wholly owned Subsidiary of the Borrower that has
executed an Unlimited Guaranty) of the type described in (a) through (e) above.
"Debtor Relief Laws" means applicable bankruptcy, reorganization,
moratorium, or similar Laws, or principles of equity affecting the enforcement
of creditors' rights generally.
6
<PAGE>
"Default" means any event specified in Section 9.01 hereof, whether or not
any requirement in connection with such event for the giving of notice, lapse of
time, or happening of any further condition has been satisfied.
"Distribution" means, as to any Person, (a) any declaration or payment of
any distribution or dividend (other than a stock dividend) on, or the making of
any pro rata distribution, loan, advance, or investment to or in any holder of,
any partnership interest or shares of Capital Stock or other equity interest of
such Person (or the establishment of a sinking fund or otherwise setting aside
of funds for any such purpose), or (b) any purchase, redemption, or other
acquisition or retirement for value of any shares of partnership interest or
Capital Stock or other equity interest of such Person (or the establishment of a
sinking fund or otherwise setting aside of funds for any such purpose).
"Environmental Claim" means any written notice by any Tribunal alleging
liability for damage to the environment, or by any Person alleging liability for
personal injury (including sickness, disease or death), resulting from or based
upon (a) the presence or release (including sudden or non-sudden, accidental or
non-accidental, leaks or spills) of any Hazardous Material at, in or from
property, whether or not owned by the Borrower or any of its Subsidiaries, or
(b) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. (S)9601 et seq.) ("CERCLA"), the
Hazardous Material Transportation Act (49 U.S.C. (S)1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C (S)6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. (S)1251 et seq.), the Clean Air Act (42 U.S.C.
(S)7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S)2601 et seq.),
and the Occupational Safety and Health Act (29 U.S.C. (S)651 et seq.) ("OSHA"),
as such laws have been or hereafter may be amended or supplemented, and any and
all analogous future federal, or present or future state or local, Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rulings and regulations issued thereunder, as from time to time
in effect.
"ERISA Affiliate" means any Person that for purposes of Title IV of ERISA
is a member of the controlled group of the Borrower or any Obligor, or is under
common control with Borrower or any Obligor, within the meaning of Section
414(c) of the Code, and the regulations and rulings issued thereunder.
"ERISA Event" means (a) a reportable event, within the meaning of Section
4043 of ERISA, unless the 30-day notice requirement with respect thereto has
been waived by the PBGC, (b) the issuance by the administrator of any Plan of a
notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA), (c) the withdrawal by the Parent, the Borrower, any
Subsidiary of the Borrower, or an ERISA Affiliate from a Multiple Employer
7
<PAGE>
Plan during a Plan year for which it was a substantial employer, as defined in
Section 4001(a)(2) of ERISA, (d) the failure by the Parent, the Borrower, any
Subsidiary of the Borrower, or any ERISA Affiliate to make a payment to a Plan
required under Section 302 of ERISA, (e) the adoption of an amendment to a Plan
requiring the provision of security to such Plan, pursuant to Section 307 of
ERISA, or (f) the institution by the PBGC of proceedings to terminate a Plan,
pursuant to Section 4042 of ERISA, or the occurrence of any event or condition
that constitutes grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, a Plan.
"Event of Default" means any of the events specified in Section 9.01 of
this Agreement, provided there has been satisfied any requirement in connection
therewith for the giving of notice, lapse of time, or happening of any further
condition.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"FCC" means the Federal Communications Commission, or any governmental
agency succeeding to the functions thereof.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of Dallas, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such date on such
transactions received by Administrative Lender from three federal funds brokers
of recognized standing selected by it.
"Fee Letter" means that certain Fee Letter, dated the Closing Date, between
the Borrower and the Administrative Lender, and all other fee letters executed
among the Borrower or any Lender[s], as such letters may be amended, modified,
substituted, replaced, or increased from time to time.
"GAAP" means generally accepted accounting principles applied on a
consistent basis. Application on a consistent basis shall mean that the
accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period, except for new
developments or statements promulgated by the Financial Accounting Standards
Board and other changes in accounting methods permitted by generally accepted
accounting principles.
"Guarantors" means the Parent and each Subsidiary of the Borrower existing
on the Closing Date or formed or acquired by the Borrower or any direct or
indirect Subsidiary of the Borrower from time to time thereafter.
8
<PAGE>
"Guaranty" means a guaranty executed by any Person of the obligations of
another Person, or any agreement by which such Person assumes, guarantees,
endorses, contingently agrees to purchase or provide funds for the payment of,
or otherwise becomes liable upon, the obligation of any other Person, or agrees
to maintain the net worth or working capital or other financial condition of any
other Person, or otherwise assures any creditor or such other Person against
loss, including, without limitation, any comfort letter, or take-or-pay contract
and shall include without limitation, the contingent liability of such Person in
connection with any application for a letter of credit.
"Hazardous Materials" means all materials subject to any Environmental Law,
including without limitation materials listed in 49 C.F.R. (S) 172.101,
Hazardous Substances, explosive or radioactive materials, hazardous or toxic
wastes or substances, petroleum or petroleum distillates, asbestos, or material
containing asbestos.
"Hazardous Substances" means hazardous waste as defined in the Clean Water
Act, 33 U.S.C. (S) 1251 et seq., the Comprehensive Environmental Response
Compensation and Liability Act as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. (S) 9601 et seq., the Resource Conservation
Recovery Act, 42 U.S.C. (S) 6901 et seq., and the Toxic Substances Control Act,
15 U.S.C. (S) 2601 et seq.
"Highest Lawful Rate" means at the particular time in question the maximum
rate of interest which, under Applicable Law, any Lender is then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, any Lender is permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower. For purposes of determining the Highest Lawful Rate under Applicable
Law, the applicable rate ceiling shall be (a) the indicated rate ceiling
described in and computed in accordance with the provisions of Section (a)(l) of
Art. l.04; or (b) provided notice is given as required in Section (h)(l) of Art.
1.04, either the annualized ceiling or quarterly ceiling computed pursuant to
Section (d) of Art. 1.04; provided, however, that at any time the indicated rate
-------- -------
ceiling, the annualized ceiling or the quarterly ceiling, as applicable, shall
be less than 18% per annum or more than 24% per annum, the provisions of
Sections (b)(1) and (2) of such Art. l.04 shall control for purposes of such
determination, as applicable.
"Income Tax Expense" means the aggregate Taxes accrued by the Parent, the
Borrower and its Subsidiaries for the relevant period of determination.
"Insufficiency" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities within the meaning of Section 4001(a)(18) of ERISA.
"Interest Coverage Ratio" means, on any date of determination for the
Parent, the Borrower and its consolidated Subsidiaries, the ratio of (i)
Annualized Operating Cash Flow to
9
<PAGE>
(b) Interest Expense actually paid during the most recently completed twelve
month period, but specifically excluding any interest paid out of the Interest
Reserve Escrow Account.
"Interest Expense" means, for the Parent, the Borrower and its Subsidiaries
on a consolidated basis, the gross interest expense for any period on Total
Debt, determined in accordance with GAAP, and including commitment fees
incurred, whether accrued or paid and all fees and expenses with respect to
letters of credit, minus the sum of (a) interest income for such period, (b)
interest actually paid-in-kind, (c) any one-time facility fees paid in
connection with this Agreement and in connection with any pre-existing Debt of
the Parent, the Borrower and its Subsidiaries, and (d) an amount not to exceed
$9,500,000 in accrued interest paid by the Borrower to ITC Holding prior to the
Closing Date.
"Interest Period" means, with respect to any LIBOR Advance, the period
beginning on the date the Advance is made or continued as a LIBOR Advance and
ending one, two, three, six or, to the extent available as determined by
Administrative Lender, twelve months thereafter (as the Borrower shall select),
provided, however, that:
- -------- -------
(a) the Borrower may not select any Interest Period that ends after
any principal repayment date unless, after giving effect to such selection,
the aggregate principal amount of LIBOR Advances having Interest Periods
that end on or prior to such principal repayment date, shall be at least
equal to the principal amount of Advances due and payable on and prior to
such date;
(b) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding Business Day, provided,
--------
however, that if such extension would cause the last day of such Interest
-------
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day; and
(c) whenever the first day of any Interest Period occurs on a day of
an initial calendar month for which there is no numerically corresponding
day in the calendar month that succeeds such initial calendar month by the
number of months equal to the number of months in such Interest Period,
such Interest Period shall end on the last Business Day of such succeeding
calendar month.
"Interest Rate Protection Agreement" means an interest rate swap, cap,
collar or similar interest rate protection agreement between the Borrower and
any Lender.
"Interest Reserve Escrow Account" means the account of the Borrower (as
assignee of the Parent) pursuant to the terms of the Senior Notes, into which a
deposit was made from the proceeds of the Senior Notes to pay the first three
years of interest expense due and payable on the Senior Notes.
10
<PAGE>
"Investment" means any acquisition of all or substantially all of the
assets of any Person, or any direct or indirect purchase or other acquisition
of, or a beneficial interest in, any Capital Stock or other securities of any
other Person, or any direct or indirect loan, advance, or capital contribution
to or investment in any other Person, including without limitation the
incurrence or sufferance of Debt or accounts receivable of any other Person that
are not current assets or do not arise from sales to that other Person in the
ordinary course of business.
"ITC Holding" means ITC Holding Company, Inc., a Delaware corporation, and
the holder of 100% of the Capital Stock of the Parent.
"Law" means any constitution, statute, law, ordinance, regulation, rule,
order, writ, injunction, or decree of any Tribunal.
"Lenders" means the lenders listed on the signature pages of this
Agreement, and each transferee which hereafter becomes a party to this Agreement
pursuant to Section 11.04 hereof or pursuant to an amendment to this Agreement,
so long as each is owed any portion of the Obligation or is obligated to make
any Advance hereunder.
"Lending Office" means, with respect to each Lender, its branch or
affiliate, (a) initially, the office of each Lender, branch or affiliate
identified on each Lender's signature page hereto, and (b) subsequently, such
other office of each Lender, branch or affiliate as each Lender may designate to
the Borrower and Administrative Lender as the office from which the Advances of
each Lender will be made and maintained and for the account of which all
payments of principal and interest on the Advances and the Commitment Fee and
the Unused Fee will thereafter be made. Lenders may have more than one Lending
Office for the purpose of making Base Advances and LIBOR Advances.
"Letter of Credit Commitment" means, on any date of determination, an
amount equal to the lesser of (a) $2,500,000 and (b) the Commitment minus all
outstanding Advances under the Revolving Loan.
"Letters of Credit" means the irrevocable standby letters of credit issued
by Administrative Lender under and pursuant to Article III hereof, as each may
be amended, modified, substituted, increased, replaced, renewed or extended from
time to time.
"LIBOR Advance" means an Advance under the Revolving Loan or the Term Loan
bearing interest at the LIBOR Rate.
"LIBOR Lending Office" means, with respect to each Lender, the office
designated as its "LIBOR Lending Office" on each Lender's signature page hereto,
or such other office of Lender or any of its affiliates hereafter designated by
notice to the Borrower and Administrative Lender.
11
<PAGE>
"LIBOR Rate" shall mean, for any LIBOR Advance for any Interest Period
therefore, a rate per annum equal to the lesser of (a) the Highest Lawful Rate
and (b) the sum of (i) the Applicable Margin, plus (ii) the rate per annum
(rounded upwards, if necessary, to the nearest one-one hundredth (1/100th) of
one percent (1%)) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in United States dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period. If for any reason such rate is not available, the term
"LIBOR Rate" shall mean, for any LIBOR Advance for any Interest Period therefor,
the rate per annum (rounded upwards, if necessary, to the nearest one-one
hundredth (1/100th) of one percent (1%)) appearing on Reuters Screen LIBO page
as the London interbank offered rate for deposits in United States dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period; provided,
--------
however, if more than one rate is specified on Reuters Screen LIBO Page, the
- -------
applicable rate shall be the arithmetic mean of all such rates.
"License" means, as to the Parent, the Borrower, or any Subsidiary of the
Borrower, any license, permit, consent, certificate of need, authorization,
certification, accreditation, franchise, approval, or grant of rights by, or any
filing or registration with, any Tribunal or third Person (including without
limitation, the FCC or any applicable PUC) necessary for such Person to own,
build, maintain, or operate its business or Property.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind, including without limitation any agreement to give or not to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement or other similar form of public notice under the
Laws of any jurisdiction (except for the filing of a financing statement or
notice in connection with an (a) operating lease or (b) the true consignment of
goods to the Borrower or any Subsidiary of the Borrower as consignee).
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
investigation conducted by or before any Tribunal or arbitrator, including
without limitation proceedings, claims, lawsuits, and/or investigations under or
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement, or other instrument.
"Loan Papers" means this Agreement, the Notes, the Pledge Agreement, the
Unlimited Guaranties, the Fee Letter[s], financing statements, any Interest Rate
Protection Agreement and related documents entered into by the Borrower with any
Lender or any Bank Affiliate, all Letters of Credit, all Applications and all
other agreements between the Borrower or any Subsidiary of the Borrower and the
Administrative Lender related to any Letter of Credit, other fee letters,
Assignment and Acceptances, post-closing letters, all security agreements,
pledges, mortgages, deeds of trust, assignments, leasehold mortgages, leasehold
deeds of trust, collateral assignments and other agreements and documentation
relating to the Liens securing the Obligations, and all other documents,
instruments, agreements, or certificates executed or
12
<PAGE>
delivered from time to time by any Person in connection with this Agreement or
as security for the Obligations hereunder, granting Collateral or otherwise, as
each such agreement may be amended, modified, substituted, replaced or extended
from time to time.
"Majority Lenders" means any combination of Lenders having at least 51.00%
of the aggregate amount of outstanding Advances hereunder, provided, however,
that if no Advances are outstanding, such term means any combination of one or
more Lenders having Specified Percentages equal to at least 51.00%.
"Material Adverse Change" means any circumstance or event that is or could
reasonably be expected to (a) be material and adverse to the financial
condition, business operations, prospects, or Properties of the Parent, the
Borrower and its Subsidiaries on a consolidated basis, (b) materially and
adversely affect the validity or enforceability of any Loan Paper or (c) cause a
Default or Event of Default.
"Maturity Date" means the earlier of September 15, 2002, or such earlier
date on which the total amount of outstanding Obligations are due and payable
(including, without limitation, whether by acceleration, scheduled reduction of
the Commitment to zero, mandatory or voluntary commitment reduction of the
Commitment to zero, installment payments or otherwise).
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, a Lender is permitted to charge on the Obligations.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which the Borrower, any Subsidiary of the Borrower, or
any ERISA Affiliate is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an obligation
to make contributions, such plan being maintained pursuant to one or more
collective bargaining agreements.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Parent, the Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate and
at least one Person other than the Parent, the Borrower, any Subsidiary of the
Borrower, and any ERISA Affiliate, or (b) was so maintained and in respect of
which the Parent, the Borrower, any Subsidiary of the Borrower, or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in the event
such plan has been or were to be terminated.
"Net Proceeds" means the gross cash proceeds received by the Parent, the
Borrower or any Subsidiary of the Borrower in connection with or as a result of
any asset sale not in the ordinary course of business, minus (so long as each of
the following are estimated in good faith by the management of the Borrower and
certified to the Lenders in reasonable detail by an Authorized Officer) (a)
actual taxes estimated in good faith by the Borrower's board of directors
incurred as a result of such sale (after giving effect to all tax benefits
available to the Borrower or such Subsidiary), and (b) reasonable and customary
transaction costs payable by the Parent,
13
<PAGE>
the Borrower or any Subsidiary of the Borrower that are related to such sale and
payable to a Person other than an Affiliate of the Borrower and its
Subsidiaries.
"Note" means each Note of the Borrower evidencing Advances hereunder,
substantially in the form of Exhibit A hereto with respect to Advances made
---------
under the Revolving Loan, and Exhibit B hereto with respect to Advances made
---------
under the Term Loan, together in each case, with any extension, renewal or
amendment thereof, or substitution therefor.
"Obligations" means all present and future obligations, indebtedness and
liabilities, and all renewals and extensions of all or any part thereof, of the
Borrower and each Obligor to Lenders and Administrative Lender arising from, by
virtue of, or pursuant to this Agreement, any of the other Loan Papers and any
and all renewals and extensions thereof or any part thereof, or future
amendments thereto, all interest accruing on all or any part thereof and
reasonable attorneys' fees incurred by the Administrative Lender for the
preparation of this Agreement and consummation of this credit facility,
execution of waivers, amendments and consents, and in connection with the
enforcement or the collection of all or any part thereof, and reasonable
attorneys' fees incurred by the Lenders in connection with the enforcement or
the collection of all or any part of the Obligations during the continuance of
an Event of Default, in each case whether such obligations, indebtedness and
liabilities are direct, indirect, fixed, contingent, joint, several or joint and
several. Without limiting the generality of the foregoing, "Obligations"
includes all amounts which would be owed by the Borrower, each other Obligor and
any other Person (other than Administrative Lender or Lenders) to Administrative
Lender or Lenders under any Loan Paper, but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Borrower, any other Obligor
or any other Person (including all such amounts which would become due or would
be secured but for the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding of the Borrower, any other
Obligor or any other Person under any Debtor Relief Law).
"Obligor" means (a) the Parent, (b) the Borrower, (c) each Subsidiary of
the Borrower, (d) each other Person liable for performance of any of the
Obligations and (e) each other Person the Property of which secures the
performance of any of the Obligations.
"Operating Cash Flow" means, for the Parent, the Borrower and the
Subsidiaries of the Borrower, for any period, the consolidated net income (loss)
for such period taken as a single accounting period, plus the sum of the
following amounts for such period to the extent included in the determination of
such consolidated net income or loss, without duplication: (a) depreciation
expense, (b) amortization expense and other non-cash charges reducing income,
(c) net Interest Expense, and (d) Income Tax Expense.
"Parent" means ITC/\DeltaCom, Inc., a Delaware corporation.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
agency or entity performing substantially the same functions.
14
<PAGE>
"Permitted Acquisition" means acquisitions made by the Parent, the Borrower
or any Subsidiary of the Borrower in comparable telecommunications businesses to
that of the Borrower; provided that the Borrower has complied with all
applicable provisions of this Agreement.
"Permitted Liens" means, as applied to any Person:
(a) any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) (i) Liens on real estate for real estate Taxes not yet delinquent, (ii)
Liens created by lease agreements, statute or common law to secure the payments
of rental amounts and other sums not yet due thereunder, (iii) Liens on
leasehold interests created by the lessor in favor of any mortgagee of the
leased premises, and (iv) Liens for Taxes, assessments, governmental charges,
levies or claims that are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves shall have been set
aside on such Person's books, but only so long as no foreclosure, restraint,
sale or similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
and other similar Liens incurred in the ordinary course of business for sums not
yet due or being contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere with the ordinary conduct of the
business of such Person;
(f) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards, (ii) such judgments or awards shall be fully insured and
the insurer shall not have denied coverage, or (iii) such judgments or awards
shall have been bonded to the satisfaction of the Majority Lenders; and
(g) Any Liens existing on the Closing Date which are described on Schedule
--------
8.03 hereto and not otherwise described elsewhere in the definition of Permitted
- ----
Liens, and Liens resulting from the refinancing of the related Debt for Borrowed
Money, provided that the Debt for Borrowed Money secured thereby shall not be
increased and the Liens shall not cover additional assets of the Parent, the
Borrower, or any such Subsidiary.
15
<PAGE>
"Person" means an individual, partnership, joint venture, corporation,
limited liability company, trust, Tribunal, unincorporated organization, and
government, or any department, agency, or political subdivision thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pledge Agreement" means the Pledge Agreement of even date herewith,
executed by the Parent, the Borrower and any Subsidiary of the Borrower,
granting a Lien on Capital Stock of the Borrower and each of the Borrower's
Subsidiaries as security for the Obligations, substantially in the form of
Exhibit H hereto, as such agreement may be amended, modified, renewed or
- ---------
extended from time to time, and "Pledge Agreement" shall also include each such
pledge agreement pledging the Capital Stock of all other Subsidiaries of the
Borrower created or acquired from time to time, and all amendments,
modifications, renewals and extensions to any thereof.
"Pledged Stock" means all of the Capital Stock of the Borrower and of each
of the Subsidiaries of the Borrower.
"Prohibited Transaction" has the meaning specified in Section 4975 of the
Code or Section 406 of Title I of ERISA.
"Property" means all types of real, personal, tangible, intangible, or
mixed property, whether owned or hereafter acquired in fee simple or leased by
the Parent, the Borrower and its Subsidiaries.
"Pro Rata" means, as to any Lender, in accordance with its percentage of
the aggregate amount of outstanding Advances; provided, however, that if no
-------- -------
Advances are outstanding, such term means in accordance with such Lender's
Specified Percentage.
"PUC" means any state 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 such state.
"Quarterly Date" means the last Business Day of each March, June, September
and December during the term of this Agreement.
"Ratable" means, as to any Lender, in accordance with its Specified
Percentage.
"Refinancing Advance" means any Advance which is used to pay the principal
amount (or any portion thereof) of an Advance at the end of its Interest Period
and which, after giving
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effect to such application, does not result in an increase in the aggregate
amount of outstanding Advances.
"Release Date" means the date on which the Notes have been paid, all other
Obligations due and owing have been paid and performed in full, and the
Commitment has been terminated.
"Restricted Payments" means, for the Parent, the Borrower and the
Subsidiaries of the Borrower, (a) any direct or indirect Distribution, dividend
or other payment on account of any equity interest in, or shares of Capital
Stock or other securities of, the Parent, the Borrower and its Subsidiaries (or
the establishment of any sinking fund or otherwise the setting aside of any
funds with respect thereto); (b) any management, consulting or other similar
fees, or any interest thereon, payable by the Parent, the Borrower or any of its
Subsidiaries to any Affiliate of the Parent or the Borrower, or to any other
Person (or the establishment of any sinking fund or otherwise the setting aside
of any funds with respect thereto), but specifically excluding any consulting
fees payable by the Parent, the Borrower or any Subsidiary of the Borrower to a
Person that is not an Affiliate of the Borrower or the Parent; (c) loans or
advances to employees and/or shareholders of the Parent, the Borrower and its
Subsidiaries, except advances to such employees for moving and travel expenses
in the ordinary course of business; and (d) payments of principal and/or
interest, or the setting aside of funds with respect thereto (except for the
Interest Reserve Escrow Account) on any Total Debt except the Obligations.
"Revolving Advance" means any Advance made under the Revolving Loan.
"Revolving Loan" means the loan made by a Lender pursuant to Section
2.01(a) of this Agreement.
"Rights" means rights, remedies, powers, and privileges.
"Senior Debt" means, on any date of determination, Total Debt on such date
minus the sum of (a) the aggregate outstanding principal amount of the Senior
Notes, (b) to the extent included in Total Debt, accrued and unpaid interest on
the Senior Notes, plus (c) cash balances of the Parent, the Borrower and the
Subsidiaries of the Borrower which in the aggregate exceed $5,000,000, provided
that, for purposes of this subsection (c), amounts in the Interest Reserve
Escrow Account may not be included in the calculation of "cash balances".
"Senior Leverage Ratio" means on any date of determination, the ratio of
Senior Debt on such date to Annualized Operating Cash Flow on such date.
"Senior Notes" means those certain $200,000,000 11% Senior Notes due 2007
unsecured indebtedness issued by the Parent pursuant to that certain Offering
Memorandum of the Parent dated May 29, 1997 and as may be exchanged pursuant to
that Offer to Exchange all outstanding 11% Senior Notes due June 1, 2007 for 11%
Senior Notes Due June 1, 2007 scheduled to commence on December 1, 1997.
17
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"Single Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, other than a Multiple Employer Plan of the Parent or the
Borrower.
"Solvent" means, with respect to any Person, that on such date (a) the fair
value of the Property of such Person is greater than the total amount of
liabilities, including without limitation Contingent Liabilities of such Person,
(b) the present fair salable value of the assets of such Person on a going
concern basis is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's Property would constitute an unreasonably small capital.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
Dallas, Texas, or such other individual or firm acting as special counsel to
Administrative Lender, as designated by Administrative Lender from time to time.
"Specified Percentage" means, as to any Lender, the percentage indicated
beside its name on the signature pages hereof, or as adjusted or specified in
any Assignment and Acceptance or in any amendment to this Agreement.
"Subsidiary" of any Person means any corporation, limited liability
company, partnership, joint venture, trust or estate of which (or in which) 50%
or more of:
(a) the outstanding Capital Stock having voting power to elect a
majority of the Board of Directors of such corporation (irrespective of
whether at the time Capital Stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency),
(b) the interest in the capital or profits of such partnership or
joint venture, or
(c) the beneficial interest of such trust or estate,
is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries.
"Taxes" means all taxes, assessments, imposts, fees, or other charges at
any time imposed by any Laws or Tribunal.
"Term Advance" means any Advance made under the Term Loan.
"Term Loan" means the loan made by a Lender pursuant to Section 2.01(b) of
this Agreement.
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"Term Loan Initial Advance" means each of the first Advances under the Term
Loan which increase the outstanding aggregate amount of Advances under the Term
Loan, available only until the earlier of (a) the second anniversary of the
Closing Date, and (b) such date that the aggregate amount of outstanding
Advances under the Term Loan is equal to $50,000,000. Each Term Loan Initial
Advance will increase the amount of the outstanding Advances under the Term Loan
and will not be a Refinancing Advance.
"Total Debt" means all Debt for Borrowed Money of the Parent, the Borrower
and the Subsidiaries of the Borrower, which would be shown on a consolidated
balance sheet in accordance with GAAP, including, without limitation, (a)
Capital Lease obligations, (b) Debt of any other Person secured by a Lien on the
property of the Borrower or any Subsidiary of the Borrower in an amount equal to
the lesser of (i) such Debt of such Person and (ii) the value of such pledged
property, (c) Contingent Liabilities, (d) Withdrawal Liability and (e) overdue
interest on any Debt for Borrowed Money (but not accrued interest that is not
overdue).
"Total Leverage Ratio" means, on any date of determination, the ratio of
(a) Total Debt on such date to (b) Annualized Operating Cash Flow, provided that
(i) the calculation of Total Debt for purposes of the Total Leverage Ratio will
be net of the sum of (A) any cash balances in excess of $5,000,000 plus (B) the
balance of the Interest Reserve Escrow Account, and (ii) for purposes of this
calculation, Operating Cash Flow shall be calculated as if all assets acquired
on any date during the period of determination were acquired on the first day in
such period of determination, and all assets sold on any date during the period
of determination were sold on the first day in such period of determination.
"Tribunal" means any state, commonwealth, federal, foreign, territorial, or
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental body.
"Type" refers to the distinction between Advances bearing interest at the
Base Rate and LIBOR Rate.
"UCC" means the Uniform Commercial Code as adopted in the State of Texas on
the Closing Date.
"Unlimited Guaranty" means the Guaranty, executed in substantially similar
form by the Parent and by each Subsidiary of the Borrower, guarantying payment
and performance of the Obligations, substantially in the form of Exhibit G
---------
attached hereto, as such agreement may be amended, modified, renewed or extended
from time to time, and each subsequent Guaranty in the form of Exhibit G hereto
---------
executed by any newly acquired or created Subsidiary of the Borrower, as each
such agreement may be amended, modified, renewed or extended from time to time.
"Unused Fee" means the fee described in Section 2.10(b) hereof.
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"Withdrawal Liability" has the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.
1.02. Accounting and Other Terms. All accounting terms used in this
Agreement which are not otherwise defined herein shall be construed in
accordance with GAAP on a consolidated basis for the Borrower and its
Subsidiaries, unless otherwise expressly stated herein. References herein to
one gender shall be deemed to include all other genders. Except where the
context otherwise requires, (a) definitions imparting the singular shall include
the plural and vice versa and (b) all references to time are deemed to refer to
Dallas time.
ARTICLE II. THE LOAN FACILITY
2.01. The Loans.
(a) Revolving Loan. Each Lender severally agrees, on the terms and subject
to the conditions hereinafter set forth (including, without limitation, the last
sentence of this Section 2.01(a), to make Advances to the Borrower on a Business
Day during the period from the Closing Date to the Maturity Date, in an
aggregate principal amount not to exceed at any time outstanding such Lender's
Specified Percentage of the difference between the Commitment and the sum of the
face amount of all outstanding Letters of Credit, plus reimbursement obligations
under Article III hereof. Subject to the terms and conditions of this
Agreement, the Borrower may borrow, repay and reborrow the Advances; provided,
--------
however, that at no time shall the sum of (i) all outstanding Revolving
- -------
Advances, plus (ii) the face amount of all outstanding Letters of Credit, plus
(iii) reimbursement obligations under Article III hereof exceed the Commitment.
Notwithstanding any provision of any Loan Papers to the contrary, until the
second anniversary of the Closing Date, on any date of determination during such
period, in no event shall more than $10,000,000 in the aggregate of Revolving
Advances be borrowed by the Borrower prior to time that the aggregate amount of
all Term Loan Initial Advances made over the term of this Agreement equals
$50,000,000.
(b) Term Loan. Each Lender severally agrees, on the terms and subject to
the conditions hereinafter set forth, on the Closing Date to make a multi-
advance Term Loan available to the Borrower until the Maturity Date in an
aggregate outstanding amount not to exceed $50,000,000, as reduced pursuant to
Sections 2.05 and 2.06 hereof, provided that, notwithstanding the foregoing, in
no event shall the Borrower be entitled to borrow any Term Loan Initial Advance
until it has delivered to the Administrative Lender a duly completed and
executed Compliance Certificate demonstrating pro forma compliance through the
Maturity Date in reasonable detail. The Term Loan shall be made available to
the Borrower in multi-advances in amounts not less than $10,000,000 (or in
$5,000,000 integral multiples thereof) and in an aggregate amount outstanding
not to exceed $50,000,000, from the Closing Date until the earlier of (i) the
second anniversary of the Closing Date or (ii) the first date that the aggregate
outstanding Advances under the Term Loan equals $50,000,000, at which time only
Refinancing Advances will be available to the Borrower under the Term Loan.
Once made, any Advance that is prepaid by
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<PAGE>
the Borrower will reduce the outstanding amount of the Term Loan and will not be
available to be reborrowed. The Borrower agrees to repay the Term Loan in
accordance with the terms of Section 2.06(c) hereof. The Term Loan shall
initially consist of an Advance which shall be a Base Advance or LIBOR Advance,
as specified in the related notice of borrowing or conversion, and each
subsequent Advance shall be either a Base Advance or LIBOR Advance. Subject to
the terms and conditions of this Agreement, the Borrower may convert a Base
Advance made under the Term Loan to a LIBOR Advance at any time; provided that
the Borrower pays all accrued and unpaid interest on such Base Advance
concurrently. Notwithstanding any provision of any Loan Papers to the contrary,
on any date of determination, in no event shall the sum of all outstanding
Advances under the Term Loan exceed $50,000,000 minus all prepayments made on
the Term Loan.
2.02. Making Advances.
(a) Each Borrowing of Advances shall be made upon the written notice of the
Borrower, received by Administrative Lender not later than (i) 10:00 a.m. three
Business Days prior to the date of the proposed Borrowing, in the case of
Revolving Advances which are LIBOR Advances or Advances under the Term Loan
which are LIBOR Advances and (ii) 10:00 a.m. on the date of such Borrowing, in
the case of Revolving Advances which are Base Advances, or Advances under the
Term Loan which are Base Advances. Each such notice of a Borrowing (a
"Borrowing Notice") shall be by telecopy or telephone, promptly confirmed by
letter, in substantially the form of Exhibit D hereto specifying therein:
---------
(i) the date of such proposed Borrowing, which shall be a
Business Day;
(ii) whether such Advance is to be a Revolving Advance or a Term
Loan Initial Advance, and the Type of Advances of which the Borrowing is to
be comprised;
(iii) the amount of such proposed Borrowing which, (A) in the
case of Revolving Advances, shall not exceed the unused portion of the
Commitment less outstanding Letters of Credit, and in the case of Term
Advances shall either be a Term Loan Initial Advance or a Refinancing
Advance, (B) shall (I) in the case of a Borrowing of Base Advances under
the Revolving Loan, be in an amount of not less than $2,000,000 or an
integral multiple of $1,000,000 in excess thereof (or any lesser amount if
such amount is the remaining undrawn portion under the Commitment), and
(II) in the case of a Borrowing of LIBOR Advances under the Revolving Loan,
be in an amount of not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof and (C) shall, in the case of a Borrowing
under the Term Loan (of either a Term Loan Initial Advance or a Refinancing
Advance under the Term Loan that is a Borrowing of Base Advances or LIBOR
Advances, be in an amount of not less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof (or, for any Refinancing Advance
under
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<PAGE>
the Term Loan, any lesser amount if such amount is the remaining portion
under the Term Loan); and
(iv) if the Borrowing under the Revolving Loan or the Term Loan
is to be comprised of LIBOR Advances, the duration of the initial Interest
Period applicable to such Advances.
If the Borrowing Notice fails to specify the duration of the initial
Interest Period for any Borrowing or Refinancing Advance, as applicable,
comprised of LIBOR Advances, such Interest Period shall be three months.
Administrative Lender shall promptly notify Lenders of each such notice. Each
Lender shall, before 1:00 p.m. on the date of each Advance under the Revolving
Loan hereunder (other than a Refinancing Advance) or a Term Loan Initial
Advance, make available to Administrative Lender, at its office at NationsBank
Plaza, 901 Main Street, Dallas, Texas 75202, such Lender's Specified Percentage
of the aggregate Advances under the Revolving Loan and/or the Term Loan Initial
Advance to be made on that day in immediately available funds.
(b) Unless any applicable condition specified in Article IV has not been
satisfied, Administrative Lender will make the funds promptly available to the
Borrower (other than with respect to a Refinancing Advance) by either (i) wiring
such amounts pursuant to any wiring instructions, or (ii) depositing such amount
in the account of the Borrower at the Administrative Lender, in each case as
specified by the Borrower to the Administrative Lender in writing.
(c) After giving effect to any Borrowing, (i) there shall not be more than
seven different Interest Periods in effect and (ii) the aggregate principal
amount of outstanding Advances under the Revolving Loan, Letters of Credit, and
reimbursement obligations under Article III shall not exceed the Commitment.
(d) No Interest Period applicable to any Advance shall extend beyond the
Maturity Date.
(e) Unless a Lender shall have notified Administrative Lender prior to the
date of any Revolving Advance or Term Loan Initial Advance that it will not make
available its Specified Percentage of any Revolving Advance or Term Loan Initial
Advance, Administrative Lender may assume that such Lender has made the
appropriate amount available in accordance with Section 2.02(a) hereof, and
Administrative Lender may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If and to the extent any Lender shall not
have made such amount available to Administrative Lender, such Lender and the
Borrower severally agree to repay to Administrative Lender immediately on demand
such corresponding amount together with interest thereon, from the date such
amount is made available to the Borrower until the date such amount is repaid to
Administrative Lender, at (i) in the case of the Borrower, the Base Rate, and
(ii) in the case of such Lender, the Federal Funds Rate.
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(f) The failure by any Lender to make available its Specified Percentage
of any Revolving Advance or Term Loan Initial Advance hereunder shall not
relieve any other Lender of its obligation, if any, to make available its
Specified Percentage of any Revolving Advance or Term Loan Initial Advance. In
no event, however, shall any Lender be responsible for the failure of any other
Lender to make available any portion of any Revolving Advance or Term Loan
Initial Advance.
(g) The Borrower shall indemnify each Lender against any Consequential
Loss incurred by each Lender as a result of (i) any failure to fulfill, on or
before the date specified for the Advance, the conditions to the Advance set
forth herein (including a Refinancing Advance) or (ii) the Borrower's requesting
that an Advance (including a Refinancing Advance) not be made on the date
specified in the Borrowing Notice.
2.03. Evidence of Debt for Borrowed Money.
(a) The Advances made by each Lender under the Revolving Loan shall be
evidenced by a Note in the amount of such Lender's Specified Percentage of the
Commitment in effect on the Closing Date. The Advances made by each Lender
under the Term Loan shall be evidenced by a Note in the amount of such Lender's
Specified Percentage of $50,000,000.
(b) Administrative Lender's and each Lender's records shall be presumptive
evidence as to amounts owed Administrative Lender and such Lender under the
Notes and this Agreement.
2.04. Optional Prepayments.
(a) The Borrower may, upon at least two Business Days prior written notice
to Administrative Lender stating the proposed date and aggregate principal
amount of the prepayment, prepay the outstanding principal amount of any
Advances in whole or in part, together with accrued interest to the date of such
prepayment on the principal amount prepaid without premium or penalty other than
any Consequential Loss; provided, however, that in the case of a prepayment of a
-------- -------
Base Advance, the notice of prepayment may be given by telephone by 10:00 a.m.
on the date of prepayment. Each partial prepayment shall, in the case of Base
Advances under the Revolving Loan or the Term Loan, be in an aggregate principal
amount of not less than $100,000 or a larger integral multiple of $50,000 in
excess thereof and, in the case of LIBOR Advances under the Revolving Loan or
the Term Loan, be in an aggregate principal amount of not less than $500,000 or
a larger integral multiple of $100,000 in excess thereof. If any notice of
prepayment is given, the principal amount stated therein, together with accrued
interest on the amount prepaid and the amount, if any, due under Section 2.12
and Section 2.14 hereof, shall be due and payable on the date specified in such
notice unless the Borrower revokes its notice, provided that, if the Borrower
revokes its notice of prepayment prior to such date specified, the Borrower
shall reimburse the Administrative Lender for the account of all Lenders for all
Consequential Losses suffered by each Lender as a result of the Borrower's
failure to
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<PAGE>
prepay. A certificate of each Lender claiming compensation under this Section
2.04(a), setting forth in reasonable detail the calculation of the additional
amount or amounts to be paid to it hereunder shall be presumptive evidence of
the validity of such claim.
(b) The Administrative Lender shall apply the proceeds of all optional
prepayments as set forth in Section 2.13(f) hereof. No prepayments of Advances
made solely pursuant to this Section 2.04 and applied to the Revolving Loan
shall cause the Commitment to be reduced. All prepayments of Advances made
solely pursuant to this Section 2.04 and applied to the Term Loan shall
permanently and irrevocably reduce the Term Loan, in the inverse order of
maturity. All prepayments made pursuant to this Section 2.04 shall be first
applied to Base Advances then to LIBOR Advances, all without premium or penalty,
except the Borrower must pay together with any such prepayments, any
Consequential Losses.
2.05. Mandatory Prepayments.
(a) Asset Sales. To the extent that the Parent, the Borrower or any of its
Subsidiaries consummates any sale of any asset or any of its Properties other
than in the ordinary course of business, then the Parent, the Borrower and its
Subsidiaries shall immediately use 100% of the Net Proceeds of any such
transaction to repay the Obligations under the Revolving Loan and the Term Loan,
pro rata; provided, however, so long as there exists no Default or Event of
Default, none of the Parent, the Borrower or any of its Subsidiaries shall be
required to use the first $5,000,000 in the aggregate over the term of this
Agreement from all such asset sales collectively to prepay the Obligations.
(b) Public or Private Issuance of Equity. To the extent that the Parent,
the Borrower or any of its Subsidiaries consummates any public or private
issuance of equity (this provision in and of itself not constituting permission
to do so), then the Parent, the Borrower and its Subsidiaries shall, (i) to the
extent that any net proceeds from any such transaction are received within 12
months of the Closing Date and such net proceeds are in excess of $100,000,000,
immediately use 50% of such net proceeds in excess of $100,000,000 to repay the
Obligations under the Revolving Loan and the Term Loan, pro rata, or (ii) to the
extent that clause (i) above is not applicable but the net proceeds from any
such transaction are in excess of $50,000,000, immediately use 50% of such net
proceeds in excess of $50,000,000 to repay the Obligations under the Revolving
Loan and the Term Loan, pro rata.
(c) Public or Private Issuance of Debt. To the extent that the Parent, the
Borrower or any of its Subsidiaries consummates any public or private issuance
of Debt (this provision in and of itself not constituting permission to do so)
other than in connection with the Parent's $200,000,000 Offer to Exchange all
outstanding 11% Senior Notes due June 1, 2007 for 11% Senior Notes Due June 1,
2007 scheduled to commence on December 1, 1997, then the Parent, the Borrower
and its Subsidiaries shall immediately use 50% of the net proceeds of any such
transaction in excess of $50,000,000 to repay the Obligations under the
Revolving Loan and the Term Loan, pro rata.
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(d) Mandatory Prepayments, Generally. Any prepayments made pursuant to
this Section 2.05 shall be first applied to Base Advances then to LIBOR
Advances, all without premium or penalty, except the Borrower must pay together
with any such prepayments, any Consequential Losses. All prepayments made and
applied to the Term Loan shall permanently and irrevocably reduce the Term Loan,
in the inverse order of maturity.
2.06. Repayment.
(a) LIBOR Advances. The principal amount of each LIBOR Advance is due and
payable on the last day of the applicable Interest Period, which principal
payment may be made by means of a Refinancing Advance in accordance with the
terms of Section 2.09 hereof (and subject to the other provisions of this
Agreement).
(b) Commitment Reduction. On the date of a reduction of the Commitment
pursuant to Section 2.11 hereof, the aggregate amount of outstanding Revolving
Advances in excess of such Commitment as reduced shall be immediately due and
payable (which such principal repayments may not be made by means of Refinancing
Advances).
(c) Term Loan Repayment. The Borrower shall repay the Term Loan in full on
the Maturity Date.
(d) Repayments, Generally. All outstanding Advances and other Obligations
shall be due and payable in full on the Maturity Date. Any repayments made
pursuant to this Section shall be applied in accordance with Section 2.13(f)
hereof, without premium or penalty, except the Borrower must pay together with
any such prepayments, any Consequential Losses. Advances shall be applied to
Base Advances first, and then to LIBOR Advances.
2.07. Interest. Subject to Section 2.08 and Section 11.08 hereof, the
Borrower shall pay interest on the unpaid principal amount of each Advance from
the date of such Advance until such principal shall be paid in full, at either
the Base Rate or the LIBOR Rate, as set forth in subsection (i) or (ii) below,
as selected by the Borrower in accordance with Section 2.02 hereof and as
follows:
(i) Base Advances. Base Advances shall bear interest at a rate per
annum equal to the Base Rate as in effect from time to time. If the amount
of interest payable in respect of any interest computation period is
reduced to the Highest Lawful Rate and the amount of interest payable in
respect of any subsequent interest computation period would be less than
the Maximum Amount, then the amount of interest payable in respect of such
subsequent interest computation period shall be automatically increased to
the Maximum Amount; provided that at no time shall the aggregate amount by
--------
which interest paid has been increased pursuant to this sentence exceed the
aggregate amount by which interest has been reduced pursuant to this
sentence.
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(ii) LIBOR Advances. LIBOR Advances shall bear interest at the rate
per annum equal to the LIBOR Rate applicable to such Advance.
(iii) Payment Dates. Accrued and unpaid interest on Base Advances
shall be paid quarterly in arrears on each Quarterly Date and on the
Maturity Date. Accrued and unpaid interest in respect of each LIBOR
Advance shall be paid on the last day of the appropriate Interest Period,
on the Maturity Date and on the date of any prepayment or repayment of such
Advance; provided, however, that if any Interest Period for a LIBOR Advance
-------- -------
exceeds three months, interest shall also be paid on the date which falls
three months after the beginning of such Interest Period.
2.08. Default Interest. During the continuation of any Event of Default,
the Borrower shall pay, on demand, interest (after as well as before judgment to
the extent permitted by Law) on the principal amount of all Advances outstanding
and on all other Obligations due and unpaid hereunder at a per annum rate equal
to the lesser of the (a) the Highest Lawful Rate and (b) the Base Rate plus 2%.
LIBOR Advances shall not be available for selection by the Borrower during the
continuance of an Event of Default.
2.09. Continuation and Conversion Elections.
(a) The Borrower may upon irrevocable written notice to Administrative
Lender and subject to the terms of this Agreement:
(i) elect to convert, on any Business Day, all or any portion of
outstanding Revolving Advances or Term Advances which are Base Advances (in
an aggregate amount not less than $500,000 or an integral multiple of
$100,000 in excess thereof) into LIBOR Advances; or
(ii) elect to convert at the end of any Interest Period therefor,
all or any portion of outstanding Revolving Advances or Term Advances which
are LIBOR Advances comprised in the same Borrowing (in an aggregate amount
not less than $100,000 or an integral multiple of $50,000 in excess
thereof) into Base Advances; or
(iii) elect to continue, at the end of any Interest Period
therefor, any Revolving Advances or Term Advances which are LIBOR Advances;
provided, however, that if the aggregate amount of outstanding LIBOR
-------- -------
Advances comprised in the same Borrowing shall have been reduced as a result of
any payment, prepayment or conversion of part thereof to an amount less than
$500,000, the LIBOR Advances comprised in such Borrowing shall automatically
convert into Base Advances at the end of each respective Interest Period.
(b) The Borrower shall deliver a notice of conversion or continuation (a
"Conversion or Continuation Notice"), in substantially the form of Exhibit E
---------
hereto, to Administrative Lender
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not later than (i) 10:00 a.m. three Business Days prior to the proposed date of
conversion or continuation, if the Revolving Advances or Term Advances (or any
portion of either thereof) are to be converted into or continued as LIBOR
Advances; and (ii) 10:00 a.m. on the Business Day of the proposed conversion, if
the Revolving Advances or Term Advances (or any portion thereof) are to be
converted into Base Advances.
Each such Conversion or Continuation Notice shall be by telecopy or
telephone, promptly confirmed by letter, specifying therein:
(i) the proposed date of conversion or continuation;
(ii) the aggregate amount of Revolving Advances or Term Advances
to be converted or continued;
(iii) the nature of the proposed conversion or continuation; and
(iv) the duration of the applicable Interest Period.
(c) If, upon the expiration of any Interest Period applicable to LIBOR
Advances, the Borrower shall have failed to select a new Interest Period to be
applicable to such LIBOR Advances or if an Event of Default shall then have
occurred and be continuing, the Borrower shall be deemed to have elected to
convert such LIBOR Advances into Base Advances effective as of the expiration
date of such current Interest Period.
(d) Notwithstanding any other provision contained in this Agreement, after
giving effect to any conversion or continuation of any Advances, there shall not
be outstanding Advances with more than seven different Interest Periods.
2.10. Fees.
(a) Facility Fee. Subject to Section 11.08 hereof, the Borrower shall pay
to Administrative Lender (for the sole account of Administrative Lender) an
origination and facility fee as set forth in any Fee Letters.
(b) Commitment Fee and Unused Fee.
(i) Subject to Section 11.08 hereof, the Borrower shall pay to
Administrative Lender for the Ratable account of Lenders a commitment fee
(the "Commitment Fee") on the average daily amount of the difference
between (A) the Commitment and (B) the sum of (I) all outstanding Revolving
Advances and (II) the face amount of all outstanding Letters of Credit, at
the per annum rate of 0.50%, payable in arrears on each Quarterly Date
commencing with the first Quarterly Date after the Closing Date, and
continuing until the Maturity Date.
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(ii) Subject to Section 11.08 hereof, the Borrower shall pay to
Administrative Lender for the Ratable account of Lenders an unused fee (the
"Unused Fee") on the average daily amount of the difference between (A)
$50,000,000 and (B) all outstanding Term Advances, at the per annum rate of
0.50%, payable in arrears on each Quarterly Date commencing with the first
Quarterly Date after the Closing Date, and continuing until the second
anniversary of the Closing Date.
(c) Other Fees. Borrower shall pay to Administrative Lender and the
Lenders such other fees as set forth in any Fee Letter addressed to the
Administrative Lender or any Lender.
2.11. Reduction of Commitment.
(a) Mandatory Termination of the Commitment. The Commitment shall be
reduced to zero and terminate on the Maturity Date.
(b) Mandatory Reduction Due to Asset Sales. The Commitment shall be
reduced immediately and automatically in an amount equal to any amount required
by Section 2.05(a) hereof to prepay the Revolving Loan as a result of any asset
sales.
(c) Mandatory Reduction Due to Issuances of Public or Private Equity. The
Commitment shall be reduced immediately and automatically in an amount equal to
any amount required by Section 2.05(b) hereof to prepay outstanding Advances
under the Revolving Loan (regardless of whether there are actually any
outstanding Revolving Advances) as a result of any issuances of public or
private equity.
(d) Mandatory Reduction Due to Issuances of Public or Private Debt. The
Commitment shall be reduced immediately and automatically in an amount equal to
any amount required by Section 2.05(c) hereof to prepay outstanding Advances
under the Revolving Loan (regardless of whether there are actually any
outstanding Revolving Advances) as a result of any issuances of public or
private Debt.
(e) Voluntary Commitment Reductions. The Borrower may from time to time,
upon notice to Administrative Lender not later than 1:00 p.m., three Business
Days in advance, terminate in whole or reduce in part the Commitment, as
designated by the Borrower; provided, however, that the Borrower shall pay the
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accrued interest and the applicable accrued Commitment Fee on the amount of such
reduction and all amounts due, and any partial reduction shall be in an
aggregate amount which is an integral multiple of $5,000,000.
(f) Commitment Reductions, Generally. To the extent outstanding Revolving
Advances exceed the Commitment after any reduction thereof, the Borrower shall
repay, on the date of such reduction, any such excess amount and all accrued
interest thereon, the applicable Commitment Fee on the amount of such reduction
and all amounts due. Once reduced or terminated, the Commitment may not be
increased or reinstated. No reduction of the Commitment, either voluntary or
mandatory under Sections 2.11(b), 2.11(c), 2.11(d) or 2.11(e)
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hereof, shall relieve or alter the mandatory reduction and termination of the
Commitment pursuant to Section 2.11(a) hereof.
2.12. Funding Losses. The Borrower may prepay the outstanding principal
balance of any Advance, in full at any time or in part from time to time in
accordance with the terms of Section 2.04 hereof, provided, that as a condition
--------
precedent to the Borrower's right to make, and any Lender's obligation to
accept, any such prepayment, each such prepayment shall be in the amount of 100%
of the principal amount to be prepaid, plus accrued unpaid interest thereon to
the date of prepayment, plus any other sums which have become due to
Administrative Lender and Lenders under the Loan Papers on or before the
prepayment date but have not been paid, plus (subject to Section 11.08 hereof)
any Consequential Loss.
The Borrower agrees that each Lender is not obligated to actually reinvest
the amount prepaid in any specific obligation as a condition to receiving any
Consequential Loss, or otherwise.
2.13. Computations and Manner of Payments.
(a) The Borrower shall make each payment hereunder and under the other
Loan Papers not later than 1:00 p.m. on the day when due in same day funds (by
wire transfer or otherwise) to Administrative Lender, for the account of Lenders
unless otherwise specifically provided herein, at Administrative Lender's office
at NationsBank Plaza, 901 Main Street, Dallas, Texas 75202, for further credit
to the account of Interstate FiberNet, Inc. No later than the end of each day
when each payment hereunder is made, the Borrower shall notify Loan Operations
at (214) 508-9192 or such other Person as Administrative Lender may from time to
time specify.
(b) Unless Administrative Lender shall have received notice from the
Borrower prior to the date on which any payment is due hereunder that the
Borrower will not make payment in full, Administrative Lender may assume that
such payment is so made on such date and may, in reliance upon such assumption,
make distributions to Lenders. If and to the extent the Borrower shall not have
made such payment in full, each Lender shall repay to Administrative Lender
forthwith on demand the applicable amount distributed, together with interest
thereon at the Federal Funds Rate, from the date of distribution until the date
of repayment. The Borrower hereby authorizes each Lender, if and to the extent
payment is not made when due hereunder, to charge the amount so due against any
account of the Borrower with such Lender.
(c) Subject to Section 11.08 hereof, interest on LIBOR Advances under the
Loan Papers shall be calculated on the basis of actual days elapsed but computed
as if each year consisted of 360 days. Subject to Section 11.08 hereof,
interest on Base Advances, the Commitment Fee, the Unused Fee and other amounts
due under the Loan Papers shall be calculated on the basis of actual days
elapsed but computed as if each year consisted of 365 or 366 days, as
applicable. Such computations shall be made including the first day but
excluding the last day occurring in the period for which such interest, payment,
Commitment Fee or
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Unused Fee is payable. Each determination by Administrative Lender or a Lender
of an interest rate, fee or commission hereunder shall be presumptive evidence
of the validity of such claim. All payments under the Loan Papers shall be made
in United States dollars, and without setoff, counterclaim, or other defense.
(d) Whenever any payment to be made hereunder or under any other Loan
Papers shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall be included in the computation of interest or fees, if applicable;
provided, however, if such extension would cause payment of interest on or
- -------- -------
principal of LIBOR Advances to be made in the next following calendar month,
such payment shall be made on the next preceding Business Day.
(e) Reference to any particular index or reference rate for determining
any applicable interest rate under this Agreement is for purposes of calculating
the interest due and is not intended as and shall not be construed as requiring
any Lender to actually obtain funds for any Advance at any particular index or
reference rate.
(f) Notwithstanding anything in this Agreement to the contrary, all
payments received by the Administrative Lender from the Borrower shall be
applied as follows:
(i) Except as stated in Section 2.05 hereof, so long as there then
exists no Event of Default, the Administrative Lender shall apply all such
payments as between the Revolving Loan and the Term Loan as directed by the
Borrower and, in the absence of any direction by the Borrower, to the
Revolving Loan. Any amounts applied to the Term Loan shall permanently and
irrevocably reduce the Term Loan, and shall be applied in the inverse order
of maturity.
(ii) If there then exists an Event of Default, notwithstanding any
direction by the Borrower, the Administrative Lender shall apply all such
payments received by it from the Borrower to reduce the Revolving Loans and
the Term Loan ratably in accordance with each Lender's percentage of all
outstanding Advances. Any amounts applied to the Term Loan shall
permanently and irrevocably reduce the Term Loan, and shall be applied in
the inverse order of maturity. Any amounts applied to the Revolving Loan
shall reduce the Commitment and shall not affect any other required
Commitment reductions.
2.14. Yield Protection; Changed Circumstances.
(a) If any Lender determines that either (i) the adoption of any Applicable
Law, rule, regulation or guideline regarding capital adequacy and applicable to
commercial banks or financial institutions generally or any change therein, or
any change, after the date hereof, in the interpretation or administration
thereof by any Tribunal, central bank or comparable agency charged with the
interpretation or administration thereof, or (ii) compliance by any Lender (or
Lending Office of any Lender) with any request or directive applicable to
commercial banks or
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financial institutions generally regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency has the effect of reducing the rate of return on such Lender's capital as
a consequence of its obligations hereunder to a level below that which such
Lender could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's policies with respect to capital adequacy) by
an amount reasonably deemed by such Lender to be material, then from time to
time, within fifteen days after demand by such Lender, the Borrower shall pay to
such Lender such additional amount or amounts as will adequately compensate such
Lender for such reduction. Each Lender will notify the Borrower of any event
occurring after the date of this Agreement which will entitle such Lender to
compensation pursuant to this Section 2.14(a) as promptly as practicable after
such Lender obtains actual knowledge of such event; provided, no Lender shall be
--------
liable for its failure or the failure of any other Lender to provide such
notification. A certificate of such Lender claiming compensation under this
Section 2.14(a), setting forth in reasonable detail the calculation of the
additional amount or amounts to be paid to it hereunder shall be presumptive
evidence of the validity of such claim. If such Lender demands compensation
under this Section 2.14(a), the Borrower may at any time, on at least five
Business Days' prior notice to such Lender (i) repay in full the then
outstanding principal amount of LIBOR Advances, of such Lender, together with
accrued interest thereon, or (ii) convert the LIBOR Advances to Base Advances in
accordance with the provisions of this Agreement; provided, however, that the
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Borrower shall be liable for the Consequential Loss arising pursuant to those
actions.
(b) If, after the date hereof, any Tribunal, central bank or other
comparable authority, at any time imposes, modifies or deems applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit extended by, any
Lender, or imposes on any Lender any other condition affecting a LIBOR Advance,
the Notes, or its obligation to make a LIBOR Advance, or imposes on any Lender
any other condition affecting a Letter of Credit; and the result of any of the
foregoing is to increase the cost to such Lender of making or maintaining its
Letter of Credit, LIBOR Advances, or to reduce the amount of any sum received or
receivable by such Lender under this Agreement or under the Notes, the Letters
of Credit or reimbursement obligations by an amount deemed by such Lender, to be
material, then, within five days after demand by such Lender, the Borrower shall
----
pay to such Lender such additional amount or amounts as will compensate such
Lender for such increased cost or reduction. Each Lender will (i) notify the
Borrower of any event occurring after the date of this Agreement that entitles
such Lender to compensation pursuant to this Section 2.14(b), as promptly as
practicable after such Lender obtains actual knowledge of the event; provided,
--------
no Lender shall be liable for its failure or the failure of any other Lender to
provide such notification and (ii) use good faith and reasonable efforts to
designate a different Lending Office for LIBOR Advances, of such Lender if the
designation will avoid the need for, or reduce the amount of, the compensation
and will not, in the sole opinion of such Lender, be disadvantageous to such
Lender. A certificate of such Lender claiming compensation under this Section
2.14(b), setting forth in reasonable detail the computation of the additional
amount or amounts to be paid to it hereunder shall be presumptive evidence of
the validity of such claim. If such Lender demands compensation under this
Section 2.14(b), the Borrower may at any time,
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on at least five Business Days' prior notice to such Lender (i) repay in full
the then outstanding principal amount of LIBOR Advances, of such Lender,
together with accrued interest thereon, or (ii) convert the LIBOR Advances to
Base Advances in accordance with the provisions of this Agreement; provided,
--------
however, that the Borrower shall be liable for the Consequential Loss arising
- -------
pursuant to those actions.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation or administration of
any Law shall make it unlawful, or any central bank or other Tribunal shall
assert that it is unlawful, for a Lender to perform its obligations hereunder to
issue or maintain Letters of Credit, make LIBOR Advances or to continue to fund
or maintain LIBOR Advances hereunder, then, on notice thereof and demand
therefor by such Lender to the Borrower, (i) each LIBOR Advance will
automatically, upon such demand, convert into a Base Advance, (ii) the
obligation of such Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended until such Lender notifies Administrative Lender and the
Borrower that such Lender has determined that the circumstances causing such
suspension no longer exist, and (iii) the obligation of such Lender to make or
maintain Letters of Credit shall be suspended until such Lender notifies
Administrative Lender and the Borrower that such Lender has determined that the
circumstances causing such suspension no longer exist.
(d) Upon the occurrence and during the continuance of any Default or Event
of Default, (i) each LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Advance and (ii) the
obligation of each Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended.
(e) If any Lender notifies Administrative Lender that the LIBOR Rate for
any Interest Period for any LIBOR Advances will not adequately reflect the cost
to such Lender of making, funding or maintaining LIBOR Advances for such
Interest Period, Administrative Lender shall promptly so notify the Borrower,
whereupon (i) each such LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Advance and (ii) the
obligation of such Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended until such Lender notifies Administrative Lender that such
Lender has determined that the circumstances causing such suspension no longer
exist and Administrative Lender notifies the Borrower of such fact.
(f) Failure on the part of any Lender to demand compensation for any
increased costs, increased capital or reduction in amounts received or
receivable or reduction in return on capital pursuant to this Section 2.14 with
respect to any period shall not constitute a waiver of any Lender's right to
demand compensation with respect to such period or any other period, subject,
however, to the limitations set forth in this Section 2.14.
(g) The obligations of the Borrower under this Section 2.14 shall survive
any termination of this Agreement, provided that, in no event shall the Borrower
be required to make a payment under this Section 2.14 with respect to any event
of which the Lender making such claim had knowledge more than 12 months prior to
demand for such payment.
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(h) Determinations by Lenders for purposes of this Section 2.14 shall be
presumptively correct. Any certificate delivered to the Borrower by a Lender
pursuant to this Section 2.14 shall include in reasonable detail the basis for
such Lender's demand for additional compensation and a certification that the
claim for compensation is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender.
(i) Notwithstanding any other provision of this Agreement, no Lender not
organized under the Laws of the United States or any State (or which has a Bank
Affiliate not organized under the Laws of the United States or any State) shall
be entitled to compensation pursuant to this Section 2.14 with respect to any
amount which would otherwise be due under this Section 2.14 but which is the
result of an act of a Tribunal of the country in which such Lender or Bank
Affiliate is organized.
2.15. Use of Proceeds. The proceeds of the Advances shall be available
(and the Borrower shall use such proceeds) solely (a) on the Closing Date, to
refinance existing indebtedness of the Borrower, (b) for Permitted Acquisitions,
(c) for Capital Expenditures permitted under the terms of this Agreement, (d)
for working capital and (e) for other lawful corporate purposes.
2.16. Collateral and Collateral Call.
(a) Collateral. Payment of the Obligations will be secured by (i) a
----------
first perfected security interest in 100% of the Capital Stock of the Borrower
and each of the Subsidiaries of the Borrower, (ii) Guaranties of the Obligations
by each Guarantor, (iii) a first perfected security interest (except for
Permitted Liens) in all tangible and intangible assets and Properties of the
Borrower and each of the Subsidiaries of the Borrower that can be perfected by
filing a UCC-1 financing statement centrally in the States of Georgia, Florida,
Alabama, Mississippi, Louisiana, Texas, North Carolina and South Carolina, (iv)
certain licenses (recognizing that in connection with the exercise by
Administrative Lender of its rights hereunder with respect to such licenses that
it may be necessary to obtain the prior consent or approval of Tribunals and
other Persons to a transfer or assignment, including, without limitation, the
approval of the FCC), contract rights with respect to contracts between the
Borrower and (A) the Southern Development and Investment Group, Inc., (B) the
Kansas City Southern Railway Company, and (C) the Illinois Central Railroad
Company, and (v) certain real estate switch sites (collectively, together with
all other Properties or assets of the Borrower, Subsidiaries and other Persons
securing the Obligations from time to time, the "Collateral", but "Collateral"
shall specifically exclude (unless any Lien is granted in accordance with the
terms of Section 2.16(b) below), (A) amounts deposited in the Interest Reserve
Escrow Account in accordance with the terms of Section 8.15 hereof, (B) motor
vehicles, patents, trademarks and fixtures and real property (both leasehold and
fee owned, but none of which is a switch location) and (C) certain agreed to
licenses, contract rights and agreements which require consent from a third
party (such licenses, contract rights and agreements being described on Schedule
--------
2.16(a) hereto)). The Borrower agrees that it will, and will cause its
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Subsidiaries to execute and deliver, or cause to be executed and
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delivered, such documents as the Administrative Lender may from time to time
reasonably request to create and perfect a first Lien (subject to Permitted
Liens) for the benefit of the Administrative Lender and the Lenders in the
Collateral. The Borrower agrees to use its best efforts to obtain a landlord's
consent to assignment and leasehold mortgage in connection with switch sites
located in Columbia, South Carolina and Arab, Alabama.
(b) Collateral Call. The Borrower agrees upon the creation, formation or
---------------
acquisition of any direct or indirect Subsidiary of the Borrower, to immediately
pledge 100% of the Capital Stock of any such Subsidiary to secure the
Obligations, pursuant to a pledge agreement substantially in the form of Exhibit
-------
H hereto, and to promptly deliver to the Administrative Lender all certificates
- -
or other documentation evidencing 100% of such Capital Stock and, if such
Capital Stock is stock of a corporation, together with stock powers executed in
blank. The Borrower agrees, upon the acquisition of any assets (whether through
Capital Stock or otherwise) to immediately pledge/mortgage or grant a first
priority security interest in (subject to Permitted Liens), as applicable, such
assets of the type as are included in the definition of Collateral as set forth
above to the Administrative Lender on behalf of the Lenders to secure the
Obligations (and pursuant to agreements similar to those executed on the Closing
Date). The Borrower agrees to use its best efforts to (and cause its
Subsidiaries to use their best efforts to), upon the request of the Majority
Lenders, grant the Administrative Lender on behalf of Lenders a first priority
Lien or security interest (subject to Permitted Liens) in any asset of the
Borrower or any of its Subsidiaries having a fair market value in excess of
$1,000,000 and not constituting motor vehicles.
ARTICLE III. LETTERS OF CREDIT
3.01. Issuance of Letters of Credit. The Borrower shall give the
Administrative Lender not less than five Business Days prior written notice of a
request for the issuance of a Letter of Credit, and the Administrative Lender
shall promptly notify each Lender of such request. Upon receipt of the
Borrower's properly completed and duly executed Applications, and subject to the
terms of such Applications and to the terms of this Agreement, the
Administrative Lender agrees to issue Letters of Credit on behalf of the
Borrower in an aggregate face amount not in excess of the lesser of (a) Letter
of Credit Commitment and (b) the remainder of the Commitment minus the sum of
all outstanding Revolving Advances plus the aggregate face amount of all
outstanding Letters of Credit. No Letter of Credit shall have a maturity
extending beyond the earliest of (i) the Maturity Date, or (ii) one year from
the date of its issuance, or (iii) such earlier date as may be required to
enable the Borrower to satisfy its repayment obligations under Section 2.06
hereof. Subject to such maturity limitations and so long as no Default or Event
of Default has occurred and is continuing or would result from the renewal of a
Letter of Credit, the Letters of Credit may be renewed by the Administrative
Lender in its discretion. The Lenders shall participate ratably in any
liability under the Letters of Credit and in any unpaid reimbursement
obligations of the Borrower with respect to any Letter of Credit in their
Specified Percentages. The amount of the Letters of Credit issued and
outstanding and the unpaid reimbursement obligations of the Borrower for such
Letters of Credit
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shall reduce the amount of Commitment available, so that at no time shall the
sum of (i) all outstanding Revolving Advances in the aggregate, plus (ii) the
aggregate face amount of all outstanding Letters of Credit, plus (iii) (without
duplication) all outstanding reimbursement obligations related to Letters of
Credit, exceed the Commitment, and at no time shall the sum of all Revolving
Advances by any Lender made plus its ratable share of amounts available to be
drawn under the Letters of Credit and the unpaid reimbursement obligations of
the Borrower in respect of such Letters of Credit exceed its Specified
Percentage of the Commitment.
3.02. Letters of Credit Fee. In consideration for the issuance of each
Letter of Credit, the Borrower shall pay to (a) the Administrative Lender for
its sole account, an application and processing fee in the amount of the higher
of (i) $350.00 and (ii) the product of 1/8th of 1% multiplied by the face amount
of such Letter of Credit on each Letter of Credit, due and payable on the date
of issuance of each Letter of Credit, and (b) the Administrative Lender for the
account of the Administrative Lender and the Lenders in accordance with their
Specified Percentages, a per annum fee for each Letter of Credit equal to the
higher of (i) $350.00 and (ii) the product of 1.00% multiplied by the face
amount of each such Letter of Credit. Each fee for each Letter of Credit under
subsection (b) above shall be due and payable to the Administrative Lender
quarterly as it accrues, on each Quarterly Date during the term of the Letter of
Credit and on the expiration or renewal and/or extension of each such Letter of
Credit, beginning with the first such Quarterly Date after the issuance of each
Letter of Credit and ending on the expiration date of each such Letter of
Credit.
3.03. Reimbursement Obligations.
(a) The Borrower hereby agrees to reimburse Administrative Lender
immediately upon demand by Administrative Lender, and in immediately available
funds, for any payment or disbursement made by Administrative Lender under any
Letter of Credit. Payment shall be made by the Borrower with interest on the
amount so paid or disbursed by Administrative Lender from and including the date
payment is made under any Letter of Credit to and including the date of payment,
at the lesser of (i) the Highest Lawful Rate, and (ii) the sum of the Base Rate
in effect from time to time plus 2% per annum; provided, however, that if the
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Borrower would be permitted under the terms of Section 2.01, Section 2.02 and
Section 4.02 to borrow Revolving Advances in amounts at least equal to their
reimbursement obligation for a drawing under any Letter of Credit, a Base
Advance by each Lender, in an amount equal to such Lender's Specified
Percentage, shall automatically be deemed made on the date of any such payment
or disbursement made by Administrative Lender in the amount of such obligation
and subject to the terms of this Agreement.
(b) The Borrower hereby also agrees to pay to Administrative Lender
immediately upon demand by Administrative Lender and in immediately available
funds, as security for their reimbursement obligations in respect of the Letters
of Credit under Section 3.03(a) hereof and any other amounts payable hereunder
and under the Notes, an amount equal to the aggregate amount available to be
drawn under Letters of Credit then outstanding, irrespective of whether the
Letters of Credit have been drawn upon, upon an Event of Default. Any such
payments
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<PAGE>
shall be deposited in a separate account designated "Interstate FiberNet Special
Account" or such other designation as Administrative Lender shall elect. All
such amounts deposited with Administrative Lender shall be and shall remain
funds of the Borrower on deposit with Administrative Lender and may be invested
by Administrative Lender as Administrative Lender shall determine. Such amounts
may not be used by Administrative Lender to pay the drawings under the Letters
of Credit; however, such amounts may be used by Administrative Lender as
reimbursement for Letter of Credit drawings which Administrative Lender has
paid. During the existence of an Event of Default but after the expiration of
any Letter of Credit that was not drawn upon, the Borrower may direct the
Administrative Lender to use any cash collateral for any such expired Letter of
Credit, if any, to reduce the amount of the Obligations. Any amounts remaining
in the Interstate FiberNet Special Account, after the date of the expiration of
all Letters of Credit and after all Obligations have been paid in full, shall be
repaid to the Borrower promptly after such expiration and such payment in full.
(c) The obligations of the Borrower under this Section 3.03 will continue
until all Letters of Credit have expired and all reimbursement obligations with
respect thereto have been paid in full by the Borrower and until all other
Obligations shall have been paid in full.
(d) The Borrower shall be obligated to reimburse Administrative Lender upon
demand for all amounts paid under the Letters of Credit as set forth in Section
3.03(a) hereof; provided, however, if the Borrower for any reason fails to
reimburse Administrative Lender in full upon demand, whether by borrowing
Revolving Advances to pay such reimbursement obligations or otherwise, the
Lenders shall reimburse Administrative Lender in accordance with each Lender's
Specified Percentage for amounts due and unpaid from the Borrower as set forth
in Section 3.04 hereof; provided, however, that no such reimbursement made by
the Lenders shall discharge the Borrower's obligations to reimburse
Administrative Lender.
(e) The Borrower shall indemnify and hold Administrative Lender or any
Lender, its officers, directors, representatives and employees harmless from
loss for any claim, demand or liability which may be asserted against
Administrative Lender or such indemnified party in connection with actions taken
under the Letters of Credit or in connection therewith (including losses
resulting from the negligence of Administrative Lender or such indemnified
party), and shall pay Administrative Lender for reasonable fees of attorneys
(who may be employees of Administrative Lender) and legal costs paid or incurred
by Administrative Lender in connection with any matter related to the Letters of
Credit, except for losses and liabilities incurred as a direct result of the
gross negligence or wilful misconduct of Administrative Lender or such
indemnified party. If the Borrower for any reason fails to indemnify or pay
Administrative Lender or such indemnified party as set forth herein in full, the
Lenders shall indemnify and pay Administrative Lender upon demand, in accordance
with each Lender's Specified Percentage of such amounts due and unpaid from the
Borrower. The provisions of this Section 3.03(e) shall survive the termination
of this Agreement.
3.04. Lenders' Obligations. Each Lender agrees, unconditionally and
irrevocably to reimburse Administrative Lender (to the extent Administrative
Lender is not otherwise
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reimbursed by the Borrower in accordance with Section 3.03(a) hereof) on demand
for such Lender's Specified Percentage of each draw paid by Administrative
Lender under any Letter of Credit. All amounts payable by any Lender under this
subsection shall include interest thereon at the Federal Funds Rate, from the
date of the applicable draw to the date of reimbursement by such Lender. No
Lender shall be liable for the performance or nonperformance of the obligations
of any other Lender under this Section. The obligations of the Lenders under
this Section shall continue after the Maturity Date and shall survive
termination of any Loan Papers.
3.05. Administrative Lender's Obligations.
(a) Administrative Lender makes no representation or warranty, and
assumes no responsibility with respect to the validity, legality, sufficiency or
enforceability of any Application or any document relative thereto or to the
collectibility thereunder. Administrative Lender assumes no responsibility for
the financial condition of the Borrower and its Subsidiaries or for the
performance of any obligation of the Borrower. Administrative Lender may use its
discretion with respect to exercising or refraining from exercising any rights,
or taking or refraining from taking any action which may be vested in it or
which it may be entitled to take or assert with respect to any Letter of Credit
or any Application.
(b) Administrative Lender shall be under no liability to any Lender,
with respect to anything the Administrative Lender may do or refrain from doing
in the exercise of its judgment, the sole liability and responsibility of
Administrative Lender being to handle each Lender's share on as favorable a
basis as Administrative Lender handles its own share and to promptly remit to
each Lender its share of any sums received by Administrative Lender under any
Application. Administrative Lender shall have no duties or responsibilities
except those expressly set forth herein and those duties and liabilities shall
be subject to the limitations and qualifications set forth herein.
(c) Neither Administrative Lender nor any of its directors, officers, or
employees shall be liable for any action taken or omitted (whether or not such
action taken or omitted is expressly set forth herein) under or in connection
herewith or any other instrument or document in connection herewith, except for
gross negligence or willful misconduct, and no Lender waives its right to
institute legal action against Administrative Lender for wrongful payment of any
Letter of Credit due to Administrative Lender's gross negligence or willful
misconduct. Administrative Lender shall incur no liability to any Lender, the
Borrower or any Affiliate of the Borrower or Lender in acting upon any notice,
document, order, consent, certificate, warrant or other instrument reasonably
believed by Administrative Lender to be genuine or authentic and to be signed by
the proper party.
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ARTICLE IV. CONDITIONS PRECEDENT
4.01. Conditions Precedent to Closing and the Initial Advance. The
obligation of each Lender to sign this Agreement and to make the initial Advance
under the Revolving Loan or the first Term Loan Initial Advance, is subject to
receipt by the Administrative Lender of each of the following, in form and
substance satisfactory to the Administrative Lender, with a copy (except for the
Notes) for each Lender:
(a) A loan certificate of the Borrower certifying as to the accuracy of
its representations and warranties in the Loan Papers, certifying that no
Default or Event of Default has occurred, and including a certificate of
incumbency with respect to each Authorized Officer, and including (i) a copy of
the Articles of Incorporation of the Parent, the Borrower and each of its
Subsidiaries, certified to be true, complete and correct by the secretary of
state of each such Person's respective state of incorporation, (ii) a copy of
the By-Laws of the Parent, the Borrower and each of its Subsidiaries, as in
effect on the Closing Date, (iii) a copy of the resolutions of the Parent, the
Borrower and each of its Subsidiaries authorizing them to execute, deliver and
perform this Agreement, the Notes and the other Loan Papers to which each of
them is a party, (iv) a copy of certain contracts identified to the
Administrative Lender, each certified to be true, complete and correct by an
Authorized Officer, and (v) a copy of a certificate of good standing and a
certificate of existence for the Parent, the Borrower and each of its
Subsidiaries state of incorporation and the States of Georgia, Florida, Alabama,
Mississippi, Louisiana, Texas, North Carolina and South Carolina, as applicable;
(b) duly executed Notes, payable to the order of each Lender, one in an
amount for each Lender equal to its Specified Percentage of the Commitment and
one in an amount for each Lender equal to its Specified Percentage of the Term
Loan;
(c) duly executed and completed pledge agreement by Parent, the Borrower
and, to the extent applicable, any Subsidiary of the Borrower, substantially in
the form of the Pledge Agreement, pledging not less than 100% of the Capital
Stock of the Borrower and each Subsidiary of the Borrower to the Administrative
Lender on behalf of Lenders to secure the Obligations, together with the Pledged
Stock and stock powers duly executed in blank by the Parent, the Borrower or
such Subsidiary of the Borrower, as applicable;
(d) a duly executed and completed Unlimited Guaranty of the Obligations
executed in substantially similar form by the Parent and each of the
Subsidiaries of the Borrower;
(e) duly executed and completed security agreements, mortgages, deeds of
trust, assignment agreements, and other collateral agreements by the Parent, the
Borrower and any Subsidiary of the Borrower, pledging the assets and Properties
of the Parent, the Borrower and each Subsidiary of the Borrower, to the
Administrative Lender on behalf of Lenders to secure the Obligations, together
with any such Collateral that is required to be in the possession of the
Administrative Lender in order be perfected under the Uniform Commercial Code;
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(f) all other Loan Papers to be delivered on the Closing Date duly
executed and completed, dated as of the Closing Date;
(g) UCC-11 searches of the Parent, the Borrower and all of its
Subsidiaries, in the States of Georgia, Florida, Alabama, Mississippi,
Louisiana, Texas, North Carolina and South Carolina, together with copies of all
financing statements filed against the Parent, the Borrower or any Subsidiary of
the Borrower, as debtor;
(h) opinions addressed to Administrative Lender on behalf of the Lenders
of (i) corporate counsel to the Parent, the Borrower and each Subsidiary of the
Borrower, addressed to the Administrative Lender on behalf of the Lenders and in
form and substance satisfactory to the Lenders, dated the Closing Date and (ii)
special FCC, PUC and telecommunications counsel to the Parent, the Borrower and
each Subsidiary of the Borrower in form and substance satisfactory to the
Lenders, dated the Closing Date;
(i) copies of insurance binders or certificates covering the assets of the
Parent, the Borrower and each of its Subsidiaries and meeting the requirements
of Section 6.05 hereof;
(j) reimbursement for Administrative Lender of its reasonable fees and
expenses and for Special Counsel's reasonable fees and expenses rendered through
the date hereof;
(k) evidence that all corporate proceedings of the Parent, the Borrower
and each Subsidiary of the Borrower taken in connection with the transactions
contemplated by this Agreement and the other Loan Papers, shall be reasonably
satisfactory in form and substance to the Lenders and Special Counsel; and the
Lenders shall have received copies of all documents or other evidence which the
Administrative Lender, Special Counsel or any Lender may reasonably request in
connection with such transactions;
(l) copies of the following financial statements for the Parent, the
Borrower and its consolidated Subsidiaries, as of and for the period ended June
30, 1997; (i) balance sheets as of the end of such period, and (ii) statements
of income and changes in cash for such period; all in reasonable detail and
certified by an Authorized Officer to the best of his knowledge to present
fairly in all material respects the consolidated financial position of the
Parent, the Borrower and its consolidated Subsidiaries and the results of
operations for the period then ended and, except as noted therein, to be in
accordance with GAAP (other than footnotes thereto);
(m) a duly completed Compliance Certificate evidencing no Default or Event
of Default dated as of the Closing Date;
(n) all operating assets of the Obligors must be owned by, and/or under
the control of, the Borrower and the Subsidiaries of the Borrower;
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(o) the corporate reorganization of ITC Holding, the Parent and the
Borrower and the Subsidiaries of the Borrower shall have been accomplished on
terms and conditions, and subject to documentation, acceptable to the
Administrative Lender;
(p) proceeds of the Senior Notes in an amount not less than three years
interest on the Senior Notes shall have been deposited in the Interest Reserve
Escrow Account;
(q) the contemplated corporate restructuring shall have been consummated
on terms and conditions satisfactory to the Administrative Lender, including,
without limitation, the restructuring of $74,000,000 of indebtedness incurred by
ITC Holding in connection with its acquisition of DeltaCom, Inc. ("DeltaCom")
(which indebtedness had been pushed down to DeltaCom), as follows:
(i) $43,000,000 of principal and approximately $9,500,000 of accrued
interest was repaid by the Parent to ITC Holding with a portion of the net
proceeds from the sale of the Senior Notes; and
(ii) the Borrower undertook to repay $31,000,000 of such indebtedness
to ITC Holding and DeltaCom agreed to reimburse the Borrower for such
amount; ITC Holding then forgave such $31,000,000 in indebtedness and
contributed it to the Borrower as additional equity; and
(s) in form and substance satisfactory to the Lenders and Special
Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation the status,
organization or authority of the Parent, the Borrower or any Subsidiary of the
Borrower, and the enforceability of and security for the Obligations.
4.02. Conditions Precedent to All Revolving Advances, Initial Advances
under the Term Loan and Letters of Credit. The obligation of each Lender to
make each Revolving Advance hereunder and each Term Loan Initial Advance
(excluding each Refinancing Advance), and the obligation of the Administrative
Lender to issue any Letter of Credit shall be subject to the further conditions
precedent that on the date of such Revolving Advance, Term Loan Initial Advance
or such issuance of such Letter of Credit:
(a) All of the representations and warranties of the Borrower under this
Agreement shall be true and correct at such time in all material respects, both
before and after giving effect to the application of the proceeds of the
Revolving Advance, the Term Loan Initial Advance or the issuance of the Letter
of Credit, except those representations and warranties that specifically speak
as of a particular date;
(b) The incumbency of the Authorized Officers shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to Section 4.01(a) or as subsequently modified and reflected in a certificate of
incumbency delivered to the
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Administrative Lender. The Lenders may, without waiving this condition,
consider it fulfilled and a representation by the Borrower made to such effect
if no written notice to the contrary, dated on or before the date of such
Revolving Advance or the issuance of such Letter of Credit, is received by the
Administrative Lender from the Borrower prior to the making of such Revolving
Advance, the Term Loan Initial Advance or such Letter of Credit;
(c) There shall not exist a Default or an Event of Default hereunder and
none shall exist as a result of making any such Revolving Advance, Term Loan
Initial Advance or such Letter of Credit, and the Administrative Lender shall
have received written or telephonic certification thereof by an Authorized
Officer (which certification, if telephonic, shall be followed promptly by
written certification);
(d) No event shall have occurred that could reasonably be expected to
cause a Material Adverse Change since December 31, 1996;
(e) In the case of each Letter of Credit, Borrower shall have delivered to
the Administrative Lender a duly executed and complete Application acceptable to
Administrative Lender;
(f) Prior to the second anniversary of the Closing Date only: in the case
of the first Revolving Advance that would increase the amount of outstanding
Revolving Advances to an amount in excess of $10,000,000 for the first time,
outstanding Advances under the Term Loan aggregate to an amount not less than
the difference between $50,000,000 minus all prepayments to the Term Loan made
in accordance with the terms of Sections 2.05(a), 2.05(b) and/or 2.05(c) hereof;
(g) In the case of any Term Loan Initial Advance, the Borrower must have
delivered to the Administrative Lender a duly completed and executed Compliance
Certificate, computed after giving effect to such proposed Term Loan Initial
Advance, demonstrating pro forma compliance with the terms of this Agreement
through the Maturity Date; and
(h) In the case of any Revolving Advance, the aggregate outstanding
Revolving Advances after giving effect to such proposed Revolving Advance, plus
the sum of the face amount of all outstanding Letters of Credit plus all
reimbursement obligations under Article III hereof, shall not exceed the
Commitment.
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ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.01. Representations and Warranties. The Borrower hereby represents and
warrants to each Lender as follows:
(a) The respective jurisdictions of incorporation and percentage
ownership of the Subsidiaries of the Borrower on the Closing Date and listed on
Schedule 5.01(a) hereto are true and correct. Each of the Parent, the Borrower
- ----------------
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its state of organization. Each of the Parent,
the Borrower and its Subsidiaries has the corporate power and corporate
authority to own its properties and to carry on its business as now being
conducted. Each of the Parent, the Borrower and its Subsidiaries is duly
qualified, in good standing and authorized to do business in each jurisdiction
in which the character of its Properties or the nature of its business requires
such qualification or authorization, except where the failure to so qualify
could not reasonably be expected to cause a Material Adverse Change.
(b) The Borrower has corporate power and has taken all necessary
corporate action to authorize it to borrow hereunder. Each of the Parent, the
Borrower and its Subsidiaries has corporate power and has taken all necessary
corporate action to execute, deliver and perform the Loan Papers to which it is
party in accordance with the terms thereof, and to consummate the transactions
contemplated thereby. Each Loan Paper has been duly executed and delivered by
the Parent, the Borrower or such Subsidiary executing it. Each of the Loan
Papers to which the Parent, the Borrower, and its Subsidiaries are party is a
legal, valid and binding obligation of the Parent, the Borrower or such
Subsidiary, as applicable, enforceable in accordance with its terms, subject, to
enforcement of remedies, to the following qualifications: (i) equitable
principles generally, and (ii) bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws affecting enforcement of
creditors' rights generally (insofar as any such law relates to the bankruptcy,
insolvency or similar event of the Parent, the Borrower or any Subsidiary of the
Borrower).
(c) The execution, delivery and performance by the Parent, the Borrower
and its Subsidiaries of the other Loan Papers to which they are respectively a
party, and the consummation of the transactions contemplated thereby, do not and
will not (i) require any consent or approval not already obtained, (ii) violate
any Applicable Law, (iii) conflict with, result in a breach of, or constitute a
default under the articles of incorporation or by-laws of the Parent, the
Borrower or any Subsidiary of the Borrower, or under any material License,
indenture, agreement or other instrument, to which the Parent, the Borrower or
any Subsidiary of the Borrower is a party or beneficiary of, or by which they or
their respective Properties may be bound, or (iv) result in or require the
creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by the Parent, the Borrower or any Subsidiary of the
Borrower, except Permitted Liens.
(d) The Parent, the Borrower and its Subsidiaries are primarily engaged
in the operation of telecommunications and pursuing activities related thereto.
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(e) On the Closing Date, all material Licenses of the Parent, the Borrower
and its Subsidiaries have been duly authorized and obtained, and are in full
force and effect. The Parent, the Borrower and its Subsidiaries are in
compliance in all material respects with all provisions thereof. On the Closing
Date, no material License is the subject of any pending or, to the best of the
Borrower's knowledge, threatened challenge or revocation. On each date after
the Closing Date on which this representation is deemed to be made, no material
License is the subject of any pending or, to the best of the Borrower's
knowledge, threatened challenge or revocation, which such event could reasonably
be expected to cause a Material Adverse Change. The Parent, the Borrower and
its Subsidiaries are not required to obtain any material License that has not
already been obtained from, or effect any material filing or registration that
has not already been effected with, the FCC, any applicable PUC or any other
federal, state or local regulatory authority in connection with the execution
and delivery of this Agreement or any other Loan Paper, or the performance
thereof (other than any enforcement of remedies by the Administrative Lender on
behalf of the Lenders), in accordance with their respective terms, including any
borrowings hereunder.
(f) The Parent, the Borrower and its Subsidiaries are in compliance in all
material respects with all material Applicable Laws. The Parent, the Borrower
and its Subsidiaries have duly and timely filed all reports, statements and
filings that are required to be filed by any of them under the Communications
Act, and are in all material respects in compliance therewith, including without
limitation the rules and regulations of the FCC and each applicable PUC. Except
as set forth on Schedule 5.01(f) hereto, as of the Closing Date, the Borrower is
----------------
not aware of any event or circumstance constituting noncompliance (or any Person
alleging noncompliance) with any rule or regulation of the FCC or any applicable
PUC. On each date after the Closing Date on which this representation is deemed
to be made, the Borrower is not aware of any event or circumstance constituting
noncompliance (or any Person alleging noncompliance) with any rule or regulation
of the FCC or any applicable PUC, which such event or circumstance could
reasonably be expected to cause a Material Adverse Change.
(g) On the Closing Date, the Parent, the Borrower and its Subsidiaries
have good and indefeasible title to, or a valid leasehold interest in, all of
their material assets and Properties. On each date after the Closing Date on
which this representation is deemed to be made, the Parent, the Borrower and its
Subsidiaries have good and indefeasible title to, or a valid leasehold interest
in, all of their material assets and Properties, in which any such failure could
reasonably be expected to cause a Material Adverse Change. None of the assets of
the Parent, the Borrower and its Subsidiaries is subject to any Liens, except
Permitted Liens. No financing statement or other Lien filing authorized by the
Parent, the Borrower or any Subsidiary of the Borrower (except relating to
Permitted Liens) is on file in any state or jurisdiction that names the Parent,
the Borrower or any of its Subsidiaries as debtor or covers (or purports to
cover) any assets of the Parent, the Borrower or any of its Subsidiaries. The
Parent, the Borrower and its Subsidiaries have not signed any such financing
statement or filing, nor any security agreement authorizing any Person to file
any such financing statement or filing.
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(h) On the Closing Date, except as reflected on Schedule 5.01(h) hereto,
----------------
there is no action, suit, proceeding or any other Litigation pending against,
or, to the best of the Borrower's knowledge, threatened against the Parent, the
Borrower or any of its Subsidiaries, or in any other manner relating directly
and materially adversely to the Parent, the Borrower, any of its Subsidiaries,
or any of their material Properties, in any court or before any arbitrator of
any kind or before or by any governmental body. On each date after the Closing
Date on which this representation is deemed to be made, there is no action,
suit, proceeding or any other Litigation pending against, or, to the best of the
Borrower's knowledge, threatened against the Parent, the Borrower or any of its
Subsidiaries, or in any other manner relating to the Borrower, any of its
Subsidiaries, or any of their Properties, in any court or before any arbitrator
of any kind or before or by any governmental body, which could reasonably be
expected to cause a Material Adverse Change.
(i) All federal, state and other Tax returns of the Parent, the Borrower
and its Subsidiaries required by law to be filed have been duly filed and all
federal, state and other Taxes, assessments and other governmental charges or
levies upon the Parent, the Borrower, its Subsidiaries or any of their
Properties, income, profits and assets, which are due and payable, have been
paid, except those that are diligently contested in good faith by the Borrower
and for which a reserve has been established in accordance with GAAP, and no
Lien (other than a Permitted Lien) has attached and no foreclosure, distraint,
sale or similar proceedings have been commenced.
(j) The Borrower has furnished or caused to be furnished to the Lenders
copies of its audited financial statements at December 31, 1996, which are
prepared in good faith and complete in all material respects. Each such audited
statement presents fairly in all material respects and in accordance with GAAP,
the financial position of the Parent, the Borrower and its Subsidiaries as at
such dates, and the results of operations for the periods then ended. The
Parent, the Borrower and its Subsidiaries have no material liabilities,
contingent or otherwise, nor material losses, except as disclosed in writing to
the Lenders prior to the Closing Date or as disclosed on any subsequent
financial statements. On the Closing Date after giving effect to the Advances
made on such date, the Parent, the Borrower and each of its Subsidiaries is
Solvent.
(k) On the Closing Date, since the date of the most recent financial
statements delivered to the Lenders, no event or circumstances have occurred or
arisen that could reasonably be expected to cause a Material Adverse Change.
(l) None of the Parent, the Borrower or its Controlled Group maintains or
contributes to any Plan other than those disclosed to the Administrative Lender
in writing. Each such Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and any other applicable Federal or
state law, rule or regulation. With respect to each Plan of the Parent, the
Borrower and each member of its Controlled Group (other than a Multiemployer
Plan), all reports required under ERISA or any other Applicable Law to be filed
with any governmental authority, the failure of which to file could reasonably
result in liability of the
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Parent, the Borrower or any member of its Controlled Group in excess of
$100,000, have been duly filed. All such reports are true and correct in all
material respects as of the date given. No such Plan of the Parent, the
Borrower or any member of its Controlled Group has any accumulated funding
deficiency (as defined in Section 412(a) of the Code) (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. None of the Parent,
the Borrower or any member of its Controlled Group has failed to make any
contribution or pay any amount due or owing as required by Section 412 of the
Code or Section 302 of ERISA or the terms of any such Plan prior to the due date
under Section 412 of the Code and Section 302 of ERISA. There has been no ERISA
Event or any event requiring disclosure under Section 4041(c)(3)(C), 4068(f),
4063(a) or 4043(b) of ERISA with respect to any Plan or trust of the Borrower or
any member of its Controlled Group since the effective date of ERISA. The value
of the assets of each Plan (other than a Multiemployer Plan) of the Parent,
Borrower and each member of its Controlled Group equaled or exceeded the present
value of the benefit liabilities, as defined in Title IV of ERISA, of each such
Plan as of the most recent valuation date using Plan actuarial assumptions at
such date. There are no pending or, to the best of the Borrower's knowledge,
threatened claims, lawsuits or actions (other than routine claims for benefits
in the ordinary course) asserted or instituted against, and neither the Parent,
the Borrower, nor any member of its Controlled Group has knowledge of any
threatened Litigation or claims against, (i) the assets of any Plan or trust or
against any fiduciary of a Plan with respect to the operation of such Plan, or
(ii) the assets of any employee welfare benefit plan within the meaning of
Section 3(1) or ERISA, or against any fiduciary thereof with respect to the
operation of any such plan. None of the Parent, the Borrower or any member of
its Controlled Group has engaged in any non-exempt prohibited transactions,
within the meaning of Section 406 or Section 4.08 of ERISA or Section 4975 of
the Code, in connection with any Plan. None of the Parent, the Borrower or any
member of its Controlled Group has incurred or reasonably expects to incur (A)
any liability under Title IV of ERISA (other than premiums due under Section
4007 of ERISA to the PBGC), (B) any withdrawal liability (and no event has
occurred which with the giving of notice under Section 4219 of ERISA would
result in such liability) under Section 4201 of ERISA as a result of a complete
or partial withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from
a Multiemployer Plan, or (C) any liability under Section 4062 of ERISA to the
PBGC or to a trustee appointed under Section 4042 of ERISA. None of the Parent,
the Borrower, any member of its Controlled Group, or any organization to which
the Borrower or any member of its Controlled Group is a successor or parent
corporation within the meaning of ERISA Section 4069(b), has engaged in a
transaction within the meaning of ERISA Section 4069. None of the Borrower or
any member of its Controlled Group maintains or has established any welfare
benefit plan within the meaning of Section 3(1) of ERISA which provides for
continuing benefits or coverage for any participant or any beneficiary of any
participant after such participant's termination of employment except as may be
required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and the regulations thereunder, and at the expense of the
participant or the beneficiary of the participant, or retiree medical
liabilities. Each of the Borrower and its Controlled Group which maintains a
welfare benefit plan within the meaning of Section 3(1) of ERISA has complied in
all material respects with any applicable notice and continuation requirements
of COBRA and the regulations thereunder.
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(m) The Borrower is not engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or
carrying any margin stock within the meaning of Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System, and no part of the proceeds of
the Advances will be used to purchase or carry any margin stock (as defined by
Regulation U) or to extend credit to others for the purpose of purchasing or
carrying any margin stock. Not more than 25% of the assets of any of the
Parent, the Borrower or any of its Subsidiaries are margin stock (as defined by
Regulation U), and none of the Pledged Stock or other Capital Stock of the
Parent, the Borrower and the Subsidiaries of the Borrower is margin stock. None
of the Borrower and its Subsidiaries, nor any agent acting on their behalf, have
taken or will knowingly take any action which might cause this Agreement or any
Loan Papers to violate any regulation of the Board of Governors of the Federal
Reserve System or to violate the Exchange Act, in each case as in effect now or
as the same may hereafter be in effect.
(n) The Parent, the Borrower and its Subsidiaries are in compliance with
all of the provisions of their articles of incorporation and by-laws. As of the
Closing Date, no event has occurred or failed to occur, which has not been
remedied or waived, the occurrence or non-occurrence of which constitutes, or
which with the passage of time or giving of notice or both would constitute, (i)
an Event of Default or (ii) a default by the Parent, the Borrower or any of its
Subsidiaries under any material contract, or other material indenture, agreement
or other instrument, or any judgment, decree or order to which the Borrower or
any of its Subsidiaries is a party or by which they or any of their material
Properties is bound. On each date after the Closing Date on which this
representation is deemed to be made, no event has occurred or failed to occur,
which has not been remedied or waived, the occurrence or non-occurrence of which
constitutes, or which with the passage of time or giving of notice or both would
constitute, (i) an Event of Default or (ii) a default by the Parent, the
Borrower or any of its Subsidiaries under any material contract or other
material indenture, agreement or other instrument, or any judgment, decree or
order to which the Parent, the Borrower or any of its Subsidiaries is a party or
by which they or any of their material Properties is bound, that could
reasonably be expected to cause a Material Adverse Change.
(o) The Borrower is not required to register under the provisions of the
Investment Company Act of 1940, as amended. Neither the entering into or
performance by the Borrower of this Agreement nor the issuance of the Notes
violates any provision of such act or requires any consent, approval, or
authorization of, or registration with, the Securities and Exchange Commission
or any other governmental or public body of authority pursuant to any provisions
of such act.
(p) On the Closing Date, none of the Parent, the Borrower nor any
Subsidiary of the Borrower has any actual knowledge or reason to believe that
any substance deemed hazardous by any applicable Environmental Law, has been
installed on any real property now owned by the Parent, the Borrower or any of
its Subsidiaries, except (i) for hazardous substances the presence of which is
not in violation of law and (ii) as disclosed to the Lenders. On each date
after the Closing Date on which this representation is deemed to be made, none
of the Parent,
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the Borrower nor any Subsidiary of the Borrower has any actual knowledge or
reason to believe that any substance deemed hazardous by any applicable
Environmental Law, has been installed in violation of law on any real property
now owned by the Parent, the Borrower or any of its Subsidiaries except as
disclosed to the Lenders and which could not, in the reasonable judgment of the
Borrower, cause a Material Adverse Change. As of the Closing Date, the Parent,
the Borrower and its Subsidiaries are not in violation of or subject to any
existing, pending or, to the best of the Borrower's knowledge, threatened
investigation or inquiry by any governmental authority or to any material
remedial obligations under any applicable Environmental Laws, and this
representation and warranty would continue to be true and correct following
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to any real property of the
Parent, the Borrower and its Subsidiaries. On each date after the Closing Date
on which this representation is deemed to be made, the Parent, the Borrower and
its Subsidiaries are not in violation of or subject to any existing, pending or,
to the best of the Borrower's knowledge, threatened investigation or inquiry by
any governmental authority or to any material remedial obligations under any
applicable Environmental Laws which could cause a Material Adverse Change, and
this representation and warranty would continue to be true and correct following
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to any real property of the
Parent, the Borrower and its Subsidiaries. The Parent, the Borrower and its
Subsidiaries are not required to obtain any permits, Licenses or similar
authorizations to construct, occupy, operate or use any buildings, improvements,
fixtures, and equipment forming a part of any real property of the Parent, the
Borrower or any Subsidiary of the Borrower by reason of any applicable
Environmental Laws, except those that have been obtained. As of the Closing
Date, the Parent, Borrower and its Subsidiaries have no actual knowledge or
reason to believe, after reasonable investigation, that any hazardous substances
or solid wastes have been disposed of or otherwise released on or to the real
property of the Borrower or any of its Subsidiaries in violation of any
applicable Environmental Law. On each date after the Closing Date on which this
representation is deemed to be made, the Borrower and its Subsidiaries have no
actual knowledge or reason to believe, that any hazardous substances or solid
wastes have been disposed of or otherwise released on or to the real property of
the Parent, the Borrower or any of its Subsidiaries, within the meaning of the
applicable Environmental Laws, except as disclosed to the Lenders and which such
disposal or release could not cause a Material Adverse Change.
(q) On the Closing Date, there is no Litigation, or, to the best of the
Borrower's knowledge, threatened Litigation or pending or threatened claim of
breach or default, with respect to any material contract, or any loan agreement
or document evidencing any Debt for Borrowed Money of the Parent, the Borrower,
or its Subsidiaries that has not been disclosed in writing to the Lenders.
(r) All Pledged Stock has been duly authorized and validly issued, and
is fully paid and nonassessable. The Capital Stock described on Schedule 5.01(r)
----------------
hereto constitutes all the issued and outstanding Capital Stock of the Borrower
and the Subsidiaries of the Borrower or the Subsidiaries of another Subsidiary
of the Borrower, except such shares that have been issued after the Closing
Date, pledged to the Administrative Lender to secure the Obligations and
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delivered to the Administrative Lender together with stock powers executed in
blank. No Person has conversion rights with respect to, or any subscription
rights, calls, commitments or claims of any character for, or any repurchase or
redemption options relating to, the Pledged Stock, other than those that have
been waived. The Pledged Stock when issued or sold, was either (i) registered
or qualified under applicable federal or state securities laws, or (ii) exempt
therefrom.
(s) No broker's, finder's or other fee or commission will be payable by
the Borrower (other than to the Lenders hereunder) with respect to the making of
the Commitment or the Advances hereunder. The Borrower agrees to indemnify and
hold harmless the Administrative Lender and each Lender from and against any
claims, demand, liability, proceedings, costs or expenses asserted with respect
to or arising in connection with any such fees or commissions.
(t) No event has occurred which permits (or with the passage of time
would permit) the revocation or termination of any material License, which could
result in the imposition of any restriction thereon of such a nature that could
reasonably be expected to cause a Material Adverse Change.
(u) To the best knowledge of the Borrower, as of the Closing Date, the
Parent, the Borrower and its Subsidiaries have obtained all material patents,
trademarks, service-marks, trade names, copyrights, Licenses and other rights,
free from burdensome restrictions, that are necessary for the operation of their
business as presently conducted and as proposed to be conducted. On each date
after the Closing Date on which this representation is deemed to be made, the
Parent, the Borrower and its Subsidiaries have obtained all patents, trademarks,
service-marks, trade names, copyrights, Licenses and other rights, free from
burdensome restrictions, that are necessary for the operation of their business
as presently conducted and as proposed to be conducted, except those, the
failure of which to obtain could not be reasonably expected to cause a Material
Adverse Change. Nothing has come to the attention of the Parent, the Borrower
or any of its Subsidiaries to the effect that (i) any process, method, part or
other material presently contemplated to be employed by the Parent, the Borrower
or any Subsidiary of the Borrower may infringe any patent, trademark, service-
mark, trade name, copyright, License or other right owned by any other Person,
or (ii) there is pending or overtly threatened any claim or Litigation against
or affecting the Parent, the Borrower or any Subsidiary of the Borrower
contesting its right to sell or use any such process, method, part or other
material, which could reasonably be expected to cause a Material Adverse Change.
(v) Neither this Agreement nor any other document, certificate or
statement which has been furnished to any Lender by or on behalf of the Parent,
the Borrower or any Subsidiary of the Borrower in connection herewith contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statement contained herein and therein not
misleading at the time it was furnished. On the Closing Date, there is no fact
known to the Parent or the Borrower and not known to the public generally that
could reasonably be expected to cause a Material Adverse Change, which has not
been set forth in this Agreement or in the documents, certificates and
statements furnished to the Lenders by or on behalf of the Borrower prior to the
date hereof in connection with the transaction contemplated hereby. On
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<PAGE>
each date after the Closing Date on which this representation is deemed to be
made, there is no fact known to the Parent or the Borrower and not known to the
public generally that could reasonably be expected to cause a Material Adverse
Change, which has not been disclosed to the Lenders in writing.
(w) The Parent is not, the Borrower is not, nor is any Subsidiary of the
Borrower, a party to any contractual relationship which is breached or in
default solely as a result of any change in the ownership, management or Board
of Directors of the Parent or the Borrower, unless the Borrower has agreed to a
substantially similar provision in this Agreement.
5.02. Survival of Representations and Warranties. All representations and
warranties made under this Agreement and the other Loan Papers shall be deemed
to be made at and as of the Closing Date and at and as of the date of each
Advance, and each shall be true and correct in all material respects when made.
All such representations and warranties shall survive, and not be waived by, the
execution hereof by any Lender, any investigation or inquiry by any Lender, or
by the making of any Advance under this Agreement.
ARTICLE VI. GENERAL COVENANTS
So long as any of the Obligations are outstanding and unpaid or the
Commitment or any Letter of Credit is outstanding (whether or not the conditions
to borrowing have been or can be fulfilled):
6.01. Preservation of Existence and Similar Matters.
(a) The Borrower shall, and shall cause the Parent and each Subsidiary
of the Borrower to, preserve and maintain, or timely obtain and thereafter
preserve and maintain (i) material rights, franchises, authorizations, consents,
privileges and all other material Licenses from federal, state and local
governmental bodies and any Tribunal (regulatory or otherwise) which the Parent
or the Borrower or such Subsidiary deems reasonably necessary or advisable to
conduct its business in the ordinary course, and (ii) its existence (except as
permitted by Section 8.05 hereof); and
(b) The Borrower shall, and shall cause the Parent and each Subsidiary
of the Borrower to, qualify and remain qualified and authorized to do business
in each jurisdiction in which the character of its Properties or the nature of
its business requires such qualification or authorization, except where the
failure to do so could not cause a Material Adverse Change.
6.02. Business; Compliance with Applicable Law. The Parent, the Borrower
and its Subsidiaries shall (a) engage primarily in the business of
telecommunications, and activities related thereto, and (b) comply in all
material respects with the requirements of all Applicable Law.
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6.03. Maintenance of Properties. The Borrower shall, and shall cause the
Parent and each Subsidiary of the Borrower to, maintain or cause to be
maintained all their material Properties necessary to the conduct of their
business (whether owned or held under lease) in reasonably good repair, working
order and condition, taken as a whole, and from time to time make or cause to be
made all appropriate repairs, renewals, replacements, additions, betterments and
improvements thereto.
6.04. Accounting Methods and Financial Records. The Borrower shall, and
shall cause the Parent and each Subsidiary of the Borrower to, maintain a system
of accounting established and administered in accordance with GAAP, keep
adequate records and books of account in which complete entries will be made and
all transactions reflected in accordance with GAAP, and keep accurate and
complete records of its respective assets. The Parent, the Borrower and each of
its Subsidiaries shall maintain a fiscal year ending on December 31.
6.05. Insurance. The Borrower shall, and shall cause the Parent and each
Subsidiary of the Borrower to, maintain insurance from responsible companies in
such amounts and against such risks as shall be customary and usual in the
industry for companies of similar size and capability, but in no event less than
the amount and types insured as of the Closing Date; provided, however, the
Borrower, the Parent and each Subsidiary may self-insure its outside plant
physical facilities, consisting of the fiber optic cable network. Each
insurance policy shall name the Administrative Lender as additional insured and
provide for at least 30 days' prior notice to the Administrative Lender of any
proposed termination or cancellation of such policy, whether on account of
default or otherwise.
6.06. Payment of Taxes and Claims. The Borrower shall, and shall cause
the Parent and each Subsidiary of the Borrower to, pay and discharge all Taxes,
assessments and governmental charges or levies imposed upon it or its income or
Properties prior to the date on which penalties attach thereto, and all lawful
material claims for labor, materials and supplies which, if unpaid, might become
a Lien upon any of their Properties, except those Taxes, assessments and charges
contested by the Borrower diligently in good faith, and for which adequate
reserves have been established in accordance with GAAP. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, timely file all information
returns required by federal, state or local Tax authorities.
6.07. Visits and Inspections. The Borrower shall, and shall cause the
Parent and each Subsidiary of the Borrower to, promptly, permit representatives
of the Administrative Lender or any Lender from time to time, upon prior notice
reasonable under the circumstances, to (a) visit and inspect the Properties of
the Parent, the Borrower and each Subsidiary of the Borrower as often as the
Administrative Lender or any Lender shall deem advisable, (b) inspect and make
extracts from and copies of the Parent's, Borrower's and each Subsidiary of the
Borrower's books and records, and (c) discuss with the Parent's, the Borrower's
and each Subsidiary of the Borrower's directors, officers, employees and, after
notice to the Borrower, the auditors of the Parent and the Borrower, its
business, assets, liabilities, financial positions, results of operations and
business prospects.
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6.08. Payment of Debt for Borrowed Money. The Borrower shall, and shall
cause the Parent and each Subsidiary of the Borrower to, pay its Debt for
Borrowed Money when and as the same becomes due.
6.09. Use of Proceeds. The Borrower shall use the proceeds of Advances
solely (a) for Permitted Acquisitions, (b) for Capital Expenditures permitted
under the terms of this Agreement, (c) for working capital and (d) for other
lawful corporate purposes.
6.10. Indemnity.
(a) The Borrower agrees to defend, protect, indemnify and hold harmless
the Administrative Lender, each Lender, each of their respective Affiliates, and
each of their respective (including such Affiliates') officers, directors,
employees, agents, attorneys, shareholders and consultants (including, without
limitation, those retained in connection with the satisfaction or attempted
satisfaction of any of the conditions set forth herein) of each of the foregoing
(collectively, "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees (whether
direct, indirect or consequential and whether based on any federal, state, or
local laws and regulations), under common law or at equitable cause, or on
contract, tort or otherwise, arising from or connected with the past, present or
future operations of the Borrower or its predecessors in interest, in any manner
relating to or arising out of this Agreement, the Loan Papers, or any act, event
or transaction or alleged act, event or transaction relating or attendant
thereto, the making of any participations in the Advances and the management of
the Advances, including in connection with, or as a result, in whole or in part,
of any negligence of Administrative Lender or any Lender (other than those
matters raised exclusively by a participant against the Administrative Lender or
any Lender and not the Borrower), or the use or intended use of the proceeds of
the Advances hereunder, or in connection with any investigation of any potential
matter covered hereby, but excluding any claim or liability that arises as the
result of the gross negligence or willful misconduct of any Indemnitee, as
finally judicially determined by a court of competent jurisdiction
(collectively, the "Indemnified Matters").
(b) In addition, the Borrower shall periodically, upon request,
reimburse each Indemnitee for its reasonable legal and other actual expenses
(including the cost of any investigation and preparation) incurred in connection
with any Indemnified Matter. If for any reason the foregoing indemnification is
unavailable to any Indemnitee or insufficient to hold any Indemnitee harmless
with respect to Indemnified Matters, then the Borrower shall contribute to the
amount paid or payable by such Indemnitee as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the Borrower and the Borrower's stockholders on
the one hand and such Indemnitee on the other hand but also the relative fault
of the Borrower and such Indemnitee, as well as any other
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<PAGE>
relevant equitable considerations. The reimbursement, indemnity and
contribution obligations under this Section shall be in addition to any
liability which the Borrower may otherwise have, shall extend upon the same
terms and conditions to each Indemnitee, and shall be binding upon and inure to
the benefit of any successors, assigns, heirs and personal representatives of
the Borrower, the Administrative Lender, the Lenders and all other Indemnitees.
This Section shall survive any termination of this Agreement and payment of the
Obligations.
6.11. Environmental Law Compliance. The use which the Parent, the
Borrower or any Subsidiary of the Borrower intends to make of any real Property
owned by it will not result in the disposal or other release of any hazardous
substance or solid waste on or to such real Property in violation of any
Environmental Law. As used herein, the terms "hazardous substance" and "release"
as used in this Section shall have the meanings specified in CERCLA (as defined
in the definition of applicable Environmental Laws), and the terms "solid waste"
and "disposal" shall have the meanings specified in RCRA (as defined in the
definition of applicable Environmental Laws); provided, however, that if CERCLA
or RCRA is amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date of such
amendment; and provided further, to the extent that any other law applicable to
the Parent, the Borrower, any Subsidiary of the Borrower or any of their
Properties establishes a meaning for "hazardous substance," "release," "solid
waste," or "disposal" which is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply. The Borrower agrees to indemnify and
hold the Administrative Lender and each Lender harmless from and against, and to
reimburse them with respect to, any and all claims, demands, causes of action,
loss, damage, liabilities, costs and expenses (including reasonable attorneys'
fees and courts costs) of any kind or character, known or unknown, fixed or
contingent, asserted against or incurred by any of them at any time and from
time to time by reason of or arising out of (a) the failure of the Parent, the
Borrower or any Subsidiary of the Borrower to perform any obligation hereunder
regarding asbestos or applicable Environmental Laws, (b) any violation on or
before the Release Date of any applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real Property or release from such real Property
of hazardous substances or solid wastes disposed of or otherwise released on or
prior to the Release Date), resulting from or in connection with the ownership
of the real Property, regardless of whether the act, omission, event or
circumstance constituted a violation of any applicable Environmental Law at the
time of its existence or occurrence, or whether the act, omission, event or
circumstance is caused by or relates to the negligence of any indemnified
Person; provided, that the Borrower shall not be under any obligation to
indemnify the Administrative Lender or any Lender to the extent that any such
liability arises as the result of the gross negligence or willful misconduct of
such Person, as finally judicially determined by a court of competent
jurisdiction. The provisions of this paragraph shall survive the Release Date
and shall continue thereafter in full force and effect.
6.12. Acquisitions, Generally. In connection with any Permitted
Acquisition made by the Parent, the Borrower or any Subsidiary of the Borrower
during the term of this Agreement, the Borrower shall or shall cause the Parent
or such Subsidiary to, (a) not less than ten Business
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Days prior to the proposed acquisition date, deliver to Administrative Lender a
detailed written description of the proposed Permitted Acquisition in form
reasonably acceptable to the Administrative Lender, and (b) prior to the
consummation of the acquisition a statement certified by an Authorized Officer
that (i) the proposed transaction complies with the definition of Permitted
Acquisition set forth in Article I hereof and with the terms and conditions set
forth in Section 8.05(b) and/or, to the extent applicable, Section 8.05(d)
hereof, and (ii) no Default or Event of Default exists prior to or after giving
effect to any requested Advance or the consummation of such acquisition, or will
exist upon consummation of the proposed acquisition and related borrowings and
transactions, together with a Compliance Certificate computed after giving
effect to such acquisition and borrowings.
ARTICLE VII. INFORMATION COVENANTS
So long as any of the Obligations are outstanding and unpaid or the
Commitment or any Letter of Credit is outstanding (whether or not the conditions
to borrowing have been or can be fulfilled), the Borrower shall furnish or cause
to be furnished to each Lender:
7.01. Quarterly Financial Statements and Information. Within 45 days
after the end of each fiscal quarter, consolidated and consolidating balance
sheets of the Parent, the Borrower and its Subsidiaries as at the end of such
quarter and the related consolidated and consolidating statements of income and
consolidated statements of changes in cash for such quarter and for the elapsed
portion of the year ended with the last day of such quarter, all of which shall
be certified by an Authorized Officer, to, in his or her opinion, present fairly
in all material respects, in accordance with GAAP, the financial position and
results of operations of the Parent, the Borrower and its Subsidiaries as at the
end of and for such period, and for the elapsed portion of the year ended with
the last day of such period.
7.02. Annual Financial Statements and Information; Certificate of No
Default.
(a) Within 120 days after the end of each fiscal year, a copy of (i) the
consolidated balance sheet of the Parent, the Borrower and its Subsidiaries, as
of the end of the current and prior fiscal years and (ii) consolidated
statements of earnings, statements of changes in shareholders' equity, and
statements of changes in cash as of and through the end of such fiscal year, all
of which are prepared in accordance with GAAP, and certified by independent
certified public accountants acceptable to the Lenders, whose opinion shall be
in scope and substance in accordance with generally accepted auditing standards
and shall be unqualified.
(b) As soon as available, but in any event within 60 days following the
end of each fiscal year, a copy of the annual consolidated operating budget of
the Parent, the Borrower and its Subsidiaries for the succeeding fiscal year.
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7.03. Compliance Certificates. At the time financial statements are
furnished pursuant to Section 7.01 and Section 7.02 hereof, a duly completed
Compliance Certificate evidencing no Default or Event of Default.
7.04. Copies of Other Reports and Notices.
(a) Promptly upon their becoming available, a copy of (i) all material
reports or letters submitted to the Parent, the Borrower or any Subsidiary of
the Borrower by accountants in connection with any annual, interim or special
audit, including without limitation any report prepared in connection with the
annual audit referred to in Section 7.02 hereof, and any other comment letter
submitted to management in connection with any such audit, (ii) each financial
statement, report, notice or proxy statement sent by the Parent, the Borrower or
any Subsidiary of the Borrower to stockholders generally, (iii) each regular or
periodic report and any registration statement or prospectus (or material
written communication in respect of any thereof) filed by the Parent, the
Borrower or any Subsidiary of the Borrower with any securities exchange, with
the Securities and Exchange Commission or any successor agency, and (iv) all
press releases concerning material financial aspects of the Parent, the Borrower
or any Subsidiary of the Borrower;
(b) Promptly upon becoming aware that (i) the holder(s) of any note(s)
or other evidence of indebtedness or other security of the Parent, the Borrower
or any Subsidiary of the Borrower in excess of $250,000 in the aggregate has
given notice or taken any action with respect to a breach, failure to perform,
claimed default or event of default thereunder, (ii) any occurrence or non-
occurrence of any event which constitutes or which with the passage of time or
giving of notice or both could constitute a material breach by the Parent, the
Borrower or any Subsidiary of the Borrower under any material agreement or
instrument other than this Agreement to which the Parent, the Borrower or any
Subsidiary of the Borrower is a party or by which any of their Properties may be
bound, or (iii) any event, circumstance or condition which could reasonably be
expected to cause a Material Adverse Change, a written notice specifying the
details thereof (or the nature of any claimed default or event of default) and
what action is being taken or is proposed to be taken with respect thereto;
(c) Promptly upon receipt thereof, information with respect to and
copies of any notices received from the FCC, any applicable PUC or any other
federal, state or local regulatory agencies or any tribunal relating to any
order, ruling, law, information or policy that relates to a breach of or
noncompliance with the Communications Act or any law, rule or regulation of any
applicable PUC, or might result in the payment of money by the Parent, the
Borrower or any Subsidiary of the Borrower in an amount of $250,000 or more in
the aggregate, or otherwise cause a Material Adverse Change, or result in the
loss or suspension of any material License or any material contract;
(d) Promptly upon the knowledge of an Authorized Officer of receipt by
the Parent, the Borrower or any Subsidiary of the Borrower from any governmental
agency, or any government, political subdivision or other entity, of any
material notice, correspondence,
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hearing, proceeding or order regarding or affecting the Parent, the Borrower,
any Subsidiary of the Borrower, or any of their Properties or businesses not in
the ordinary course of business, a copy of such notice, correspondence, hearing,
proceeding or order; and
(e) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results of
operations or business prospects of the Parent, the Borrower and its
Subsidiaries that is within the Borrower's control, as the Administrative Lender
or any Lender may reasonably request.
7.05. Notice of Litigation, Default and Other Matters. Prompt notice of
the following events after the Borrower has knowledge or notice thereof:
(a) The commencement of all proceedings and investigations by or before
the FCC, any applicable PUC, or any other governmental body, and all other
actions and proceedings in any court or before any arbitrator involving claims
for damages (including punitive damages) in excess of either $1,000,000 for any
one proceeding or investigation, or $5,000,000 in the aggregate for all such
proceedings and investigations (after deducting the amount with respect to the
Parent, the Borrower or any Subsidiary of the Borrower is insured), against or
in any other way relating directly to the Parent, the Borrower, any Subsidiary
of the Borrower, or any of their Properties or businesses;
(b) Promptly upon the happening of any condition or event which
constitutes a Default, a written notice specifying the nature and period of
existence thereof and what action is being taken or is proposed to be taken with
respect thereto; and
(c) Any event which could cause a Material Adverse Change with respect
to the business, assets, liabilities, financial position, results of operations
or prospective business of the Parent, the Borrower or any Subsidiary of the
Borrower.
7.06. ERISA Reporting Requirements.
(a) Promptly and in any event (i) within 30 days after the Parent, the
Borrower or any member of its Controlled Group knows or has reason to know that
any ERISA Event described in clause (a) of the definition of ERISA Event or any
event described in Section 4063(a) of ERISA with respect to any Plan of the
Parent, the Borrower or any member of its Controlled Group has occurred, and
(ii) within 10 days after the Parent, the Borrower or any member of its
Controlled Group knows or has reason to know that any other ERISA Event with
respect to any Plan of the Parent, the Borrower or any member of its Controlled
Group has occurred or a request for a minimum funding waiver under Section 412
of the Code with respect to any Plan of the Parent, the Borrower or any member
of its Controlled Group, a written notice describing such event and describing
what action is being taken or is proposed to be taken with respect thereto,
together with a copy of any notice of event that is given to the PBGC;
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(b) Promptly and in any event within two Business Days after receipt
thereof by the Parent, the Borrower or any member of its Controlled Group from
the PBGC, copies of each notice received by the Parent, the Borrower or any
member of its Controlled Group of the PBGC's intention to terminate any Plan or
to have a trustee appointed to administer any Plan;
(c) Promptly and in any event within 30 days after the filing thereof by
the Parent, the Borrower or any member of its Controlled Group with the United
States Department of Labor, the Internal Revenue Service or the PBGC, copies of
each annual and other report (including Schedule B thereto) with respect to each
Plan;
(d) Promptly and in any event within 30 days after receipt thereof, a
copy of any notice, determination letter, ruling or opinion the Parent, the
Borrower or any member of its Controlled Group receives from the PBGC, the
United States Department of Labor or the Internal Revenue Service with respect
to any Plan;
(e) Promptly, and in any event within 10 Business Days after receipt
thereof, a copy of any correspondence the Parent, the Borrower or any member of
its Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Parent, the Borrower or such member of its Controlled
Group setting forth details as to the events giving rise to such potential
withdrawal liability and the action which the Parent, the Borrower or such
member of its Controlled Group is taking or proposes to take with respect
thereto;
(f) Notification within 30 days of any material increases in the
benefits of any existing Plan which is not a Multiemployer Plan, or the
establishment of any new Plans, or the commencement of contributions to any Plan
to which the Parent, the Borrower or any member of its Controlled Group was not
previously contributing;
(g) Notification within three Business Days after the Parent, the
Borrower or any member of its Controlled Group knows or has reason to know that
the Parent, the Borrower or any such member of its Controlled Group has or
intends to file a notice of intent to terminate any Plan under a distress
termination within the meaning of Section 4041(c) of ERISA and a copy of such
notice; and
(h) Promptly after receipt of written notice of commencement thereof,
notice of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Parent, the Borrower or any member of its Controlled
Group with respect to any Plan.
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ARTICLE VIII. NEGATIVE COVENANTS
So long as any of the Obligations are outstanding and unpaid or the
Commitment or any Letter of Credit is outstanding (whether or not the conditions
to borrowing have been or can be fulfilled):
8.01. Financial Covenants.
(a) Total Leverage Ratio. The Borrower shall not permit the Total
Leverage Ratio at any time during the term of this Agreement to be more than the
following ratios during the following time periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From the Closing Date through June 30, 1998 9.50 to 1.00
From July 1, 1998 through June 30, 1999 8.75 to 1.00
From July 1, 1999 through June 30, 2000 7.50 to 1.00
From July 1, 2000 through June 30, 2001 6.00 to 1.00
From July 1, 2001 and thereafter 4.50 to 1.00
<CAPTION>
(b) Senior Leverage Ratio. The Borrower shall not permit the Senior
Leverage Ratio at any time during the term of this Agreement to be more than the
following ratios during the following time periods:
Period Ratio
------ -----
<S> <C>
From the Closing Date through June 30, 1999 2.75 to 1.00
From July 1, 1999 and thereafter 2.25 to 1.00
<CAPTION>
(c) Interest Coverage Ratio. The Borrower shall not permit the
Interest Coverage Ratio at any time during the term of this Agreement to be less
than the following ratios during the following time periods:
Period Ratio
------ -----
<S> <C>
From the Closing Date through June 30, 2000 3.75 to 1.00
From July 1, 2000 and thereafter 1.75 to 1.00
</TABLE>
(d) Capital Expenditures. The Borrower shall not permit Capital
Expenditures made by the Parent, the Borrower and its Subsidiaries for each
fiscal year of the Borrower to exceed the amounts set forth below for below for
each fiscal year; provided, that (i) to the extent that less than such amount
was used by the Borrower for Capital Expenditures for any fiscal year, Borrower
or its Subsidiaries may increase the limitation on Capital Expenditures for the
immediately succeeding fiscal year by the amount of such unused amount (and only
for the
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immediately succeeding fiscal year); (ii) during the fiscal year 1997 only and
after receipt by the Administrative Lender of prior written notice from the
Borrower of its election to do so, the Borrower may elect to both (A) reduce the
1998 limitation set forth below by $8,000,000 and (B) increase the 1997
limitation set forth below by $8,000,000; and (iii) to the extent that Borrower
issues equity in accordance with the terms hereof, the amount of net proceeds
from such equity issuance that is not required to be used to prepay Obligations
or reduce the Commitment under this Agreement in accordance with the terms of
Sections 2.05 or 2.11 hereof may be used by the Borrower for Capital
Expenditures in excess of the limitations set forth below over the term of this
Agreement.
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
For the Fiscal Year 1997 $57,650,600
For the Fiscal Year 1998 $57,150,000
For the Fiscal Year 1999 $34,800,000
For the Fiscal Year 2000 $40,400,000
For the Fiscal Year 2001 $41,100,000
For the Fiscal Year 2002 $36,750,000
<CAPTION>
(e) Minimum Operating Cash Flow. The Borrower shall not permit the
Operating Cash Flow of the Parent, the Borrower and its Subsidiaries for the
most recently completed Fiscal Year to be less than the following amounts for
the following fiscal years:
Period Amount
------ ------
<S> <C>
For the Fiscal Year 1997 $16,700,000
For the Fiscal Year 1998 $21,700,000
For the Fiscal Year 1999 $36,700,000
For the Fiscal Year 2000 $52,800,000
For the Fiscal Year 2001 $77,800,000
For the Fiscal Year 2002 $92,000,000
</TABLE>
8.02. Debt for Borrowed Money. The Borrower shall not, and shall not
permit the Parent or any Subsidiary of the Borrower to, create, assume, incur or
otherwise become or remain obligated in respect of, or permit to be outstanding,
or suffer to exist any Debt for Borrowed Money, except:
(a) with respect to the Parent, the Borrower and its Subsidiaries, Debt
for Borrowed Money under the Loan Papers;
(b) with respect to the Parent, the Borrower and its Subsidiaries, Debt
for Borrowed Money in existence on the Closing Date described on Schedule 8.02
-------------
hereto and not otherwise permitted pursuant to this Section 8.02 in the
principal amounts and as such Debt for Borrowed Money exists as of the Closing
Date or as exchanged in connection with the Parent's
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<PAGE>
$200,000,000 Offer to Exchange all outstanding 11% Senior Notes due June 1, 2007
for 11% Senior Notes Due June 1, 2007 scheduled to commence on December 1, 1997;
(c) with respect to the Parent, the Senior Notes; and
(d) provided that no Default or Event of Default exists or would result
from the incurrence thereof, with respect to the Borrower and the wholly owned
Subsidiaries of the Borrower, Debt owed to each other.
8.03. Liens. The Borrower shall not, and shall not permit the Parent or
any Subsidiary of the Borrower to, create, assume, incur, permit or suffer to
exist, directly or indirectly, any Lien on any of its assets or Properties,
whether now owned or hereafter acquired, except Permitted Liens. The Borrower
shall not, and shall not permit the Parent or any Subsidiary of the Borrower to,
agree with any other Person that it shall not create, assume, incur, permit or
suffer to exist or to be created, assumed, incurred or permitted to exist,
directly or indirectly, any Lien on any of its assets or Properties.
8.04. Investments. The Borrower shall not, and shall not permit the
Parent or any Subsidiary of the Borrower to, make any Investment, except that
the Borrower may purchase or otherwise acquire and own:
(a) Marketable, direct obligations of, or guaranteed by, the United
States of America and maturing within 365 days of the date of purchase;
(b) Commercial paper issued by U.S. corporations that have a rating of
A-1/P-1 or better by Standard & Poor's Ratings Group, a Division of McGraw-Hill,
Inc. or Moody's Investors Service, Inc.;
(c) Certificates of deposit of domestic banks maturing within 365 days
of the date of purchase, which banks' debt obligations have one of the two
highest ratings obtainable from Standard & Poor's Ratings Group, a Division of
McGraw-Hill, Inc. or Moody's Investors Service, Inc.;
(d) Securities issued by U.S. corporations that have one of the two
highest ratings obtainable from Standard & Poor's Ratings Group, a Division of
McGraw-Hill, Inc. or Moody's Investors Service, Inc.;
(e) Investments in acquisitions permitted by Section 8.05(b) hereof, so
long as (i) the Capital Stock of each new Subsidiary is pledged to the Lenders
to secure the Obligations pursuant to a pledge agreement substantially identical
in form and substance to the Pledge Agreement, and (ii) each new Subsidiary of
the Borrower (A) is subject to the provisions hereof, (B) immediately becomes a
party to an Unlimited Guaranty and (C) grants a Lien and security interest in
all such assets and Properties of such new Subsidiary of the type already
constituting Collateral hereunder and as requested by the Majority Lenders,
pursuant to security documents
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<PAGE>
required by the Administrative Lender substantially in the form of those already
constituting Loan Papers;
(f) Accounts receivable that arise in the ordinary course of business
and are payable on standard terms; and
(g) Investments in existence on the Closing Date described on Schedule
--------
8.04 hereto.
- ----
8.05. Liquidation, Disposition or Acquisition of Assets, Merger, New
Subsidiaries. The Borrower shall not, and shall not permit the Parent or any
Subsidiary of the Borrower to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up; or sell, lease, abandon, transfer or
otherwise dispose of all or any part of its assets, Properties or business
(other than in the ordinary course of business and other than assets that are
damaged or obsolete), provided that, (i) after delivery of prior written notice
to the Administrative Lender, any Subsidiary of the Borrower can be dissolved so
long as a wholly owned Subsidiary of the Borrower that has executed an Unlimited
Guaranty acquires all such Subsidiary's assets, and (ii) after delivery of prior
written notice to the Administrative Lender, any wholly owned direct or indirect
Subsidiary of the Borrower that has executed an Unlimited Guaranty of the
Obligations hereunder may sell or transfer assets, Property or business to any
other wholly owned indirect or indirect Subsidiary of the Borrower that has
executed an Unlimited Guaranty of the Obligations hereunder;
(b) acquire any assets, Property or business of any other Person, or
participate in any joint venture, except (i) the Borrower and the Subsidiaries
of the Borrower may acquire assets and Property acquired in the ordinary course
of business, (ii) provided that no Default or Event of Default exists both
before and after giving effect to such acquisition, and Borrower complies fully
with Sections 6.12, 8.04(e) and 8.05(d) hereof, Permitted Acquisitions may be
consummated if either (I) (A) the total purchase price for any one such
acquisition is less than $10,000,000, and (B) the aggregate purchase price for
all such Permitted Acquisitions over the term of the Agreement is less than
$25,000,000, or (II) the Majority Lenders give their prior written approval to
such acquisition, and (iii) after delivery of prior written notice to the
Administrative Lender, any wholly owned direct or indirect Subsidiary of the
Borrower that has executed an Unlimited Guaranty of the Obligations hereunder
may acquire assets, Property or business from any other wholly owned indirect or
indirect Subsidiary of the Borrower that has executed an Unlimited Guaranty of
the Obligations hereunder;
(c) enter into any merger or consolidation, except that, so long as
there exists no Default or Event of Default and none is caused thereby (i) after
delivery of prior written notice to the Administrative Lender, any wholly owned
Subsidiary of the Borrower can merge or consolidate into any other wholly owned
Subsidiary of the Borrower, or so long as such transaction is in connection with
a Permitted Acquisition, into another Person, so long as a wholly owned
Subsidiary of the Borrower which has executed an Unlimited Guaranty is a
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<PAGE>
survivor, or into the Borrower so long as the Borrower is the surviving
corporation, (ii) after delivery of prior written notice to the Administrative
Lender, another Person may be merged into the Borrower or any wholly owned
Subsidiary of the Borrower that has executed an Unlimited Guaranty in connection
with a Permitted Acquisition, so long as the Borrower or such wholly owned
Subsidiary is the surviving corporation, or (iii) (A) after delivery of prior
written notice to the Administrative Lender, ITC Holding may merge down and into
Parent so long as Parent is the survivor, and (B) at the time of such merger,
ITC Holding has divested itself of all assets other than the Capital Stock of
Parent;
(d) create or acquire any Subsidiary, except (a) as permitted by Section
8.04(e) hereof and Section 8.05(b) above, and (b) so long as (i) there exists no
Default or Event of Default both before and after giving effect to the creation
of any new wholly owned Subsidiary and the transfer of any assets to such wholly
owned Subsidiary, (ii) immediately upon the creation of any new wholly owned
Subsidiary, such Subsidiary shall become a signatory to an Unlimited Guaranty of
the Obligations delivered to the Administrative Lender, (iii) the Borrower
immediately delivers all shares of Capital Stock of the new wholly owned
Subsidiary to the Administrative Lender together with stock powers executed in
blank, and (iv) the Borrower or any Subsidiary of the Borrower owning any
portion of the Capital Stock of any such new wholly owned Subsidiary executes
and delivers to the Administrative Lender a pledge agreement pledging all such
Capital Stock to secure the Obligations in form substantially similar to the
pledge agreement executed by the Borrower on the Closing Date, the Borrower may
create a new wholly owned Subsidiary of the Borrower. Nothing in this Section
8.05(d) shall permit the Borrower or any Subsidiary of the Borrower to create
any Subsidiary that is not wholly owned.
In connection with any asset sale permitted by this Section 8.05 or otherwise
consented to by the Lenders in accordance with the terms of this Agreement, the
Administrative Lender is hereby authorized by each Lender to (i) execute any and
all releases deemed appropriate by it to release such assets of the Borrower and
the Subsidiaries of the Borrower (including, without limitation, Capital Stock
owned by the Borrower and its Subsidiaries) constituting Collateral from all
Liens and security interests securing all or any portion of the Obligations,
(ii) return to the Borrower any such Collateral in the possession of the
Administrative Lender, and (iii) take such other action as the Administrative
Lender deems necessary or appropriate in connection with such transaction and in
furtherance of the effectuation thereof.
8.06. Guaranties; Contingent Liabilities. The Borrower shall not, and
shall not permit the Parent or any Subsidiary of the Borrower to, at any time
make or issue any Guaranty, or assume, be obligated with respect to, or permit
to be outstanding any Contingent Liabilities, except pursuant to the Loan
Papers;
8.07. Restricted Payments. The Borrower shall not, and shall not permit
the Parent or any Subsidiary of the Borrower to, directly or indirectly declare,
make or pay any Restricted Payment; provided, however
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<PAGE>
(a) any wholly owned Subsidiary of the Borrower that has executed an
Unlimited Guaranty of the Obligations hereunder may declare, make and pay
Restricted Payments to the Borrower or any other wholly owned Subsidiary
that has executed an Unlimited Guaranty of the Obligations hereunder, and
(b) so long as
(i) there exists no Default or Event of Default both before and
after giving effect to any such Restricted Payment (except an Event of
Default under Section 9.01(b) hereof), and
(ii) the date any such Distribution is made is the later of (A)
June 30, 2000 and (B) such time as the balance of the Interest Reserve
Escrow Account is zero, and
(iii) each of the following is true: (A) if the payment of any
such Restricted Payment has been prohibited by subsection 8.07(b)(i)
above, then such Restricted Payment has been prohibited by subsection
8.07(b)(i) above for more than 180 consecutive days, and (B) there has
not been any Default or Event of Default under any of Section 9.01(a),
Section 9.01(f) or Section 9.01(u) hereof, and (C) the Lenders or the
Administrative Lender have not exercised their rights under Section
9.02(a) hereof, and (D) the date of such Restricted Payment is prior
to the Maturity Date,
then the Borrower may declare, make and pay Restricted Payments
constituting Dividends to the Parent in an amount not to exceed the
scheduled cash interest due and payable on the Senior Notes, and
(c) The Borrower may make Distributions to the Parent in the amount
of scheduled cash interest payments due and payable by the Parent on the
Senior Notes from funds that are in the Interest Reserve Escrow Account,
and
(d) The Parent may make payments of scheduled cash interest on the
Senior Notes (i) to the extent such payments are made from funds in the
Interest Reserve Escrow Account, and (ii) the Parent may pay scheduled cash
interest on the Senior Notes to the extent the Parent receives permitted
Distributions from the Borrower for such purpose in accordance with the
terms of Sections 8.07(b) and (c) hereof, and
(e) So long as there exists no Default or Event of Default both
before and after giving effect to any such Restricted Payments, the
Borrower may
(i) make scheduled and non-scheduled payments of interest and
principal in compliance with the terms and provisions existing on the
Closing Date on Debt described on Schedule 8.02 hereto, provided that
-------------
(A) no such payments shall
62
<PAGE>
include any premium or penalty for any reason, and (B) the Borrower
provides Administrative Lender with a pro forma Compliance Certificate
demonstrating that any non-scheduled payment will not cause a Default
or Event of Default during the following twelve consecutive months;
and
(ii) the Borrower may purchase shares of the Borrower's or Parent's
Capital Stock from any Person, provided that the aggregate purchase
price for all such purchases over the term of this Agreement shall not
exceed $5,000,000.
8.08. Affiliate Transactions. The Borrower shall not, and shall not
permit the Parent or any Subsidiary of the Borrower to, at any time engage in
any transaction with an Affiliate, nor make an assignment or other transfer of
any of its assets or Properties to any Affiliate, on terms materially less
advantageous to the Borrower or any Subsidiary of the Borrower than would be the
case if such transaction had been effected with a non-Affiliate, except (a)
those transactions described on Schedule 8.08 hereof, and (b) those immaterial
-------------
transactions in amounts less than $10,000 for any one transaction or series of
comparable transactions.
8.09. Compliance with ERISA. The Borrower shall not, and shall not permit
the Parent or any Subsidiary of the Borrower to, directly or indirectly, or
permit any member of its Controlled Group to directly or indirectly, (a)
terminate any Plan so as to result in any material (in the opinion of the
Majority Lenders) liability to the Borrower or any member of its Controlled
Group, (b) permit to exist any ERISA Event, or any other event or condition
which presents the risk of liability of the Borrower or any member of its
Controlled Group, (c) make a complete or partial withdrawal (within the meaning
of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any
liability to the Borrower or any member of its Controlled Group, (d) enter into
any new Plan or modify any existing Plan so as to increase its obligations
thereunder except in the ordinary course of business consistent with past
practice which could result in any liability to the Borrower or any member of
its Controlled Group, or (e) permit the present value of all benefit
liabilities, as defined in Title IV of ERISA, under each Plan of the Borrower or
any member of its Controlled Group (using the actuarial assumptions utilized by
the PBGC upon termination of a plan) to exceed the fair market value of Plan
assets allocable to such benefits all determined as of the most recent valuation
date for each such Plan.
8.10. Capital Stock. The Borrower shall not, and shall not permit the
Parent or any Subsidiary of the Borrower to (a) make or permit any transfer,
assignment, distribution, mortgage, pledge or gift of any shares of Pledged
Stock, except to another wholly owned direct or indirect Subsidiary of the
Borrower that has executed an Unlimited Guaranty of the Obligations and (b)
issue any Capital Stock other than (i) up to $100,000,000 in common stock of the
Parent; (ii) stock options and common stock (issued pursuant to the exercise of
any such stock options) pursuant to the 1997 Directors Stock Option Plan and the
1997 Stock Option Plan of the Parent (as both such Plans may be amended in
connection with the merger referred to in the next clause (iii)); (iii) common
and preferred stock of the Parent (and the common stock into which such
preferred stock will be convertible pursuant to the terms thereof) in exchange
for common and preferred stock of ITC Holding (in connection with the merger of
ITC Holding
63
<PAGE>
with and into the Parent) and common stock of the Parent upon the exercise of
outstanding options issued by ITC Holding; and (iv) preferred stock of the
Parent (and the common stock into which such preferred stock will be convertible
pursuant to the terms thereof) to SCANA Communications, Inc. pursuant to an
earn-out agreement described in the Offering Memorandum of the Parent dated May
29, 1997.
8.11. Sale and Leaseback. The Borrower shall not, and shall not permit
the Parent or any Subsidiary of the Borrower to, enter into any arrangement
whereby it sells or transfers any of its assets, and thereafter rents or leases
such assets.
8.12. Sale or Discount of Receivables. The Borrower shall not, and shall
not permit the Parent or any Subsidiary of the Borrower to, directly or
indirectly sell, with or without recourse, for discount or otherwise, any notes
or accounts receivable.
8.13. Limitation on Restrictive Agreements. Except those written
agreements entered into in connection with the Senior Notes and in effect on the
Closing Date, the Borrower shall not, and shall not permit the Parent or any
Subsidiary of the Borrower to, enter into any indenture, agreement, instrument,
financing document or other arrangement which, directly or indirectly, prohibits
or restrains, or has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon: (a) the incurrence of indebtedness, (b) the
granting of Liens, (c) the making or granting of Guarantees, (d) the payment of
dividends or Distributions, (e) the purchase, redemption or retirement of any
Capital Stock, (f) the making of loans or advances, (g) transfers or sales of
property or assets (including Capital Stock) by the Parent, the Borrower or any
of its Subsidiaries, (h) the making of Investments, or (h) any change of control
or management.
8.14. Amendment of Senior Notes. The Borrower shall not, and shall not
permit the Parent or any Subsidiary of the Borrower to, amend, waive or consent
to any deviation from any term or provision of any documentation or agreements
relating to the Senior Notes.
8.15. The Interest Reserve Escrow Account. The Borrower shall not, and
shall not permit the Parent or any Subsidiary of the Borrower to (i) deposit any
funds into the Interest Reserve Escrow Account except proceeds from the issuance
of the Senior Notes, and interest accrued on such amounts, (ii) commingle any
amounts in the Interest Reserve Escrow Account with any other funds of the
Parent, the Borrower or any Subsidiaries of the Borrower, or (iii) use the
proceeds of the Interest Reserve Escrow Account for any purpose other than (A)
for a Distribution to the Parent to make a scheduled cash interest payment on
the Senior Notes and (B) for certain transaction fees disclosed to the
Administrative Lender in writing and paid on or prior to the Closing Date,
provided, that the Borrower shall be permitted to remove funds from the Interest
Reserve Escrow Account which were intended to protect against penalty interest
that was not incurred in accordance with the terms of that certain Pledge and
Security Agreement, dated June 3, 1997.
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<PAGE>
ARTICLE IX. EVENTS OF DEFAULT
9.01. Events of Default. Any one or more of the following shall be an
"Event of Default" hereunder, if the same shall occur for any reason whatsoever,
whether voluntary or involuntary, by operation of Law, or otherwise:
(a) The Borrower shall fail to pay any (i) principal payable under any Loan
Paper on the date due; or (ii) any interest, fees or other amounts payable
within three days of the date due;
(b) Any representation or warranty made or deemed made by any Obligor (or
any of its officers or representatives) under or in connection with any Loan
Paper shall prove to have been incorrect or misleading in any material respect
when made or deemed made;
(c) The Borrower shall fail to perform or observe any term or covenant
contained in Section 7.05 hereof or in Article VIII hereof;
(d) Any Obligor shall fail to perform or observe any other term or covenant
contained in this Agreement or any other Loan Paper, other than those described
in Sections 9.01(a), (b) and (c) above, and such failure shall not be remedied
within thirty days following the earlier of the Borrower's knowledge of such
failure or notice from any Lender of the occurrence of such failure;
(e) Any of the following shall occur: (i) Any Loan Paper or material
provision thereof shall, for any reason, not be valid and binding on the Obligor
signatory thereto, or not be in full force and effect, or shall be declared to
be null and void; or (ii) the validity or enforceability of any Loan Paper shall
be contested by any Obligor; or (iii) any Obligor shall deny in writing that it
has any or further liability or obligation under its respective Loan Papers; or
(iv) any default or breach under any provision of any Loan Papers shall continue
after the applicable grace period, if any, specified in such Loan Paper;
(f) Any of the following shall occur: (i) any Obligor shall make an
assignment for the benefit of creditors or be unable to pay its debts generally
as they become due; (ii) any Obligor shall petition or apply to any Tribunal for
the appointment of a trustee, receiver, or liquidator of it, or of any
substantial part of its assets, or shall commence any proceedings relating to
any Obligor under any Debtor Relief Laws; (iii) any such petition or application
shall be filed, or any such proceedings shall be commenced, against any Obligor,
or an order, judgment or decree shall be entered appointing any such trustee,
receiver, or liquidator, or approving the petition in any such proceedings, and
such petition or application shall be consented to or uncontested by such
Obligor, or if contested by such Obligor, shall not be dismissed within 60 days
following the filing of such petition or application; (iv) any final order,
judgment, or decree shall be entered in any proceedings against any Obligor
decreeing its dissolution; or (v) any final order, judgment, or decree shall be
entered in any proceedings
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<PAGE>
against any Obligor decreeing its split-up which requires the divestiture of a
substantial part of its assets;
(g) Any of the following shall occur: (i) The Borrower or any other
Obligor shall fail to pay any Debt (other than Debt under the Loan Papers) in an
aggregate amount of $1,000,000 or more when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or (ii) the Borrower or any other Obligor
shall fail to perform or observe any term or covenant contained in any agreement
or instrument relating to any such Debt, when required to be performed or
observed, and such failure shall continue after the applicable grace period, if
any, specified in such agreement or instrument, and can result in acceleration
of the maturity of such Debt; or (iii) any such Debt shall be declared to be due
and payable, or required to be prepaid, mandatorily redeemed or repurchased
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; or (iv) there shall exist a breach by any Obligor under one or
more material contracts the effect of which could reasonably be expected to
cause a Material Adverse Change;
(h) Any Obligor shall have any final judgment(s) outstanding against it,
and such judgment(s) shall remain unstayed, in effect, and unpaid for the period
of time after which the judgment holder may and may cause the creation of Liens
against or seizure of any of its Property;
(i) Any of the following shall have occurred: (i) Any ERISA Event shall
have occurred with respect to a Plan of the Borrower, and the sum of the
Insufficiency of such Plan and liabilities relating thereto is equal to or
greater than $1,000,000 or (ii) the Parent, the Borrower or any ERISA Affiliate
of the Borrower shall have committed a failure described in Section 302(f)(l) of
ERISA, and the amount determined under Section 302(f)(3) of ERISA is equal to or
greater than $1,000,000;
(j) The Parent, the Borrower or any ERISA Affiliate of the Borrower shall
have been notified by the sponsor of a Multiemployer Plan that (A) it has
incurred Withdrawal Liability to such Plan in an amount that exceeds $1,000,000
or requires payments exceeding $1,000,000 per annum, or (B) such Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result thereof the aggregate annual contributions to all Multiemployer
Plans in reorganization or being terminated is increased over the amounts
contributed to such Plans for the preceding Plan year by an amount exceeding
$1,000,000;
(k) Any Obligor shall be required under any Environmental Law (i) to
implement any remedial, neutralization, or stabilization process or program, the
cost of which could cause a Material Adverse Change, or (ii) to pay any penalty,
fine, or damages in an aggregate amount which could cause a Material Adverse
Change;
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<PAGE>
(l) Any of the following shall have occurred: (i) Any Property (whether
leased or owned), or the operations conducted thereon by any Obligor or any
current or prior owner or operator thereof (in the case of real Property), shall
violate or have violated any applicable Environmental Law, if such violation
could cause a Material Adverse Change; or (ii) such Obligor shall not obtain or
maintain any License required to be obtained or filed under any Environmental
Law in connection with the use of such Property and assets, including without
limitation past or present treatment, storage, disposal, or release of Hazardous
Materials into the environment, if the failure to obtain or maintain the same
could cause a Material Adverse Change;
(m) Any of the following shall have occurred:
(i) Any Loan Paper shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first priority Lien in
the Collateral purported to be covered thereby (except as permitted by the
terms of this Agreement or consented to by the Lenders) and such defect is
not cured within 5 days of the date such defect is discovered; or
(ii) Less than 100% of the Capital Stock of (A) the Borrower and (B)
each of the Subsidiaries of the Borrower shall be subject to a first
priority perfected pledge to the Administrative Lender to secure the
Obligations; or
(n) Any of the following shall have occurred: (i) A final non-appealable
order is issued by any Tribunal, including, but not limited to, the FCC, any
applicable PUC, or the United States Justice Department, requiring any Obligor
to divest a substantial portion of its assets pursuant to any antitrust,
restraint of trade, unfair competition, industry regulation, or similar Laws, or
(ii) any Tribunal shall condemn, seize, or otherwise appropriate, or take
custody or control of all or any substantial portion of the assets of any
Obligor;
(o) Any of the following shall have occurred if the effect thereof could be
reasonably expected to cause a Material Adverse Change; (i) Any License whether
presently existing or hereafter granted to or obtained by the Parent, the
Borrower or any Subsidiary of the Borrower shall expire without renewal or be
suspended or revoked, or (ii) the Parent, the Borrower or any Subsidiary of the
Borrower shall become subject to any injunction or other order affecting or
which may affect the Parent's, the Borrower's or a Subsidiary of the Borrower's
present or proposed operations under any such License;
(p) Any civil action, suit or proceeding shall be commenced against any
Obligor under any federal or state racketeering statute (including, without
limitation, the Racketeer Influenced and Corrupt Organization Act of
1970)("RICO") and such suit shall be adversely determined by a court of
applicable jurisdiction, and which is either non-appealable or which such
Obligor has elected not to appeal; or any criminal action or proceeding shall be
commenced against any Obligor under any federal or state racketeering statute
(including, without limitation, RICO);
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(q) There shall occur a change in Control of the Borrower; or any third
party (other than pursuant to a public offering) owns greater than 20% of the
Capital Stock of the Parent (excluding, with respect to management of the
Borrower that was part of management on the Closing Date, Capital Stock of the
Borrower owned by such management; provided that, if (i) ITC Holding sells or
disposes of 100% of the Capital Stock of the Parent and the Majority Lenders
consent in writing to the new ownership of the Parent, there shall exist no
Event of Default hereunder, or (ii) if ITC Holding consummates a tax free spin
off to existing shareholders there shall exist no Event of Default hereunder;
(r) Any Litigation commenced against any Obligor is adversely determined
by a court of applicable jurisdiction, which such Litigation is either non-
appealable or which such Obligor has elected not to appeal, and in either case,
is reasonably expected to cause a Material Adverse Change;
(s) The Parent, the Borrower or any Subsidiary of the Borrower shall
fail to comply in any respect with the Communications Act, or any rule or
regulation promulgated by the FCC or any applicable PUC, and such failure could
reasonably be expected to cause a Material Adverse Change; or any License or
authorization constituting authorizations, permits or licenses of the Parent,
the Borrower or any Subsidiary of the Borrower material to the operation of the
business of the Parent, the Borrower and its Subsidiaries, has expired or shall
expire without having been renewed or shall be canceled or impaired and such
expiration, cancellation or impairment could reasonably be expected to cause a
Material Adverse Change;
(t) The Parent, the Borrower or any Subsidiary shall fail to operate its
business for any period of time which, in the aggregate, could reasonably be
expected to cause a Material Adverse Change; or
(u) Any Substantial Portion shall not, for any reason (including,
without limitation, loss of FCC License, fiber network or otherwise) be
operating for a period in excess of 30 days. For purposes of this Section
9.01(u), "Substantial Portion" means any portion of the assets or Properties of
the Borrower and its Subsidiaries that has generated, for the most recently
completed twelve month period, in excess of five percent of the Operating Cash
Flow.
9.02. Remedies upon Default. If an Event of Default described in Section
9.01(f) shall occur with respect to any Obligor, the aggregate unpaid principal
balance of and accrued interest on all Advances shall, to the extent permitted
by applicable Law, thereupon become due and payable concurrently therewith,
without any action by Administrative Lender or any Lender, and without
diligence, presentment, demand, protest, notice of protest or intent to
accelerate, or notice of any other kind, all of which are hereby expressly
waived. Subject to the foregoing sentence, if any Event of Default shall occur
and be continuing, Administrative Lender may at its election, do any one or more
of the following:
(a) Declare the entire unpaid balance of all Obligations immediately due
and payable, whereupon it shall be due and payable without diligence,
presentment, demand, protest, notice
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of protest or intent to accelerate, or notice of any other kind (except notices
specifically provided for under Section 9.01 hereof), all of which are hereby
expressly waived (except to the extent waiver of the foregoing is not permitted
by applicable Law);
(b) Terminate the Commitment;
(c) Reduce any claim of Administrative Lender and Lenders to judgment;
(d) Demand (and the Borrower shall pay to Administrative Lender)
immediately upon demand and in immediately available funds, the amount equal to
the aggregate amount of the Letters of Credit then outstanding, irrespective of
whether such Letters of Credit have been drawn upon, all as set forth and in
accordance with the terms of provisions of Article III hereof. The
Administrative Lender shall promptly advise the Borrower of any such declaration
or demand but failure to do so shall not impair the effect of such declaration
or demand; and
(e) Exercise any Rights afforded under any Loan Papers, by Law, including
but not limited to the UCC, at equity, or otherwise.
9.03. Cumulative Rights. All Rights available to Administrative Lender
and Lenders under the Loan Papers shall be cumulative of and in addition to all
other Rights granted thereto at Law or in equity, whether or not amounts owing
thereunder shall be due and payable, and whether or not Administrative Lender or
any Lender shall have instituted any suit for collection or other action in
connection with the Loan Papers.
9.04. Waivers. The acceptance by Administrative Lender or any Lender at
any time and from time to time of partial payment of any amount owing under any
Loan Papers shall not be deemed to be a waiver of any Default or Event of
Default then existing. No waiver by Administrative Lender or any Lender of any
Default or Event of Default shall be deemed to be a waiver of any Default or
Event of Default other than such Default or Event of Default. No delay or
omission by Administrative Lender or any Lender in exercising any Right under
the Loan Papers shall impair such Right or be construed as a waiver thereof or
an acquiescence therein, nor shall any single or partial exercise of any such
Right preclude other or further exercise thereof, or the exercise of any other
Right under the Loan Papers or otherwise.
9.05. Performance by Administrative Lender or any Lender. Should any
covenant of any Obligor fail to be performed in accordance with the terms of the
Loan Papers, Administrative Lender may, at its option, perform or attempt to
perform such covenant on behalf of such Obligor. Notwithstanding the foregoing,
it is expressly understood that neither Administrative Lender nor any Lender
assumes, and shall not ever have, except by express written consent of
Administrative Lender or such Lender, any liability or responsibility for the
performance of any duties or covenants of any Obligor.
9.06. Expenditures. The Borrower shall reimburse Administrative Lender
and each Lender for any reasonable sums spent by it in connection with the
exercise of any Right under
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Section 9.05 hereof. Such sums shall bear interest at the lesser of (a) the
Base Rate (whether or not in effect), plus 2.00% per annum and (b) the Highest
Lawful Rate, from five days after the date any Lender makes demand to the
Borrower for reimbursement of such amount until the date of repayment by the
Borrower.
9.07. Control. None of the covenants or other provisions contained in
this Agreement shall, or shall be deemed to, give Administrative Lender or any
Lender any Rights to exercise control over the affairs and/or management of any
Obligor, the power of Administrative Lender and each Lender being limited to the
Rights to exercise the remedies provided in this Article; provided, however,
-------- -------
that if Administrative Lender or any Lender becomes the owner of any
partnership, stock or other equity interest in any Person, whether through
foreclosure or otherwise, it shall be entitled to exercise such legal Rights as
it may have by being an owner of such stock or other equity interest in such
Person.
ARTICLE X. THE ADMINISTRATIVE LENDER
10.01. Authorization and Action. Each Lender hereby appoints and
authorizes Administrative Lender to take such action as Administrative Lender on
its behalf and to exercise such powers under this Agreement and the other Loan
Papers as are delegated to the Administrative Lender by the terms of the Loan
Papers, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement and the other Loan
Papers (including without limitation enforcement or collection of the Notes),
Administrative Lender shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
Majority Lenders (or all Lenders, if required under Section 11.01 hereof), and
such instructions shall be binding upon all Lenders; provided, however, that
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Administrative Lender shall not be required to take any action which exposes
Administrative Lender to personal liability or which is contrary to any Loan
Papers or applicable Law. Administrative Lender agrees to give to each Lender
notice of each notice given to it by the Borrower pursuant to the terms of this
Agreement, and to distribute to each applicable Lender in like funds all amounts
delivered to Administrative Lender by the Borrower for the Ratable or individual
account of any Lender. Functions of the Administrative Lender are administerial
in nature and in no event shall the Administrative Lender have a fiduciary or
trustee relationship in respect of any Lender by reason of this Agreement or any
Loan Paper.
10.02. Administrative Lender's Reliance, Etc. Neither Administrative
Lender, nor any of its directors, officers, agents, employees, or
representatives shall be liable for any action taken or omitted to be taken by
it or them under or in connection with this Agreement or any other Loan Paper,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, Administrative Lender (a) may
treat the payee of any Note as the holder thereof until Administrative Lender
receives written notice of the assignment or transfer thereof signed by such
payee and in form satisfactory to Administrative Lender; (b) may consult with
legal counsel (including counsel for the Borrower or any of its
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Subsidiaries), independent public accountants, and other experts selected by it,
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants, or
experts; (c) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties, or representations
made in or in connection with this Agreement or any other Loan Papers; (d) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants, or conditions of this Agreement or any other
Loan Papers on the part of any Obligor or its Subsidiaries or to inspect the
Property (including the books and records) of any Obligor or its Subsidiaries;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency, or value of this Agreement,
any other Loan Papers, or any other instrument or document furnished pursuant
hereto; and (f) shall incur no liability under or in respect of this Agreement
or any other Loan Papers by acting upon any notice, consent, certificate, or
other instrument or writing believed by it to be genuine and signed or sent by
the proper party or parties.
10.03. NationsBank of Texas, N.A. and Affiliates. With respect to its
Commitment, its Advances, and any Loan Papers, NationsBank of Texas, N.A. has
the same Rights under this Agreement as any other Lender and may exercise the
same as though it were not Administrative Lender. NationsBank of Texas, N.A.
and its Affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, any Obligor,
any Affiliate thereof, and any Person who may do business therewith, all as if
NationsBank of Texas, N.A. were not Administrative Lender and without any duty
to account therefor to any Lender.
10.04. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Administrative Lender or any other
Lender, and based on the financial statements referred to in Section 5.01(j),
Section 7.01 and Section 7.02 hereof and such other documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon Administrative 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 and the other Loan Papers.
10.05. Indemnification by Lenders. Lenders shall indemnify Administrative
Lender, Pro Rata, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against Administrative Lender in any way relating to or arising out of
any Loan Papers or any action taken or omitted by Administrative Lender
thereunder, including any negligence of Administrative Lender; provided,
--------
however, that no Lender shall be liable for any portion of such liabilities,
- -------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, or disbursements resulting from Administrative Lender's gross
negligence or willful misconduct. Without limitation of the foregoing, Lenders
shall reimburse Administrative Lender, Pro Rata, promptly upon demand for any
out-of-pocket expenses (including reasonable attorneys' fees) incurred by
Administrative Lender in connection
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with the preparation, execution, delivery, administration, modification,
amendment, or enforcement (whether through negotiation, legal proceedings or
otherwise) of, or legal and other advice in respect of rights or
responsibilities under, the Loan Papers. The indemnity provided in this Section
10.05 shall survive the termination of this Agreement.
10.06. Successor Administrative Lender. Administrative Lender may resign
at any time by giving written notice thereof to Lenders and the Borrower, and
may be removed at any time with or without cause by the action of all Lenders
(other than Administrative Lender, if it is a Lender). Upon any such
resignation or removal, Majority Lenders shall have the right to appoint a
successor Administrative Lender with the prior written consent of the Borrower
(which shall not be unreasonably withheld), provided that, if there exists an
Event of Default that is continuing, no consent of the Borrower shall be
required. If no successor Administrative Lender shall have been so appointed
and shall have accepted such appointment within thirty days after the retiring
Administrative Lender's giving of notice of resignation, then the retiring
Administrative Lender may, on behalf of Lenders, appoint a successor
Administrative Lender, which shall be a commercial bank organized under the Laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Administrative Lender hereunder by a successor Administrative
Lender, such successor Administrative Lender shall thereupon succeed to and
become vested with all the Rights and duties of the retiring Administrative
Lender, and the retiring Administrative Lender shall be discharged from its
duties and obligations under the Loan Papers, provided that if the retiring or
removed Administrative Lender is unable to appoint a successor Administrative
Lender, Administrative Lender shall, after the expiration of a sixty day period
from the date of notice, be relieved of all obligations as Administrative Lender
hereunder. Notwithstanding any Administrative Lender's resignation or removal
hereunder, the provisions of this Article shall continue to inure to its benefit
as to any actions taken or omitted to be taken by it while it was Administrative
Lender under this Agreement.
ARTICLE XI. MISCELLANEOUS
11.01. Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Papers, nor consent to any departure by the
Borrower or any Obligor therefrom, shall be effective unless the same shall be
in writing and signed by the Borrower and the Administrative Lender with the
consent of the Majority Lenders, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver, or consent shall (and the
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result of action or failure to take action shall not) unless in writing and
signed by all of Lenders and Administrative Lender, (a) increase the Commitment,
(b) reduce any principal, interest, fees, or other amounts payable hereunder, or
waive or result in the waiver of any Event of Default under Section 9.01(a)
hereof, (c) postpone any date fixed for any payment of principal, interest,
fees, or other amounts payable hereunder, (d) release any Collateral or
guaranties securing any Obligor's obligations hereunder, other than releases
contemplated hereby and by the other Loan Papers, (e) change the meaning of
"Specified Percentage" or the number
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of Lenders required to take any action hereunder, change the definitions of
"Commitment", "Maturity Date", "Majority Lenders", or "Letter of Credit
Commitment", or (f) amend this Section 11.01. No amendment, waiver, or consent
shall affect the Rights or duties of Administrative Lender under any Loan
Papers, unless it is in writing and signed by Administrative Lender in addition
to the requisite number of Lenders.
11.02. Notices.
(a) Manner of Delivery. All notices communications and other materials to
be given or delivered under the Loan Papers shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Lender, any Lender or the Borrower has acted in reliance on such
telephonic notice.
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
(i) If to the Borrower:
Interstate FiberNet, Inc.
206 West Ninth Street
West Point, Georgia 31833
Telephone No.: (706) 645-8189
Telecopier No.: (706) 645-8989
Attention: Mr. Douglas A. Shumate
Chief Financial Officer
With copies (which shall not constitute notice) to:
ITC/\DeltaCom Legal Group
700 Boulevard South
Suite 101
Huntsville, Alabama 35802
Telephone No.: (205) 650-3842
Telecopier No.: (205) 650-3936
Attention: Tom Mullis, Esq.
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And
Hogan & Hartson, L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telephone No.: (202) 637-5600
Facsimile No.: (202) 637-5910
Attention: Benton R. Hammond, Esq.
(ii) If to Administrative Lender:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street, 64th Floor
Dallas, Texas 75202
Telephone No.: (214) 508-2576
Telecopier No.: (214) 508-9390
Attention: Mr. Keith Wilson
Vice President
With a copy to:
Donohoe, Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telephone No.: (214) 698-3814
Telecopier No.: (214) 744-0231
Attention: Melissa Ruman Stewart
(iii) If to any Lender, to its address shown opposite its signature block
on the signature pages hereto, or on any Assignment and Acceptance,
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(d) Effectiveness. Each notice, communication and any material to be given
or delivered to any party pursuant to this Agreement shall be effective or
deemed delivered or furnished (i) if sent by mail, on the fifth day after such
notice, communication or material is deposited in the mail, addressed as above
provided, (ii) if sent by telecopier, when such notice, communication
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or material is transmitted to the appropriate number, (iii) if sent by hand
delivery or overnight courier, when left at the address of the addressee
addressed as above provided, and (iv) if given by telephone, when communicated
to the individual or any member of the department specified as the individual or
department to whose attention notices, communications and materials are to be
given or delivered except that notices of a change of address, telecopier or
telephone number or individual or department to whose attention notices,
communications and materials are to be given or delivered shall not be effective
until received; provided, however, that notices to Administrative Lender
-------- -------
pursuant to Article II shall be effective when received. The Borrower agrees
that Administrative Lender shall have no duty or obligation to verify or
otherwise confirm telephonic notices given pursuant to Article II, and agrees to
indemnify and hold harmless Administrative Lender and Lenders for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, and expenses resulting, directly or indirectly, from acting upon
any such notice.
11.03. Parties in Interest. All covenants and agreements contained in this
Agreement and all other Loan Papers shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto. Each Lender may from
time to time assign or transfer its interests hereunder pursuant to Section
11.04 hereof. The Borrower may not assign or transfer its Rights or obligations
hereunder without the prior written consent of Administrative Lender.
11.04. Assignments and Participations.
(a) Each Lender (an "Assignor") may assign its Rights and obligations as a
Lender under the Loan Papers to one or more transferees pursuant to an
Assignment and Acceptance, so long as (i) each assignment shall be of a
constant, and not a varying percentage of all Rights and obligations thereunder,
(ii) each Assignor shall obtain in each case the prior written consent of
Administrative Lender and the Borrower, in each case such consent not to be
unreasonably withheld or delayed, provided that, in the event there exists an
Event of Default that is continuing, no consent of the Borrower shall be
required to make an assignment, (iii) each Assignor shall in each case pay a
$3,500 processing fee to Administrative Lender and (iv) no such assignment is
for an amount less than $5,000,000 and in increments $1,000,000 (and, if such
assignment is a partial assignment, no Lender shall hold less than $5,000,000
immediately after giving effect to any assignment). Assignments and other
transfers (except participations) with respect to each Lender's participation in
a given Letter of Credit may only be made with the prior written consent of the
Administrative Lender. Within five Business Days after Administrative Lender
receives notice of any such assignment, the Borrower shall execute and deliver
to Administrative Lender, in exchange for the Notes issued to Assignor, new
Notes to the order of such Assignor and its assignee in amounts equal to their
respective Specified Percentages of the Commitment. Such new Notes shall be
dated the effective date of the assignment. It is specifically acknowledged and
agreed that on and after the effective date of each assignment, the assignee
shall be a party hereto and shall have the Rights and obligations of a Lender
under the Loan Papers.
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(b) Each Lender may sell participations to one or more Persons in all or any
of its Rights and obligations under the Loan Papers; provided, however, that (i)
-------- -------
such Lender's obligations under the Loan Papers shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the holder of
its Notes for all purposes of the Loan Papers, (iv) the participant shall be
granted the Right to vote on or consent to only those matters described in
Sections 11.01(a), (b), (c) and (d) hereof, (v) Obligors, the Administrative
Lender, and other Lenders shall continue to deal solely and directly with such
Lender in connection with their respective Rights and obligations under the Loan
Papers and (vi) no such participation is for an amount less than $5,000,000.
(c) Any Lender may, in connection with any assignment or participation, or
proposed assignment or participation, disclose to the assignee or participant,
or proposed assignee or participant, any information relating to any Obligor
furnished to such Lender by or on behalf of any Obligor.
(d) Notwithstanding any other provision set forth in this Agreement, (i) any
Lender may at any time create a security interest in all or any portion of its
Rights under this Agreement (including, without limitation, the Advances owing
to it and the Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System, (ii) no participant of any Lender may further assign or participate any
of its interest in the Loan Papers to any Person (except as may be required by
Law or a Tribunal having authority over such participant), and (iii) no Lender
(other than NationsBank of Texas, N.A.) may assign any of its interest in the
Loan Papers to any Person (except as may be required by Law or a Tribunal having
authority over NationsBank of Texas, N.A.).
11.05. Sharing of Payments. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any Right of set-off,
or otherwise) on account of its Advances in excess of its Pro Rata share of
payments made by the Borrower, such Lender shall forthwith purchase
participations in Advances made by the other Lenders as shall be necessary to
share the excess payment Pro Rata with each of them; provided, however, that if
-------- -------
any of such excess payment is thereafter recovered from the purchasing Lender,
its purchase from each Lender shall be rescinded and each Lender shall repay the
purchase price to the extent of such recovery together with a Pro Rata share of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 11.05
may, to the fullest extent permitted by Law, exercise all its Rights of payment
(including the Right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
11.06. Right of Set-off. Upon the occurrence and during the continuance of
any Event of Default, each Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by Law, to set-off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing
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by such Lender to or for the credit or the account of the Borrower against any
and all of the obligations of the Borrower now or hereafter existing under this
Agreement and the other Loan Papers, whether or not Administrative Lender or any
Lender shall have made any demand under this Agreement or the other Loan Papers,
and even if such obligations are unmatured. Each Lender shall promptly notify
the Borrower after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The Rights of each Lender under this Section 11.06 are in addition
to other Rights (including, without limitation, other Rights of set-off) which
such Lender may have.
11.07. Costs, Expenses, and Taxes.
(a) Notwithstanding anything to the contrary in the Loan Papers, the
Borrower agrees to pay on demand (i) all costs and expenses of Administrative
Lender in connection with the preparation and negotiation of all Loan Papers,
including without limitation the reasonable fees and out-of-pocket expenses of
Special Counsel, (ii) all costs and expenses (including reasonable attorneys'
fees and expenses) of Administrative Lender in connection with any
interpretation, grant and perfection of any Lien, modification, amendment,
waiver, release of any Loan Papers, restructuring or work-out and (iii) all
costs and expenses (including reasonable attorneys' fees and expenses) of
Administrative Lender and each Lender in connection with any collection of any
portion of the Obligations or the enforcement of any Loan Papers during the
continuance of an Event of Default.
(b) In addition, notwithstanding anything to the contrary in the Loan
Papers, the Borrower shall pay any and all stamp, debt, and other Taxes payable
or determined to be payable in connection with any payment hereunder (other than
Taxes on the overall net income of Administrative Lender or any Lender or
franchise Taxes or Taxes on capital or capital receipts of Administrative Lender
or any Lender), or the execution, delivery, or recordation of any Loan Papers,
and agrees to save Administrative Lender and each Lender harmless from and
against any and all liabilities with respect to, or resulting from any delay in
paying or omission to pay any Taxes in accordance with this Section 11.07,
including any penalty, interest, and expenses relating thereto. All payments by
the Borrower or any Subsidiary of the Borrower under any Loan Papers shall be
made free and clear of and without deduction for any present or future Taxes
(other than Taxes on the overall net income of Administrative Lender or any
Lender of any nature now or hereafter existing, levied, or withheld, or
franchise Taxes or Taxes on capital or capital receipts of Administrative Lender
or any Lender), including all interest, penalties, or similar liabilities
relating thereto. If the Borrower shall be required by Law to deduct or to
withhold any Taxes from or in respect of any amount payable hereunder (i) the
amount so payable shall be increased to the extent necessary so that, after
making all required deductions and withholdings (including Taxes on amounts
payable to Administrative Lender or any Lender pursuant to this sentence),
Administrative Lender or any Lender receives an amount equal to the sum it would
have received had no such deductions or withholdings been made, (ii) the
Borrower shall make such deductions or withholdings, and (iii) the Borrower
shall pay the full amount deducted or withheld to the relevant taxing authority
in accordance with applicable Law. Without prejudice to the survival of any
other agreement of the Borrower hereunder, the
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agreements and obligations of the Borrower contained in this Section 11.07 shall
survive the execution of this Agreement, termination of the Commitment,
repayment of the Obligations, satisfaction of each agreement securing or
assuring the Obligations and termination of this Agreement and each other Loan
Paper.
11.08. Rate Provision. It is not the intention of any party to any Loan
Papers to make an agreement violative of the Laws of any applicable jurisdiction
relating to usury. In no event shall any Obligor or any other Person be
obligated to pay any amount in excess of the Maximum Amount. If Administrative
Lender or any Lender ever receives, collects or applies, as interest, any such
excess, such amount which would be excessive interest shall be deemed a partial
repayment of principal and treated hereunder as such; and if principal is paid
in full, any remaining excess shall be paid to the Borrower or the other Person
entitled thereto. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the Maximum Amount, each Obligor,
Administrative Lender and each Lender shall, to the maximum extent permitted
under Applicable Laws, (a) characterize any nonprincipal payment as an expense,
fee or premium rather than as interest, (b) exclude voluntary prepayments and
the effect thereof, and (c) amortize, prorate, allocate and spread in equal
parts, the total amount of interest throughout the entire contemplated term of
the Obligations so that the interest rate is uniform throughout the entire term
of the Obligations; provided that if the Obligations are paid and performed in
--------
full prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Amount,
Administrative Lender or Lenders, as appropriate, shall refund to the Borrower
the amount of such excess or credit the amount of such excess against the total
principal amount owing, and, in such event, neither Administrative Lender nor
any Lender shall be subject to any penalties provided by any Laws for
contracting for, charging or receiving interest in excess of the Maximum Amount.
This Section 11.08 shall control every other provision of all agreements among
the parties to the Loan Papers pertaining to the transactions contemplated by or
contained in the Loan Papers.
11.09. Severability. If any provision of any Loan Papers is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there
shall be added automatically as a part of such Loan Paper a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.
11.10. Exceptions to Covenants. No Obligor shall be deemed to be
permitted to take any action or to fail to take any action that is permitted as
an exception to any covenant in any Loan Papers, or that is within the
permissible limits of any covenant, if such action or omission would result in a
violation of any other covenant in any Loan Papers.
78
<PAGE>
11.11. Counterparts. This Agreement and the other Loan Papers may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
11.12. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO
CONFLICTS OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, THE BORROWER AGREES THAT THE FEDERAL COURTS OF TEXAS LOCATED IN
DALLAS, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT
THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT,
CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE
OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
(b) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON
IT. THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE BORROWER AT ITS
ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL.
NOTHING IN THIS SECTION 11.12 SHALL AFFECT THE RIGHT OF ADMINISTRATIVE LENDER OR
ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
11.13. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
================================================================================
79
<PAGE>
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first
set forth above.
THE BORROWER:
INTERSTATE FIBERNET, INC.
/s/ Douglas A. Shumate
---------------------------------------------
By: Douglas A. Shumate
Its: Senior Vice President -- Chief Financial
Officer
80
<PAGE>
ADMINISTRATIVE LENDER:
NATIONSBANK OF TEXAS, N.A., as
Administrative Lender
/s/ Keith M. Wilson
------------------------------
By: Keith Wilson
Its: Vice President
LENDERS:
Specified Percentage: 0.175000000000 NATIONSBANK OF TEXAS, N.A.,
individually as a Lender
Address:
901 Main Street
64th Floor
Dallas, Texas 75202 /s/ Keith M. Wilson
------------------------------
By: Keith Wilson
Attn.: Keith Wilson Its: Vice President
Telephone: (214) 508-2576
Telecopy: (214) 508-9390
81
<PAGE>
Specified Percentage: 0.075000000000 AMSOUTH BANK
Address:
1900 5th Avenue North
7th Floor
Birmingham, Alabama 35203 /s/ Alan D. Lott
-----------------------------
By: Alan D. Lott
Telephone: (205) 583-4474 Its: Vice President
Telecopy: (205) 583-4436
82
<PAGE>
Specified Percentage: 0.100000000000 CREDITANSTALT-BANKVEREIN
Address:
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346 /s/ Robert M. Biringer
----------------------------------
By: Robert M. Biringer
Its: Executive Vice President
Telephone: (770) 390-1850
Telecopy: (770) 390-1851 /s/ Carl G. Drake
----------------------------------
By: Carl G. Drake
Its: Senior Associate
83
<PAGE>
Specified Percentage: 0.100000000000 MEESPIERSON CAPITAL CORP.
Address:
445 Park Avenue
New York, New York 10022
/s/ John O'Connor
--------------------------------
By: JOHN O'CONNOR
-----------------------------
Its: SENIOR VICE PRESIDENT
----------------------------
Telephone: (212) 801-0445
Telecopy: (212) 801-0420
/s/ John V. DelCal
--------------------------------
By: John V. DelCal
-----------------------------
Its: Deputy General Counsel
----------------------------
84
<PAGE>
Specified Percentage: 0.100000000000 STATE STREET BANK AND TRUST
COMPANY
Address:
225 Franklin Street
Boston, Massachusetts 02110-2804 /s/ Hamilton H. Wood, Jr.
--------------------------------
By: Hamilton H. Wood, Jr.
Its: Vice President
Telephone: (617) 654-3817
Telecopy: (617) 654-3708
85
<PAGE>
Specified Percentage: 0.150000000000 CORESTATES BANK, N.A.
Address:
1339 Chestnut Street
FC 1-8-11-28
Philadelphia, Pennsylvania 19101
/s/ Charles Brinley
--------------------------------
By: Charles Brinley
-----------------------------
Its: Commercial Officer
----------------------------
Telephone: (215) 786-4345
Telecopy: (215) 786-7721
86
<PAGE>
Specified Percentage: 0.050000000000 FIRST UNION NATIONAL BANK
Address:
One First Union Center
301 South College Street
Charlotte, North Carolina 28288-0735
/s/ Mark M. Harden
--------------------------------
By: MARK M. HARDEN
-----------------------------
Its: VICE PRESIDENT
----------------------------
Telephone: (704) 374-6471
Telecopy: (704) 374-4092
87
<PAGE>
Specified Percentage: 0.100000000000 REGIONS BANK
Address:
216 West Side Square
Huntsville, Alabama 35801
/s/ Edwin P. Wilson
--------------------------------
By: Edwin P. Wilson
-----------------------------
Its: Senior Vice President
----------------------------
Telephone: (205) 535-0198
Telecopy: (205) 535-0312
88
<PAGE>
Specified Percentage: 0.150000000000 TORONTO DOMINION (TEXAS), INC.
Address:
31 West 52nd Street
New York, New York 10010-6101
/s/ Neva Nesbitt
--------------------------------
By: NEVA NESBITT
-----------------------------
Its: VICE PRESIDENT
----------------------------
Telephone: (212) 468-0717
Telecopy: (212) 262-1928
89
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 2.16(a) Certain Assets Excluded from Collateral
Licenses, Contract Rights, and Agreements
- -----------------------------------------
The following categories of licenses, contract rights, and agreements are
excluded from the definition of Collateral in the Agreement:
Certain Fiber Lease Agreements
Fiber Capacity Agreements
Master Service Agreements
Fiber Facility Lease Agreements
Collocation Agreements
Point of Presence Agreements
FCC Licenses
PUC Certificates of Convenience and Necessity
Equipment Purchase, Maintenance, and Supply Agreements
Dealer Agreements
Carrier Agreements
Carrier Services Agreements
Carrier Reseller Agreements
Information Management Services Agreements
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 5.01(a) -- Jurisdictions of Incorporation and Percentage
Ownership of the Subsidiaries of the Borrower
Gulf States Transmission Systems, Inc. is a Delaware corporation
100% owned by Interstate FiberNet, Inc.
DeltaCom, Inc. is an Alabama corporation *
100% owned by Interstate FiberNet, Inc.
* DeltaCom, Inc. has a wholly-owned, inactive subsidiary, DeltaCom Informations
Systems, Inc.
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 5.01(f) -- Non-Compliance with FCC or any applicable PUC
Interstate FiberNet, Inc. (from Eastern Telecom, Inc., d/b/a InterQuest)
- ------------------------------------------------------------------------
1. Reports of international telecommunications traffic- - Section 43.61 of
Title 47 of the Code of Federal Regulations requires telecommunications carriers
to submit a data report by July 31st of each year and submit a revised report by
Oct. 31st. These reports are for data purposes only. Borrower, as successor to
Eastern Telecom, Inc., will be filing the initial report late. The Borrower
does not expect to incur a penalty as a result of the late filing.
2. Georgia Public Service Commission- Universal Access Fund Report has not
been filed consistently for the past year. Borrower, as successor to Eastern
Telecom, Inc. anticipates having to pay the outstanding amounts due, plus an
associated penalty. Eastern Telecom's certificate of public convenience and
necessity will be voluntarily withdrawn in the near future due its merger with
the Borrower, which is also a holder of a certificate of public convenience and
necessity in the state of Georgia.
3. Eastern Telecom, Inc., d/b/a InterQuest, holds Section 214 authority
pursuant to the Communications Act of 1934 to provide international
telecommunications services. The Section 214 certification has yet to be
transferred into the name of Interstate FiberNet, Inc. after the merger. While
steps have been taken to correctly reflect the merger on the Section 214
authority, this has not yet been completed. No penalty is expected to be
incurred due to this.
DeltaCom, Inc.
- --------------
1. Maine - DeltaCom is in the process of obtaining a certificate of public
convenience and necessity and has reported de minimus prior intrastate usage,
mostly generated from travel card traffic. The Borrower does not expect to
receive any penalty for this de minimus prior intrastate traffic.
2. Minnesota - DeltaCom has entered into an agreement with the Attorney
General of the State of Minnesota to pay a penalty of $1,000 for providing
service within the state prior to certification.
3. Reports of international telecommunications traffic- - Section 43.61 of
Title 47 of the Code of Federal Regulations requires telecommunications carriers
to submit a data report by July 31st of each year and submit a revised report by
Oct. 31st. These reports are for data purposes only. The Borrower will be
filing the initial report late. The Borrower does not expect to incur a penalty
as a result of the late filing.
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 5.01(h) -- Existing Litigation
GULF STATES TRANSMISSION SYSTEMS, INC.
- --------------------------------------
Evergreen Cable and Leasing, Inc. v. Signal Point Systems, Inc. and Gulf States
- -------------------------------------------------------------------------------
Transmission Systems, Inc.
- --------------------------
U.S. District Court for the Western District of Louisiana, Monroe Division
Civil Action Number: 3:97 CV 0300
This action is a dispute between Signal Point Systems, Inc., a
contractor hired by Gulf States FiberNet (now Gulf States Transmission Systems,
Inc.) and Evergreen Cable and Leasing, Inc., a subcontractor who worked on the
job. Gulf States Transmission Systems, Inc. has withheld payments under the
prime contract in accordance with the terms of that contract, and has filed a
Counterclaim for Interpleader in the case which has yet to be decided.
DELTACOM, INC.
- --------------
Digitel Corporation v. DeltaCom, Inc., et al.
- ---------------------------------------------
U.S. District Court for the Middle District of Alabama, Southern Division
Civil Action Number. 96-D-106-S
In November, 1995, DeltaCom hired four (4) former Digitel Corporation
("Digitel") employees who were assigned to work from DeltaCom's Dothan, Alabama,
office. While employed by Digitel, two of the employees executed non-
solicitation agreements with a term of two (2) years from the date of separation
of employment from Digitel. On January 22, 1996, a complaint was filed against
DeltaCom alleging breach of non-solicitation agreements, tortuous interference
with contractual and business relations, tortuous interference with contractual
relations, and misappropriation of trade secrets. Digitel is also sought a
preliminary injunction against DeltaCom to prohibit DeltaCom "from soliciting
any Digitel customers, and actively sought prospective customers, with whom the
two employees had contact while employed by Digitel and from encouraging such
customers or prospective customers to cease doing business with Digitel or to
conduct business with DeltaCom." On May 16, 1997, after submission of the
matter to a jury, an order of judgment was entered against DeltaCom and in favor
of Digitel for the sum of $140,000.00 in compensatory damages and $125,000.00 in
punitive damages. DeltaCom's motion for judgment as a matter of law or in the
alternative for a new trial is currently pending before the court.
<PAGE>
Ted Wayne Green v. DeltaCom, Inc.
- ---------------------------------
Circuit Court of Madison County, Alabama
Civil Action No. CV 97-663-LHL
On April 3, 1997, Ted Wayne Green ("Green"), a current employee, filed
this civil action claiming Workmen's Compensation benefits under the laws of the
state of Alabama for alleged personal injuries arising from an automobile
accident on or about April 21, 1995. DeltaCom's Workmen's Compensation
insurance carrier has assumed the defense of this action. This action is
currently in the discovery stage.
Kenneth O. Simon, Craig Garner and Abigale Garner v. David Eugene Roberts and
- -----------------------------------------------------------------------------
DeltaCom, Inc.
- --------------
Circuit Court of Jefferson County, Alabama
Civil Action Number: CV97-2425
On April 21, 1997, this civil action was filed against David Eugene
Roberts ("Roberts"), a current employee, and DeltaCom. The plaintiff's allege
they separately and severally received personal injuries and damage to their
respective vehicles in excess of $10,000.00 arising from the negligence and/or
wantonness of Roberts while operating a vehicle. Roberts was operating his
personal vehicle during his lunch hour when the accident occurred. Roberts has
no liability coverage on his vehicle. The plaintiffs further allege that
Roberts was operating his personal vehicle in the course of performing
employment duties on behalf of DeltaCom, an allegation Roberts and DeltaCom both
deny. DeltaCom's automobile insurance carrier has assumed the defense of this
matter on behalf of DeltaCom. A motion for summary judgment based on lack of
apparent authority is currently pending.
Note: The list excludes any collection cases which may be pending and which
were initiated by DeltaCom through outside collection counsel. There are no
counter-claims against DeltaCom arising from the pending collection cases.
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 5.01(r) -- Description of Capital Stock
Pledgor: ITC/\DeltaCom, Inc.
Pledged Company: Interstate FiberNet, Inc.
Jurisdiction of Incorporation: Delaware
Stock owned by Pledgor:
Class: Common Stock
Number of Shares Authorized: 10,000
Number of Shares Issued: 1,630
Percentage of issued and outstanding shares owned by Pledgor: 100%
Share Certificate Number: 2
Pledgor: Interstate FiberNet, Inc.
Pledged Company: Gulf States Transmission Systems, Inc.
Jurisdiction of Incorporation: Delaware
Stock owned by Pledgor:
Class: Common Stock
Number of Shares Authorized: 10,000
Number of Shares Issued: 1,000
Percentage of issued and outstanding shares owned by Pledgor: 100%
Share Certificate Number: 3
Pledgor: Interstate FiberNet, Inc.
Pledged Company: DeltaCom, Inc.
Jurisdiction of Incorporation: Alabama
Stock owned by Pledgor:
Class: Common Stock
Number of Shares Authorized: 80,000
Number of Shares Issued: 80,000
Percentage of issued and outstanding shares owned by Pledgor: 100%
Share Certificate Number: 6
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 8.02 -- Debt for Borrowed Money (In Principal Amounts)
<TABLE>
<CAPTION>
Principal
Debt Amount
- ---- ------
<S> <C>
11% Senior Notes (which may be exchanged for $200,000,000
11% registered notes)
SCANA 9,964,091
Northern Telecom 922,674
Capitalized Leases 3,454,694
------------
Total $214,341,459
------------
</TABLE>
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 8.03 -- Existing Liens
A. General Liens--DeltaCom, Inc.
- ---------------------------------
The following liens are filed with the Secretary of State of Alabama, to-wit:
State File Number Financing Party Collateral
- ------------------- --------------- ----------
90-36329 NEC America Inc. Inventory
B. Equipment Lease Memorandums -- DeltaCom, Inc.
- -------------------------------------------------
Memorandums of equipment leases are filed with the Secretary of State of
Alabama, to-wit:
State File Number Lessor
- ----------------- ------
95-48465 AT&T Systems Leasing
95-48466 AT&T Systems Leasing
96-23490 First United Leasing
97-22445 AT&T Systems Leasing
97-26590 Regions Financial Leasing
C. Equipment Lease Memorandums -- DeltaCom, Inc. (through Viper Computer
- -------------------------------------------------------------------------
Systems)
- --------
Certain equipment leases were assumed through DeltaCom, Inc.'s purchase of Viper
Computer Systems, Inc., and memorandums of such leases have been filed with the
Secretary of State of Alabama, to-wit:
State File Number Lessor
- ----------------- ------
95-43882 GreyRock Capital Group Inc.
95-51960 AT&T Capital Leasing Services, Inc.
96-00037 Advanta Business Services, Inc.
96-11397 Nations Credit Comm Corp.
96-13021 National Bank of Commerce of Birmingham
96-14287 Finova Capital Corp.
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 8.04 -- Existing Investments
<TABLE>
<CAPTION>
Account Name Account Number $ AMOUNT Description Maturity Date
------------ -------------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Morgan Stanley & Co., Inc. 38890774 $ 4,000,000 FHLMC 09/15/97
SubAcct Name: ITC DELTACOM 04-B5175-1-4047 $ 6,100,000 FFCB 09/15/97
Contact Person: Tom Kazazes or $ 6,000,000 FNMA 09/18/97
Michelle Pallonetti
Telephone: (212)-762-6354 or $ 6,000,000 FNMA 09/19/97
(212)-762-6335
MMkt Cash $ 113,128
-------------
$22,213,128
=============
</TABLE>
Note: After maturity, investments will roll over into similar investment
accounts.
<PAGE>
$100,000,000.00 Credit Agreement among Interstate FiberNet, Inc. and
NationsBank of Texas, N.A. as Administrative Lender and Lenders
Schedule 8.08 -- Permitted Affiliate Non-Market Transactions
No such transactions to schedule.
<PAGE>
EXHIBIT A
FORM OF REVOLVING PROMISSORY NOTE
---------------------------------
This exhibit has been intentionally omitted. Executed versions of this document
have been filed as Exhibit 10.78.1, Exhibit 10.78.2, Exhibit 10.78.3, Exhibit
10.78.4, Exhibit 10.78.5, Exhibit 10.78.6, Exhibit 10.78.7 and Exhibit 10.78.9
to Amendment No. 3 to the Company's Registration Statement on Form S-4.
<PAGE>
EXHIBIT B
FORM OF TERM PROMISSORY NOTE
----------------------------
This exhibit has been intentionally omitted. Executed versions of this document
have been filed as Exhibit 10.79.1, Exhibit 10.79.2, Exhibit 10.79.3, Exhibit
10.79.4, Exhibit 10.79.5, Exhibit 10.79.6, Exhibit 10.79.7, Exhibit 10.79.8 and
Exhibit 10.79.9 to Amendment No. 3 to the Company's Registration Statement on
Form S-4.
<PAGE>
EXHIBIT C
QUARTERLY COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he/she is the duly elected
*[Vice]* President of Interstate FiberNet, Inc., a Delaware corporation
("Borrower"), and that he/she is authorized to execute this Certificate on
behalf of Borrower pursuant to Section 7.03 of that certain Credit Agreement
dated as of September ___, 1997 ("Credit Agreement"), among Borrower and
NationsBank of Texas, N.A., individually and as Administrative Lender, and each
Lender a party thereto. All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement. This Certificate is submitted
concurrently with [quarterly] [annual] financial statements of Borrower for the
period ended ____________, 199__. The undersigned hereby further certifies to
the following as of the date set forth below:
1. To my knowledge no event which constitutes a Default or an Event of
Default has occurred and is continuing [or if such Event has occurred, the
nature of the Event and the action being taken or proposed to be taken with
respect thereto].
2. The following calculations with respect to Section 8.01 of the
Credit Agreement are true, accurate and complete, and are made in accordance
with the terms and provisions of the Credit Agreement:
Determination Date:_______________________
A. Section 8.01(a), Total Leverage Ratio
-------------------------------------
1. Total Debt of the Parent, the Borrower and any Subsidiaries of
the Borrower on any determination date, which would be shown
on a consolidated balance sheet in accordance with GAAP:
(a) Advances and other
Obligations under the Loan
Papers (except Letters of
Credit) plus $
---- --------------
(b) Letters of Credit plus $
---- --------------
(c) Capital Lease obligations plus $
---- --------------
(d) Contingent Liabilities plus $
---- --------------
(e) Withdrawal Liability plus $
---- --------------
(f) Other Debt for Borrowed
Money (without duplication)
plus $
---- --------------
<PAGE>
(g) Debt of any other Person
secured by a Lien on the
property of the Borrower or
any Subsidiary of the
Borrower in an amount equal
to the lesser of (i) such Debt
of such Person and (ii) the
value of such pledged
property plus $
---- --------------
(h) Overdue interest on any debt
for Borrowed Money (but not
accrued interest that is not
overdue) minus $
----- --------------
(i) Any cash balances in excess
of $5,000,000 minus $
----- --------------
(j) The balance of the Interest
Reserve Escrow Account $
--------------
(k) Total Debt
(a) + (b) + (c) + (d) + (e)
+ (f) + (g) + (h) - (i) - (j) $
--------------
2. For the most recently completed six month period immediately
preceding the date of determination, provided that, for
purposes of the Total Leverage Ratio calculation, Operating
Cash Flow shall be calculated as if all assets acquired on any
date during the period of determination were acquired on the
first day in such period of determination, and all assets sold
on any date during the period of determination were sold on
the first day in such period of determination:
Annualized Operating Cash Flow of the Parent, the Borrower and the
Subsidiaries of the Borrower:
(a) Consolidated net income
(loss) for such period taken
as a single accounting period
plus $
---- --------------
(b) The sum of the following
amounts for such period to
the extent included in the
determination of A.2(a),
without duplication:
-2-
<PAGE>
(i) Depreciation expense
plus $
---- -------------
(ii) Amortization expense
and other non-cash
charges reducing
income plus $
---- -------------
(iii) Net Interest Expense
plus $
---- -------------
(iv) Income Tax Expense $
-------------
(c) Operating Cash Flow
A.2(a) + A.2(b)(i) +
A.2(b)(ii) + A.2(b)(iii) +
A.2(b)(iv) $
-------------
(d) Annualized Operating Cash
Flow
[A.2(c) x 2] $
-------------
3. Total Leverage Ratio to 1.00
(A.1(k) to A.2(d)) ----
Maximum:
From the Closing Date 9.50 to 1.00
through and including
June 30, 1998
From July 1, 1998 8.75 to 1.00
through and including
June 30, 1999
From July 1, 1999 7.50 to 1.00
through and including
June 30, 2000
From July 1, 2000 6.00 to 1.00
through and including
June 30, 2001
From and after July 1, 2001 4.50 to 1.00
B. Section 8.01(b), Senior Leverage Ratio
--------------------------------------
-3-
<PAGE>
1. (a) Total Debt (from
A.1.(k) above) minus $
----- --------------
(b) Aggregate outstanding
principal amount of
the Senior Notes
minus $
----- --------------
(c) To the extent included
in Total Debt, accrued
and unpaid interest on
the Senior Notes plus $
---- --------------
(d) Cash balances of the
Parent, the Borrower
and the Subsidiaries of
the Borrower which in
--------
the aggregate exceed
--------------------
$5,000,000 (for
purposes of this
subpart (d), exclusive
of amounts in the
Interest Reserve $
Escrow Account) --------------
(e) Senior Debt
B.1(a) - B.1(b) -
B.1(c) + B.1(d) $
--------------
2. Annualized Operating Cash
Flow (from A.2.(d) above) $
--------------
3. Senior Leverage Ratio
(B.1.(e) to B.2) to 1.00
-----
Maximum:
From the Closing Date
through and including
June 30, 1999 2.75 to 1.00
From and after July 1, 1999 2.25 to 1.00
C. Section 8.01(c), Interest
-------------------------
Coverage Ratio
--------------
1. Annualized Operating Cash
Flow (A.2.(d) above) $
--------------
-4-
<PAGE>
2. Interest Expense actually paid
during the most recently
completed twelve month
period (exclusive of any
interest paid out of the
Interest Reserve Escrow
Account) $_____________
3. Interest Coverage Ratio:
C.1 to C.2. ________to 1.00
Minimum:
From the Closing Date through
and including June 30, 2000 3.75 to 1.00
From and after July 1, 2000 1.75 to 1.00
C. Section 8.01(d), Capital Expenditures
-------------------------------------
The Borrower shall not permit Capital Expenditures made by the Parent, the
Borrower and its Subsidiaries for each fiscal year of the Borrower to exceed the
amounts set forth below for each fiscal year; provided, that (i) to the extent
that less than such amount was used by the Borrower for Capital Expenditures for
any fiscal year, Borrower or its Subsidiaries may increase the limitation on
Capital Expenditures for the immediately succeeding fiscal year by the amount of
such unused amount (and only for the immediately succeeding fiscal year); (ii)
during the fiscal year 1997 only and after receipt by the Administrative Lender
of prior written notice from the Borrower of its election to do so, the Borrower
may elect to both (A) reduce the 1998 limitation set forth below by $8,000,000
and (B) increase the 1997 limitation set forth below by $8,000,000; and (iii) to
the extent that Borrower issues equity in accordance with the terms hereof, the
amount of net proceeds from such equity issuance that is not required to be used
to prepay Obligations or reduce the Commitment under the Credit Agreement in
accordance with the terms of Sections 2.05 or 2.11 of the Credit Agreement may
be used by the Borrower for Capital Expenditures in excess of the limitations
set forth below over the term of the Credit Agreement.
Capital Expenditures incurred to date for the current
fiscal year $_______
Maximum:
For the Fiscal Year 1997 $57,650,000
For the Fiscal Year 1998 $57,150,000
For the Fiscal Year 1999 $34,800,000
For the Fiscal Year 2000 $40,400,000
-5-
<PAGE>
For the Fiscal Year 2001 $41,100,000
For the Fiscal Year 2002 $36,750,000
D. Section 8.01(e), Minimum Operating Cash Flow
--------------------------------------------
For the Borrower, the Parent and the Borrower's Subsidiaries,
for the most recently completed Fiscal Year:
--------------------------------------------
1. Consolidated net income
(loss) for such period taken
as a single accounting period
plus $
---- --------------
2. The sum of the following
amounts for such period to
the extent included in the
determination of such
consolidated net income
(loss), without duplication:
(a) Depreciation expense
plus $
--------------
----
(b) Amortization expense
and other non-cash
charges reducing
income plus $
---- --------------
(c) Net Interest Expense
plus $
---- --------------
(d) Income Tax Expense $
--------------
3. Operating Cash Flow
D.1 + D.2(a) + D.2(b) +
D.2(c) + D.2(d) $
--------------
Minimum:
For the Fiscal Year 1997 $16,700,000
For the Fiscal Year 1998 $21,700,000
For the Fiscal Year 1999 $36,700,000
For the Fiscal Year 2000 $52,800,000
For the Fiscal Year 2001 $77,800,000
For the Fiscal Year 2002 $92,000,000
-6-
<PAGE>
E. Applicable Margin
-----------------
The Total Leverage Ratio is________to 1.00 (See A.3 above). The
Applicable Margin with respect to Base Advances is______%. The
Applicable Margin with respect to LIBOR Advances is______%
IN WITNESS WHEREOF, I have executed this Certificate as of the ____ day
of __________, 199__.
INTERSTATE FIBERNET, INC.
---------------------------------
By:
-----------------------------
Its:
-----------------------------
-7-
<PAGE>
EXHIBIT D
BORROWING NOTICE
[Date]
NationsBank of Texas, N.A.,
Administrative Lender
NationsBank Plaza
901 Main Street
64th Floor
Dallas, Texas 75202
RE: Interstate FiberNet, Inc.
-------------------------
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement dated as of _____________,
1997 (the "Credit Agreement", the terms defined therein being used herein as
therein defined) among Interstate FiberNet, Inc., and NationsBank of Texas,
N.A., as Administrative Lender for NationsBank of Texas, N.A. and each Lender,
and hereby gives you notice pursuant to Section 2.02(a) of the Credit Agreement
---------------
that the undersigned hereby requests ________ Borrowing[s] under the Credit
Agreement, and in that connection sets forth below the information relating to
[each] such Advance (a "Proposed Borrowing") as required by Section 2.02(a) of
---------------
the Credit Agreement:
Proposed Borrowing:
(i) The Business Day of such Proposed Borrowing is __________________,
19__.
(ii) Borrower requests a [Revolving] [Term Loan Initial] Advance;
(iii) The Type of Revolving Advance[s] comprising such Proposed Borrowing
is [are] [Base Advance] [to the extent of an aggregate amount of
$__________]] [LIBOR Advance [to the extent of an aggregate amount of
$________________]].
(iv) The Type of Term Loan Initial Advance[s] under the Term Loan
comprising such Proposed Borrowing is [are] [Base Advance] [to the extent
of an aggregate amount of
$__________]] [LIBOR Advance [to the extent of an aggregate amount of
$________________]].
(v) The aggregate amount of such Proposed Borrowing is $____________.
<PAGE>
(vi) The initial Interest Period for each LIBOR Advance made as part of
such Proposed Borrowing is _________________________.
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Borrowing,
before and after giving effect thereto and to the application of the proceeds
therefrom:
(A) the conditions precedent specified in Sections 4.01 and 4.02 of
------------- ----
the Credit Agreement have been satisfied with respect to the Proposed
Borrowing and will remain satisfied on the date of such Proposed Borrowing;
(B) the representations and warranties specified in Article V of the
---------
Credit Agreement are true and correct in all material respects as though
made on and as of such date; and
(C) no event has occurred and is continuing or would result from such
Proposed Borrowing, which constitutes a Default or Event of Default.
Very truly yours,
INTERSTATE FIBERNET, INC.
-----------------------------------------
By:
--------------------------------------
Its:
-------------------------------------
-2-
<PAGE>
EXHIBIT E
CONVERSION OR CONTINUATION NOTICE
[Date]
NationsBank of Texas, N.A.,
Administrative Lender
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
RE: Interstate FiberNet, Inc.
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement dated as of ___________ ___,
1997 (such agreement, together with all amendments and restatements, the "Credit
Agreement"; the terms defined therein being used herein as therein defined)
among Interstate FiberNet, Inc., and NationsBank of Texas, N. A., as
Administrative Lender for NationsBank of Texas, N.A. and each Lender, and hereby
gives you notice pursuant to Section 2.09 of the Credit Agreement that the
------------
undersigned hereby requests ________ Advance[s] under the Credit Agreement, and
in that connection sets forth below the information relating to [each] such
Advance (a "Proposed Borrowing") as required by Section 2.09 of the Credit
------------
Agreement:
Proposed Borrowing:
(i) The principal amount of existing LIBOR [Revolving Advance] [Term
Advance] to be [converted] [continued] is $________________.
(ii) The Business Day of such Proposed Borrowing is __________________,
199__.
(iii) The Type of Advance[s] comprising such Proposed Revolving Advances
or Proposed Term Advances is [are] LIBOR Advance [to the extent of an
aggregate amount under the Revolving Advances of $________________] [to the
extent of an aggregate amount under the Term Advances of
$________________].
<PAGE>
[(iv) The initial Interest Period for each LIBOR Advance made as part of
such Proposed Borrowing is _______ months.]
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Borrowing,
before and after giving effect thereto and to the application of the proceeds
therefrom:
(A) the conditions precedent specified in Sections 4.01, and 4.02
------------- ----
of the Credit Agreement have been satisfied with respect to the Proposed
Borrowing and will remain satisfied on the date of such Proposed Borrowing;
(B) the representations and warranties specified in Article V of
---------
the Credit Agreement are true and correct in all material respects as
though made on and as of such date; and
(C) no event has occurred and is continuing or would result from
such Proposed Borrowing, which constitutes a Default or Event of Default.
Very truly yours,
INTERSTATE FIBERNET, INC.
By:
------------------------------------
, President
-------------------------
-2-
<PAGE>
EXHIBIT F
ASSIGNMENT AND ACCEPTANCE AGREEMENT
THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT ("Assignment and Acceptance") is
dated ________________, 199__, among ________________________ ("Assignor") and
_____________________ ("Assignee") and NationsBank of Texas, N.A., as
Administrative Lender ("Administrative Lender").
BACKGROUND
A. Reference is made to the Credit Agreement dated as of
___________________ ___, 1997 (as it may hereafter be amended, restated,
extended, increased, supplemented or otherwise modified from time to time, being
referred to as the "Credit Agreement") among Interstate FiberNet, Inc. (the
"Borrower"), the financial institutions parties thereto as Lenders thereunder,
and Administrative Lender for Lenders under the Credit Agreement. Unless
otherwise defined, terms are used herein as defined in the Credit Agreement.
B. This Assignment and Acceptance is made with reference to the following
facts:
(i) Assignor is a Lender under and as defined in the Credit
Agreement and, as such, presently holds a percentage of the rights and
obligations of Lenders under the Credit Agreement.
(ii) As of the date hereof, the Commitment is $50,000,000, the
amount outstanding under the Term Loan is $_______________, Assignor's
Specified Percentage is _______________% and Assignor's Advances under the
Term Loan are $__________________.
(iii) As of the date hereof, the aggregate amount of outstanding
Advances under the Term Loan is $________, and Assignor's Specified
Percentage of the obligation of Lenders to fund the remaining availability
of Term Loan Initial Advances is $_________.
(iv) On the terms and conditions set forth below, Assignor
desires to sell and assign to Assignee, and Assignee desires to purchase
and assume from Assignor as of the Transfer Date (as defined below), a
portion of Assignor's Specified Percentage of the Commitment, any remaining
obligation to fund the multi-Advance Term Loan and Advances under the Term
Loan equal to _______________% (the "Assigned Percentage").
<PAGE>
AGREEMENT.
NOW, THEREFORE, Assignor, Assignee, Administrative Lender and Borrower each
hereby agree as follows:
1. Assignor hereby sells and assigns to Assignee, without recourse and,
except as provided in paragraph 2 of this Assignment and Acceptance, without
-----------
representation and warranty, and Assignee hereby purchases and assumes from
Assignor, Assignor's rights and obligations under the Credit Agreement, to the
extent of Assignee's Assigned Percentage as set forth in paragraph B(iii) above
----------------
(including without limitation, (a) the Assigned Percentage of Assignor's
Specified Percentage of the Commitment, the obligation to fund any Term Loan
Initial Advances and the Term Loan amount as in effect as of the Transfer Date
and (b) its Assigned Percentage of each of the Advances owing to Assignor on the
Transfer Date).
2. Assignor (a) represents and warrants that it is the legal and
beneficial owner of the interests being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (b) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit
Agreement, any other Loan Paper or any other instrument or document furnished
pursuant thereto, or with respect to the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or any
other Loan Paper or any other instrument or document furnished pursuant thereto
or any collateral; and (c) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
Person, the performance or observance by the Borrower or any Person of any of
its obligations under the Loan Papers, or any other instrument or document
furnished pursuant thereto.
3. Assignee (a) confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered to Administrative Lender pursuant to Article VII of the Credit
-----------
Agreement, and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Acceptance; (b) agrees that it will, independently and without reliance upon the
Administrative Lender, Assignor 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 the Credit Agreement
and the other Loan Papers; (c) appoints and authorizes the Administrative Lender
to take such action as agent on its behalf and to exercise such powers under the
Credit Agreement and the other Loan Papers as are delegated to the
Administrative Lender by the terms thereof, together with such powers as are
reasonably incidental thereto; (d) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement and the other Loan Papers are required to be performed by it as a
Lender; and (e) specifies, as its address for notice and Lending Office, the
office set forth beneath its name on the signature pages hereof.
4. The effective date for this Assignment and Acceptance (the "Transfer
Date") with respect to its assignment to Assignee shall be the date following
execution by the parties hereto
-2-
<PAGE>
on which Assignor receives from Assignee an amount in same day funds equal to
its Assigned Percentage of the aggregate principal amount of Advances owing to
Assignor on such date, Administrative Lender and the Borrower receive notice
thereof and an executed copy of this Assignment and Acceptance, and
Administrative Lender receives the $3500.00 processing fee from Assignor
required under Section 11.04 of the Credit Agreement. The Borrower acknowledges
-------------
its obligations under the Credit Agreement, and agrees, after receiving an
executed copy of this Assignment and Acceptance to execute and deliver to
Administrative Lender, in exchange for the Note originally delivered to
Assignor, new Notes to the order of Assignor and Assignee in amounts equal to
their respective Specified Percentages of the Commitment and Term Loan amount.
5. As of the Transfer Date, (a) Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder, (b) Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement and other Loan Papers,
(c) Assignor's Specified Percentage shall be _________________%, and (d)
Assignee's Specified Percentage shall be ____________________%.
6. From and after the Transfer Date, Administrative Lender shall make all
payments under the Credit Agreement in respect of the interests assigned hereby
(including, without limitation, all payments of principal, interest and fees
with respect thereto) to Assignee in its Specified Percentage. Assignor and
Assignee shall make all appropriate adjustments in payments under the Credit
Agreement for periods prior to the Transfer Date directly between themselves.
7. This Assignment and Acceptance may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument. In making proof of this document, it shall not be necessary to
produce or account for any counterpart other than one signed by the party
against which enforcement is sought.
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
-3-
<PAGE>
8. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the state of Texas, without reference to principles
of conflict of laws.
ASSIGNOR:
-----------------------------------------
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address: ASSIGNEE:
- ----------------------------- -----------------------------------------
- -----------------------------
- -----------------------------
Attn: By:
------------------------ ------------------------------------
Telephone No.: ( ) - Name:
---- ---- -------------------------------
Telecopier No.: ( ) - Title:
---- ---- -----------------------------------
LIBOR Lending Office:
- -----------------------------
- -----------------------------
- -----------------------------
Attn:
------------------------
Telephone No.: ( ) -
---- ----
Telecopier No.: ( ) -
---- ----
ADMINISTRATIVE LENDER
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By:
------------------------------------
Name:
------------------------------
Its:
-------------------------------
-4-
<PAGE>
Accepted and approved this _____
day of ___________, 199___:
INTERSTATE FIBERNET, INC.
By:
---------------------------
Name:
---------------------
Its:
---------------------
-5-
<PAGE>
EXHIBIT G
<PAGE>
FORM OF GUARANTY
----------------
THIS GUARANTY, dated as of September 17, 1997 (as amended, restated and
otherwise modified from time to time this "Guaranty"), made by _______________
a _________ corporation (the "Guarantor"), of the obligations of Interstate
FiberNet, Inc., a Delaware corporation ("Company"), under the Credit Agreement
(defined below) among the Company, NationsBank of Texas, N.A., as administrative
lender ("Administrative Lender"), and the lenders party to the Credit Agreement
(singly, a "Lender" and collectively, the "Lenders").
BACKGROUND
----------
1. The Company, Administrative Lender and the Lenders have entered into an
Credit Agreement dated as of September 17, 1997 (as it may be amended, restated
or otherwise modified from time to time, being the "Credit Agreement"). The
capitalized terms not otherwise defined herein have the meanings specified in
the Credit Agreement.
2. Pursuant to the Credit Agreement, the Company may, subject to the terms
of the Credit Agreement and the other Loan Papers, request that the Lenders make
Advances.
3. It is a condition precedent to the obligation of the Lenders to make
such Advances upon the terms and conditions set forth herein that the Guarantor
execute and deliver this Guaranty.
4. The Guarantor has determined that the execution, delivery, and
performance of this Guaranty is necessary and convenient to the conduct,
promotion, and attainment of Guarantor's business.
5. Guarantor desires to induce the Lenders to make such Advances which may
reasonably be expected to benefit, directly or indirectly, Guarantor.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances, Guarantor hereby agrees as follows:
1. Guaranty.
--------
(a) Guarantor hereby unconditionally guarantees the punctual payment of,
and promises to pay, when due, whether at stated maturity, by mandatory
prepayment, by acceleration or otherwise, all Obligations, indebtedness and
liabilities, and all rearrangements, renewals and extensions of all or any part
thereof, of the Company, any Subsidiary or any other Obligor now or hereafter
arising from, by virtue of or pursuant to the Credit Agreement, the Notes, any
other Loan Paper, and any and all renewals and extensions thereof, or any part
thereof, or future amendments thereto, whether for principal, interest
(including, without limitation, interest, fees and other charges that would
accrue or become owing both prior to and subsequent to and but for the
commencement of any proceeding against or with respect to the Chief Financial
Officer
<PAGE>
Company under any chapter of the Bankruptcy Code of 1978, 11 U.S.C. (S)101 et
--
seq. whether or not a claim is allowed for the same in any such proceeding),
- ---
premium, fees, commissions, expenses or otherwise (such obligations being the
"Obligation"), and agrees to pay any and all reasonable expenses (including
reasonable counsel fees and expenses) incurred in enforcement or collection of
all or any part thereof, whether such obligations, indebtedness and liabilities
are direct, indirect, fixed, contingent, joint, several or joint and several,
and of any rights under this Guaranty.
(b) Anything contained in this Guaranty to the contrary notwithstanding,
the obligations of Guarantor hereunder shall be limited to a maximum aggregate
amount equal to the largest amount that would not render its obligations
hereunder subject to avoidance as a fraudulent transfer or conveyance under
Section 548 of Title 11 of the United States Code or any applicable provisions
of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each
case after giving effect to all other liabilities of Guarantor, contingent or
otherwise, that are relevant under the Fraudulent Transfer Laws (specifically
excluding, however, any liabilities of Guarantor in respect of intercompany
indebtedness to the Company or other Affiliates of the Company to the extent
that such indebtedness would be discharged in an amount equal to the amount paid
by Guarantor hereunder) and after giving effect as assets, subject to Paragraph
4(a) hereof, to the value (as determined under the applicable provisions of the
Fraudulent Transfer Laws) of any rights to subrogation or contribution of
Guarantor pursuant to (i) Applicable Law or (ii) any agreement providing for an
equitable allocation among Guarantor and other Affiliates of the Company of
obligations arising under guaranties by such parties.
2. Guaranty Absolute. Guarantor guarantees that the Obligation will be
-----------------
paid strictly in accordance with the terms of the Credit Agreement, the Notes,
and the other Loan Papers, regardless of any Applicable Law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of such terms or
the rights of the Lender with respect thereto; provided, however, nothing
contained in this Guaranty shall require Guarantor to make any payment under
this Guaranty in violation of any Applicable Law, regulation or order now or
hereafter in effect. The obligations and liabilities of Guarantor hereunder are
independent of the obligations of the Company under the Credit Agreement and any
Applicable Law, to the extent such payments are not in violation of any
Applicable Law. The liability of Guarantor under this Guaranty shall be
absolute and unconditional irrespective of:
(a) the taking or accepting of any other security or guaranty for any
or all of the Obligations;
(b) any increase, reduction or payment in full at any time or from time
to time of any part of the Obligation, including any reduction or
termination of the Commitment;
(c) any lack of validity or enforceability of the Credit Agreement, the
Notes, or any other Loan Paper or other agreement or instrument relating
thereto, including but not limited to the unenforceability of all or any
part of the Obligation by reason of the fact that (i) the Obligation,
and/or the interest paid or payable with respect thereto,
-2-
<PAGE>
exceeds the amount permitted by Applicable Law, (ii) the act of creating
the Obligation, or any part thereof, is ultra vires, (iii) the officers
----- -----
creating same acted in excess of their authority, or (iv) for any other
reason;
(d) any lack of corporate power of the Company or any other Person at
any time liable for the payment of any or all of the Obligation;
(e) any Debtor Relief Laws affecting the rights of creditors generally
involving the Company, Guarantor or any other Person obligated on any of
the Obligation;
(f) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligation; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or the Administrative
Lender to the Company, Guarantor, or any Person at any time liable for the
payment of any or all of the Obligation; or any other modification,
amendment, or waiver of or any consent to departure from the Credit
Agreement, the Notes, or any other Loan Paper and other agreement or
instrument relating thereto without notification of Guarantor (the right to
such notification being herein specifically waived by Guarantor);
(g) any exchange, release, sale, subordination, or non-perfection of
any collateral or Lien thereon or any lack of validity or enforceability or
change in priority, destruction, reduction, or loss or impairment of value
of any collateral or Lien thereon;
(h) any release or amendment or waiver of or consent to departure from
any other guaranty for all or any of the Obligation;
(i) the failure by any Lender or the Administrative Lender to make any
demand upon or to bring any legal, equitable, or other action against the
Company or any other Person (including without limitation Guarantor), or
the failure or delay by any Lender or the Administrative Lender to, or the
manner in which any Lender or the Administrative Lender shall, proceed to
exhaust rights against any direct or indirect security for the Obligation;
(j) the existence of any claim, defense, set-off, or other rights
which the Company or Guarantor may have at any time against the Company,
the Lenders, or Guarantor, or any other Person, whether in connection with
this Guaranty, the Loan Papers, the transactions contemplated thereby, or
any other transaction;
(k) any failure of any Lender or the Administrative Lender to notify
Guarantor of any renewal, extension, or assignment of the Obligation or any
part thereof, or the release of any security, or of any other action taken
or refrained from being taken by any Lender or the Administrative Lender,
it being understood that the Lenders and the
-3-
<PAGE>
Administrative Lender shall not be required to give Guarantor any notice of
any kind under any circumstances whatsoever with respect to or in
connection with the Obligation;
(l) any payment by the Company to the Lenders or the Administrative
Lender is held to constitute a preference under any Debtor Relief Law or if
for any other reason the Lenders or the Administrative Lender is required
to refund such payment or pay the amount thereof to another Person; or
(m) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Company, Guarantor, any other
guarantor or other Person liable on the Obligation, including without
limitation any defense by reason of any disability or other defense of the
Company, or the cessation from any cause whatsoever of the liability of the
Company, or any claim that Guarantor's obligations hereunder exceed or are
more burdensome than those of the Company.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligation is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of the Company, Guarantor or otherwise, all as
though such payment had not been made.
3. Waiver. To the extent not prohibited by Applicable Law, Guarantor
------
hereby waives: (a) promptness, protests, diligence, presentments, acceptance,
performance, demands for performance, notices of nonperformance, notices of
protests, notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation or incurrence of new or additional indebtedness, and any of
the events described in Section 2 herein and of any other occurrence or matter
---------
with respect to any of the Obligation, this Guaranty or any of the other Loan
Papers; (b) any requirement that the Administrative Lender or any Lender
protect, secure, perfect, or insure any Lien or security interest or any
property subject thereto or exhaust any right or take any action against the
Company or any other Person or any collateral or pursue any other remedy in the
Administrative Lender's or any Lender's power whatsoever; (c) any right to
assert against the Administrative Lender or any Lender as a counterclaim, set-
off or cross-claim, any counterclaim, set-off or claim which it may now or
hereafter have against the Company or other Person liable on the Obligation; (d)
any right to seek or enforce any remedy or right that the Administrative Lender
or any Lender now has or may hereafter have against the Company (to the extent
permitted by Applicable Law); (e) except as otherwise provided in Section 4
hereof, any right to participate in any collateral or any right benefiting the
Administrative Lender or the Lenders in respect of the Obligation; and (f) any
right by which it might be entitled to require suit on an accrued right of
action in respect of any of the Obligation or require suit against the Company
or any other Person, whether arising pursuant to Section 34.02 of the Texas
Business and Commerce Code, as amended, Section 17.001 of the Texas Civil
Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil
Procedure, as amended, or otherwise.
-4-
<PAGE>
4. Subrogation and Subordination.
-----------------------------
(a) Notwithstanding any reference to subrogation contained herein to the
contrary, Guarantor hereby irrevocably waives any claim or other rights which it
may have or hereafter acquire against the Company that arise from the existence,
payment, performance or enforcement of Guarantor's obligations under this
Guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, any right to
participate in any claim or remedy of any Lender against the Company or any
collateral which any Lender now has or hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statutes or common
law, including without limitation, the right to take or receive from the
Company, 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
until the Obligation shall have been paid indefeasibly in full in cash and no
commitments of any Lender remain outstanding; and thereafter Guarantor will be
subrogated to the position of the Lenders to the extent of the payments made by
Guarantor. If any amount shall be paid to Guarantor in violation of the
preceding sentence and the Obligation shall not have been paid indefeasibly in
full in cash or any commitment of any Lender shall remain outstanding, such
amount shall be deemed to have been paid to Guarantor for the benefit of, and
held in trust for the benefit of, the Lenders, and shall forthwith be paid to
the Administrative Lender to be credited and applied upon the Obligation,
whether matured or unmatured, in accordance with the terms of the Credit
Agreement. Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by the Credit Agreement
and that the waiver set forth in this Paragraph 4(a) is knowingly made in
contemplation of such benefits.
(b) If Guarantor becomes the holder of any indebtedness payable by the
Company, Guarantor hereby subordinates all indebtedness owing to it from the
Company to all indebtedness of the Company to the Lenders, and agrees that upon
the occurrence and continuance of a Default or an Event of Default, it shall not
accept any payment on the same until payment indefeasibly in full in cash of the
Obligations of the Company under the Credit Agreement, the Notes and all other
Loan Papers, and shall in no circumstance whatsoever attempt to set-off or
reduce any obligations hereunder because of such indebtedness. If any amount
shall nevertheless be paid to Guarantor by the Company on behalf of the Company
prior to payment in full of the Obligation, such amount shall be held in trust
for the benefit of the Lenders and shall forthwith be paid to the Administrative
Lender to be credited and applied to the Obligation, whether matured or
unmatured.
5. Representations and Warranties. Guarantor hereby represents and
------------------------------
warrants that all representations and warranties as they apply to Guarantor only
set forth in Article V of the Credit Agreement (each of which is hereby
incorporated by reference) are true and correct.
6. Covenants. Guarantor hereby expressly assumes, confirms, and agrees
---------
to perform, observe, and be bound by all conditions and covenants set forth in
the Credit Agreement, to the extent applicable to it, as if it were a signatory
thereto. Guarantor further covenants and agrees (a) punctually and properly to
perform all of Guarantor's covenants and
-5-
<PAGE>
duties under any other Loan Papers; (b) from time to time promptly to furnish
the Administrative Lender with any information or writings which the
Administrative Lender may request concerning this Guaranty; and (c) promptly to
notify the Administrative Lender of any claim, action, or proceeding affecting
this Guaranty.
7. Amendments, Etc. No amendment or waiver of any provision of this
---------------
Guaranty nor consent to any departure by Guarantor therefrom shall in any event
be effective unless the same shall be in writing and signed by Guarantor, the
Lenders or the Administrative Lender as provided in the Credit Agreement, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
8. Addresses for Notices. Unless otherwise provided herein, all notices,
---------------------
requests, consents, demands, and other communications shall be in writing and
shall be personally delivered, sent by telecopy, sent by Federal Express or
other overnight delivery service or mailed, by certified mail, postage prepaid,
to the following addresses:
(a) If to the Guarantor:
c\o Interstate FiberNet, Inc.
206 West Ninth Street
West Point, Georgia 31833
Telephone No.: (706) 645-8189
Telecopier No.: (706) 645-8989
Attention: Mr. Douglas A. Shumate
Chief Financial Officer
With a copy (which shall not constitute notice) to:
Hogan & Hartson, L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telephone No.: (202) 637-5600
Telecopier No.: (202) 637-5910
Attention: Benton R. Hammond, Esq.
-6-
<PAGE>
(b) If to the Administrative Lender:
NationsBank of Texas, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Telephone No.: (214)508-2576
Telecopier No.: (214)508-9390
Attention: Mr. Keith Wilson
Vice President
with a copy to:
Donohoe, Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Melissa Ruman Stewart
(c) If to any Lender, to its address shown on the signature pages hereto
or to such other address as any party may designate in written notice
to the other parties. All notices, requests, consents, demands, and
other communications hereunder will be effective when so personally
delivered or sent by telecopy, or one day after being sent by Federal
Express or other overnight delivery service or five days after being
so mailed, except as otherwise provided in the Credit Agreement.
9. No Waiver; Remedies. No failure on the part of the Administrative
-------------------
Lender or any Lender to exercise, and no delay in exercising, any right
hereunder or under any of the Loan Papers shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder or under any of the
Loan Papers preclude any other or further exercise thereof or the exercise of
any other right. Neither the Administrative Lender nor any Lender shall be
required to (a) prosecute collection or seek to enforce or resort to any
remedies against the Company or any other Person liable on any of the
Obligation, (b) join the Company or any other Person liable on any of the
Obligation in any action in which Lender prosecutes collection or seeks to
enforce or resort to any remedies against the Company or other Person liable on
any of the Obligation, or (c) seek to enforce or resort to any remedies with
respect to any Liens granted to (or benefiting, directly or indirectly) the
Administrative Lender or any Lender by the Company or any other Person liable on
any of the Obligation. Neither the Administrative Lender nor any Lender shall
have any obligation to protect, secure or insure any of the Liens or the
properties or interests in properties subject thereto. The remedies herein
provided are cumulative and not exclusive of any remedies provided by Applicable
Law.
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<PAGE>
10. Right of Set-off. Upon the occurrence and during the continuance of
----------------
any Event of Default, each Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by Law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Lender to or for the
credit or the account of Guarantor against any and all of the obligations of
Guarantor now or hereafter existing under this Guaranty, irrespective of whether
or not such Lender shall have made any demand under this Guaranty. Each Lender
agrees promptly to notify Guarantor after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Lender under this Section 10
----------
are in addition to other rights and remedies (including, without limitation,
other rights of set-off) which such Lender may have.
11. Liens. To the extent not prohibited by Applicable Law, Guarantor
-----
agrees that the Administrative Lender or Lender, in its discretion, without
notice or demand to or upon Guarantor and without affecting either the liability
of Guarantor, the Company or any other Person liable on any of the Obligation
under, or the Liens and security interests created by, this Guaranty, or any
security interest or other Lien, may foreclose any deed of trust or mortgage or
similar Lien covering interests in real or personal property, and the interests
in real or personal property secured thereby, by nonjudicial sale; and Guarantor
hereby waives, to the extent not prohibited by Applicable Law, any defense to
the recovery by the Administrative Lender or any Lender hereunder against the
Company, Guarantor or any collateral of any deficiency after a nonjudicial sale
and Guarantor expressly waives any defense or benefits that may be derived from
Chapter 34 of the Texas Business and Commerce Code, Section 51.003 of the Texas
Property Code, or any similar statute in effect in any other jurisdiction.
Without limiting the foregoing, Guarantor waives, to the extent not prohibited
by Applicable Law, any defense arising out of any such nonjudicial sale even
though such sale operates to impair or extinguish any right of reimbursement or
subrogation or any other right or remedy of Guarantor against the Company or any
other Person or any Collateral or any other collateral. Guarantor hereby agrees
that Guarantor shall be liable, subject to the limitations of Section 1 hereof,
---------
for any part of the Obligation remaining unpaid after any foreclosure.
12. Continuing Guaranty; Transfer of Notes. This Guaranty is an
--------------------------------------
irrevocable continuing guaranty of payment and shall (a) remain in full force
and effect until final payment indefeasibly in full in cash of the Obligations,
termination of the Commitment, and all other amounts payable under this
Guaranty, (b) be binding upon Guarantor, its successors and assigns, and (c)
inure to the benefit of and be enforceable by each Lender and its successors,
transferees and assigns. Without limiting the generality of the foregoing
clause (c), to the extent permitted by the Credit Agreement, each Lender may
assign or otherwise transfer its rights under the Credit Agreement, the Notes or
any of the Loan Papers or any interest therein to any other Person, and such
other Person shall thereupon become vested with all the rights or any interest
therein, as appropriate, in respect thereof granted to the Lender herein or
otherwise.
13. Information. Guarantor acknowledges and agrees that it shall have the
-----------
sole responsibility for obtaining from the Company such information concerning
the Company's
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<PAGE>
financial condition or business operations as Guarantor may require, and that
neither the Administrative Lender nor any Lender has any duty at any time to
disclose to Guarantor any information relating to the business operations or
financial conditions of the Company.
14. GOVERNING LAW. (a) THIS AGREEMENT AND ALL LOAN PAPERS SHALL BE DEEMED
-------------
CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE EXTENT FEDERAL
LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF ALL OR
ANY PART OF THIS AGREEMENT AND ALL LOAN PAPERS. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, THE GUARANTOR AGREES THAT THE COURTS OF TEXAS WILL HAVE
JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
(b) THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON
IT. IN ADDITION, THE GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON
IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE GUARANTOR AT
ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON RECEIPT BY SUCH GUARANTOR. NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE LENDER OR ANY LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
15. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE
--------------------
GUARANTOR AND THE LENDERS HEREBY WAIVE ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY
JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE)
ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY
RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE
SITTING WITHOUT A JURY.
16. Ratable Benefit. This Guaranty is for the ratable benefit of the
---------------
Lenders, each of which shall share any proceeds of this Guaranty pursuant to the
terms of the Credit Agreement.
17. Guarantor Insolvency. Should Guarantor become insolvent, fail to pay
--------------------
its debts generally as they become due, voluntarily seek, consent to, or
acquiesce in the benefits of any Debtor Relief Laws or become a party to or be
made the subject of any proceeding provided for by any Debtor Relief Laws (other
than as a creditor or claimant) that could suspend or otherwise adversely affect
the rights of any Lender granted hereunder, then, the obligations of Guarantor
under this Guaranty shall be, as between Guarantor and such Lender, a fully-
matured, due, and payable obligation of Guarantor to such Lender (without regard
to whether the Company is then in default under the Credit Agreement or whether
any part of the Obligation is then due and owing by the Company to such Lender),
payable in full by Guarantor to such Lender upon
-9-
<PAGE>
demand, which shall be the estimated amount owing in respect of the contingent
claim created hereunder.
18. ENTIRE AGREEMENT. THIS GUARANTY, TOGETHER WITH THE OTHER LOAN PAPERS,
----------------
REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its respective officers thereunto duly authorized as
of the date first above written.
[GUARANTOR]
By:
-----------------------------------
Name:
Title:
-11-
<PAGE>
EXHIBIT H
<PAGE>
FORM OF PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of September 17, 1997 (this "Agreement"), by
___________________, a Delaware corporation ("Pledgor"), in favor of NationsBank
of Texas, N.A., a national banking association, in its capacity as
Administrative Lender pursuant to the Credit Agreement described below
("Administrative Lender") and each lender a party to the Credit Agreement from
time to time (singly, a "Secured Party" and collectively "Secured Parties").
BACKGROUND.
(1) Secured Parties, Administrative Lender and Interstate FiberNet, Inc.
have entered into the Credit Agreement dated as of September 17, 1997 (as the
same may be supplemented, amended and modified from time to time, being the
"Credit Agreement").
(2) It is the intention of the parties hereto that this Agreement and the
steps contemplated hereby will create a first priority security interest
securing the payment of the obligations set forth in Section 1.02 hereof.
------------
(3) It is a condition precedent to the extension of credit under the
Credit Agreement that Pledgor shall have executed and delivered this Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to make the Advances
under the Credit Agreement, Pledgor hereby agrees with Administrative Lender,
for its benefit and the ratable benefit of Secured Parties, as follows:
ARTICLE I. PLEDGE
1.01. Pledge. Pledgor hereby grants, pledges, assigns, hypothecates, and
transfers to Administrative Lender, for its benefit and the ratable benefit of
Secured Parties, a first and prior pledge and security interest in all Capital
Stock owned by Pledgor in all Persons and each other Person which is a successor
to such Persons (singly, an "Issuer", and collectively "Issuers"), now or
hereafter owned beneficially or of record by Pledgor and any certificate or
instrument evidencing such interest, including, but not limited to the interests
listed on Schedule 1 hereto; and without affecting the obligation of Pledgor or
----------
Issuer under any agreement prohibiting such action, in the event of any
consolidation or merger in which each Issuer is not the surviving entity, or in
the event of any sale, lease, transfer or other disposition of all or
substantially all
<PAGE>
of the assets of such Issuer, all Capital Stock, equity, partnership, limited
liability company ("LLC") or other interest of the successor entity formed by or
resulting from such consolidation or merger, or of the Person to which such
sale, lease, transfer or other disposition shall have been made, owned by
Pledgor, and all proceeds and products of the foregoing (collectively,
"Collateral"), to secure the payment and performance of the Obligations (as
defined below).
1.02. Description of Obligations. The security interest granted by
Pledgor shall secure the payment and performance of any and all obligations now
or hereafter existing of Pledgor or any Subsidiary of the Pledgor, and any other
Obligor (other than Administrative Lender or Secured Parties) under the Credit
Agreement and the Loan Papers, including any extensions, modifications,
substitutions, amendments and renewals thereof, whether for principal, interest,
fees, premium, expenses, indemnification or otherwise (all such obligations of
Pledgor, each of its Subsidiaries, and each other Obligor together with the
"Obligations" as defined in the Credit Agreement being the "Obligations").
Without limiting the generality of the foregoing, this Agreement secures the
payment of all amounts which constitute part of the Obligations and would be
owed by Pledgor, each of its Subsidiaries or any other Obligor to Administrative
Lender or any Secured Party under any Loan Paper, but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving Pledgor, each of its Subsidiaries
or any other Obligor (including all such amounts which would become due but for
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of Pledgor, any of its Subsidiaries, or any
other Obligor under any Debtor Relief Law).
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.01. Representations and Warranties Concerning Pledgor. Pledgor
represents and warrants to Administrative Lender and each Secured Party that (a)
the chief place of business and chief executive office of Pledgor and the office
where Pledgor keeps all of its records is located at 206 West Ninth Street, West
Point, Georgia 31833; and (b) no consent of any other Person and no
authorization, approval or other action by, and no notice to or filing with, any
Tribunal is required (i) for the pledge by Pledgor of the Collateral pledged by
it hereunder, for the grant by Pledgor of the security interest granted hereby
or for the execution, delivery or performance of this Agreement by Pledgor, (ii)
for the perfection or maintenance of the pledge, assignment and security
interest created hereby (including the first priority nature of such pledge,
assignment and security interest), or (iii) for the exercise by Administrative
Lender of the Rights provided for in this Agreement or the remedies in respect
of the Collateral pursuant to this Agreement.
2.02. Representations and Warranties Concerning Collateral. Pledgor
represents and warrants to Administrative Lender and each Secured Party that (a)
Pledgor is the sole legal and beneficial owner of the Collateral pledged by it
free and clear of any Lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement or as
otherwise permitted by the Credit Agreement; (b) no effective financing
statement or other similar document used to perfect and preserve a security
interest under the Laws of any
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<PAGE>
jurisdiction covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of Administrative
Lender relating to this Agreement and as otherwise permitted by the Credit
Agreement; (c) Schedule 1 is a complete and correct description of all interest
----------
of Pledgor in each of its Subsidiaries, including each class of interest and
number of units or percentage of ownership owned by Pledgor; (d) the pledge,
assignment, and delivery of the Collateral hereunder, and filing of an
appropriate financing statement, create a valid first and prior perfected
security interest in the Collateral, securing the Obligations; (e) the Capital
Stock pledged hereunder is duly authorized, validly issued, fully paid, and non-
assessable and were not issued in violation of the Rights of any Person; (f) no
unpaid capital call or dispute exists with respect to any of the Collateral; (g)
none of the Collateral is evidenced by a certificate, instrument or other
writing that has not been delivered to Administrative Lender; (h) the interest
of Pledgor in each of its Subsidiaries is a 100% interest of all Capital Stock
of Pledgor's Subsidiaries specified on Schedule 1; (i) none of the Collateral is
----------
subject to any buy-sell, voting trust, transfer restriction (other than transfer
restrictions arising under the Exchange Act), preferential right to purchase or
similar agreement or any option, warrant, put or call or similar agreement,
which consent has not been obtained; (j) Pledgor is organized pursuant to the
articles of incorporation, partnership agreement, LLC agreement, bylaws or other
articles of governance, and no other agreement amends the rights of Pledgor
under such documents; and (k) Pledgor's federal taxpayer identification number
is 58-2301135. The delivery at any time by Pledgor to Administrative Lender of
Collateral shall constitute a representation and warranty by Pledgor under this
Agreement that, with respect to such Collateral, Pledgor is the sole legal and
beneficial owner of the Collateral, and that the matters set forth in this
Section 2.02 are true and correct with respect to such Collateral.
- ------------
2.03. Representations and Warranties Concerning Benefit. Pledgor
represents and warrants to Administrative Lender and each Secured Party that (a)
the value of the consideration received and to be received by Pledgor is
reasonably worth at least as much as the liability and obligation of Pledgor
hereunder, and such liability and obligation may reasonably be expected to
benefit Pledgor directly or indirectly; and (b) none of Administrative Lender,
Secured Party or any other Person has made any representation, warranty or
statement to Pledgor (other than as provided in the Loan Papers) in order to
induce Pledgor to execute this Agreement.
ARTICLE III. COVENANTS
3.01. Affirmative Covenants. Pledgor covenants and agrees (a) promptly to
deliver to Administrative Lender all instruments, certificates, documents, or
agreements evidencing any of the Collateral; (b) promptly to notify
Administrative Lender of any material change in any fact or circumstances
warranted or represented by Pledgor in this Agreement or in any other Loan
Paper; (c) promptly to notify Administrative Lender of any claim, action, or
proceeding affecting Pledgor's title to the Collateral, or any part thereof, or
the security interest therein granted hereunder, and, at the request of
Administrative Lender, appear in and defend, at Pledgor's expense, any such
action or proceeding; and (d) promptly to pay to Administrative Lender the
amount of all court costs and reasonable attorney's fees incurred by
Administrative Lender hereunder.
-3-
<PAGE>
3.02. Negative Covenants. Pledgor covenants and agrees that it shall not
(a) create any other security interest or pledge in, mortgage or otherwise
encumber the Collateral or any part thereof, or permit the same to be or become
subject to any Lien, attachment, execution, sequestration, other legal or
equitable process, or any encumbrance of any kind or character, or grant any
option, warrant, or other Rights in the Collateral in favor of any Person other
than Administrative Lender; (b) except as permitted under the Credit Agreement,
cause or permit any Issuer to authorize and issue any additional Capital Stock,
or take any other action that would otherwise dilute any of the Collateral; (c)
except as permitted in the Credit Agreement, approve any amendment to the
articles of incorporation, partnership agreement, LLC agreement, bylaws, or
other organizational or governance document of any Issuer; (d) except as
permitted in the Credit Agreement, permit the merger, consolidation or
dissolution of any Issuer; or (e) sell, lease, transfer or otherwise dispose of
any Collateral in any manner.
3.03. Right to Distributions. With respect to any certificates, bonds, or
other instruments or securities constituting a part of the Collateral,
Administrative Lender shall have authority during the continuance of an Event of
Default, without notice to Pledgor, either to have the same registered in
Administrative Lender's name or in the name of a nominee, and, with or without
such registration, to demand of the issuer thereof, and to receive and receipt
for, any and all Distributions (including any stock or similar dividend or
distribution) payable in respect thereof, whether they be ordinary or
extraordinary. Subject to the next sentence hereof, if Pledgor shall become
entitled to receive or shall receive any interest in or certificate (including,
without limitation, any interest in or certificate representing a Distribution
in connection with any reclassification, increase, or reduction of capital, or
issued in connection with any reorganization), or any option or Rights arising
from or relating to any of the Collateral, whether as an addition to, in
substitution of, as a conversion of, or in exchange for any of the Collateral,
or otherwise, Pledgor agrees to accept the same as Administrative Lender's agent
and to hold the same in trust on behalf of and for the benefit of Administrative
Lender, and to deliver the same immediately to Administrative Lender in the
exact form received, with appropriate undated stock, partnership interest, LLC
membership interest, or similar powers, duly executed in blank, to be held by
Administrative Lender, subject to the terms hereof, as Collateral. Unless an
Event of Default is in existence or would occur as a result thereof, Pledgor
shall be entitled to receive and utilize for its own purposes, all cash
Distributions (other than Distributions constituting a return of capital) paid
in respect of any of the Collateral. Administrative Lender shall be entitled to
all Distributions, and to any sums paid upon or in respect of any Collateral,
upon the liquidation, dissolution, or reorganization of the issuer thereof or
which constitute a return of capital which shall be paid to Administrative
Lender to be held by it as additional collateral security for the Obligations
and application to the Obligations at the discretion of Administrative Lender.
All Distributions paid or distributed in respect of the Collateral which are
received by Pledgor in violation of this Agreement shall, until paid or
delivered to Administrative Lender, be held by Pledgor in trust as additional
Collateral for the Obligations.
3.04. Records of Collateral. Pledgor at all times shall maintain accurate
books and records concerning the Collateral. Pledgor shall cause all issuers of
the Collateral to mark
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<PAGE>
immediately all books and records of issue, registration, and transfer relating
to the Collateral, with an entry showing the collateral assignment of the
Collateral to Administrative Lender.
3.05. Information and Inspection. Subject to the terms and provisions of
Section 6.07 of the Credit Agreement, Pledgor shall, and shall cause each Issuer
- ------------
to, (a) allow Administrative Lender to inspect and copy, or at the option of
Administrative Lender, furnish copies of, all records relating to the Collateral
and the Obligations; and (b) furnish Administrative Lender such information as
it may request with respect to the Collateral, any Distributions thereon, and
any proceeds thereof, at the time and in the form requested by Administrative
Lender.
3.06. Indemnity and Expenses. (a) Pledgor shall indemnify Administrative
Lender and each Secured Party from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), expressly including such claims, losses or liabilities arising out
of mere negligence of Administrative Lender or any Secured Party, except claims,
losses or liabilities resulting from Administrative Lender's or any Secured
Party's gross negligence or willful misconduct.
(b) Pledgor will upon demand pay to Administrative Lender and each
Secured Party the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which
Administrative Lender and each Secured Party may incur in connection with (i)
the sale of, collection from, or other realization upon, any of the Collateral,
(ii) the exercise or enforcement of any of the Rights of Administrative Lender
or any Secured Party hereunder or (iii) the failure by Pledgor to perform or
observe any of the provisions hereof.
(c) Any payment made or cost borne by Administrative Lender and each
Secured Party shall be a part of the Obligations, shall be payable upon demand,
and shall bear interest as provided in the Credit Agreement.
3.07. Additional Documents. Pledgor, at its expense, shall take all
action, and execute and deliver such further instruments, agreements, blank
stock, partnership interest, LLC membership interest, or similar powers, and
assignments as Administrative Lender shall deem necessary or appropriate to
obtain, maintain, and perfect the security interest hereunder, including the
security interest in after-acquired Collateral granted herein, and to enable
Administrative Lender to comply with all applicable federal or state Law, in
order to obtain or perfect Administrative Lender's interest in the Collateral,
to effect its Rights hereunder, or to obtain Distributions and other proceeds of
the Collateral as provided herein.
3.08. Additional Collateral. Upon acquisition by Pledgor of any
additional interest in any Issuer, Pledgor shall be deemed to grant hereunder,
and shall cause to be granted, Liens and security interests on such interest to
Administrative Lender, as security for the Obligations. Pledgor agrees to take,
and to cause to be taken, at its own cost and expense, such actions as
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<PAGE>
Administrative Lender shall deem necessary or appropriate to create, evidence,
and perfect such Liens and assure the first priority of such Liens.
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER
4.01. Remedies upon Default. Administrative Lender, during the
continuance of an Event of Default and without liability to Pledgor, may without
notice or demand: obtain from any Person information regarding Pledgor, any
issuer of the Collateral, or any of their businesses, which information any such
Person also may furnish without liability to Pledgor or any other Person;
require Pledgor to give possession or control of any of the Collateral to
Administrative Lender; endorse as Pledgor's agent or attorney-in-fact any
instruments or documents representing proceeds of the Collateral; unless earlier
permitted hereunder, take control of funds generated by the Collateral and any
other proceeds, and exercise all other Rights which an owner of such Collateral
may exercise; at any time transfer any of the Collateral or evidence thereof
into its own name or that of its nominee; vote any Collateral and exercise any
Rights with respect thereto; and demand, collect, convert, redeem, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize upon the Collateral,
in its own name for the benefit of Secured Parties, or in the name of Pledgor,
as Administrative Lender may determine. Neither Administrative Lender nor any
Secured Party shall be liable for failure to collect any Distribution or other
proceeds, or for any act or omission on the part of Administrative Lender, its
officers, agents, employees, or other representatives, except willful misconduct
and gross negligence. The foregoing Rights of Administrative Lender shall be in
addition to, and not a limitation upon, any Right of Administrative Lender given
by Law, elsewhere in this Agreement or any other Loan Papers, or otherwise.
4.02. Right of Administrative Lender to Notify Issuers. At any time
during the continuance of an Event of Default and at such other times as
Administrative Lender is entitled to receive Distributions and other property
constituting Collateral pursuant to the terms of this Agreement, Administrative
Lender may notify issuers of the Collateral to make payments of the applicable
Distributions directly to Administrative Lender and Administrative Lender may
take control of all applicable proceeds of any Collateral. Until Administrative
Lender elects to exercise such Right, during the continuance of an Event of
Default, Pledgor, as agent of Administrative Lender, shall collect and segregate
all Distributions and other amounts paid or distributed with respect to the
Collateral.
4.03. Delivery of Receipts to Administrative Lender. Upon Administrative
Lender's demand during the continuance of an Event of Default, Pledgor shall
deposit, upon receipt and in the form received, with any necessary endorsement,
all payments received as proceeds of or otherwise in connection with the
Collateral, in a special bank account in a bank of Administrative Lender's
choice over which Administrative Lender alone shall have power of withdrawal.
The funds in such account shall secure the Obligations. Administrative Lender
is authorized, and is hereby appointed during the continuance of an Event of
Default, Pledgor's attorney-in-fact, to make any endorsement in Pledgor's name
and behalf. Pending such deposit,
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<PAGE>
Pledgor shall not mingle any such payments with any of Pledgor's other funds or
property, but shall hold them separate and upon an express trust for
Administrative Lender. During the continuance of an Event of Default,
Administrative Lender may from time to time apply the whole or any part of the
funds in the special account against the Obligations.
4.04. Voting Rights. It is expressly understood and agreed that Pledgor
shall retain all voting or management rights to the Collateral unless an Event
of Default shall exist and be continuing, at which time such voting rights shall
transfer to or be exercised as directed by Administrative Lender, at its sole
discretion; provided, however, that no voting or management rights shall be
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exercised, vote cast, consent, waiver, or ratification given, or action taken by
Pledgor which would be inconsistent with or violate any provision of this
Agreement or any other Loan Paper.
4.05. Realization upon Collateral. During the continuance of an Event of
Default, Administrative Lender, without notice or demand, but subject to any
limitations or restrictions imposed by applicable Law, may exercise any Right of
a secured party under the Uniform Commercial Code of Texas or any other
applicable jurisdiction ("UCC"), this Agreement, any other Loan Papers, or
otherwise and also may (i) require Pledgor to, and Pledgor hereby agrees that it
will at its expense and upon request of Administrative Lender forthwith,
assemble all or part of the Collateral as directed by Administrative Lender and
make it available to Administrative Lender at a place to be designated by
Administrative Lender which is reasonably convenient to both parties or (ii)
without notice, except as specified below, sell the Collateral or any portion
thereof in one or more parcels at public or private sale, at any of
Administrative Lender's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Administrative Lender may deem
commercially reasonable. Unless the Collateral is of a type customarily sold on
a recognized market, Administrative Lender shall give Pledgor reasonable written
notice of the time and place of any public sale thereof or of the time after
which any private sale or other intended disposition thereof is to be made.
Pledgor agrees that ten days advance written notice thereof shall constitute
reasonable notice. Administrative Lender shall not be obligated to make any
sale of Collateral, regardless of notice of sale having been given.
Administrative Lender may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Expenses of retaking, holding, preparing for sale, selling, or the like shall
include Administrative Lender's reasonable attorneys' fees and legal expenses,
and constitute a portion of the Obligations. During the continuance of an Event
of Default, Administrative Lender shall be entitled to immediate possession of
all books and records maintained by Pledgor with respect to the Collateral, and
shall have the authority to enter upon any premises upon which any of the same
may be situated and remove the same therefrom without liability. Upon
disposition of Collateral during an Event of Default, Pledgor shall be entitled
to any surplus with respect to the Collateral following payment in full of the
Obligations and termination hereof, and shall be liable to Administrative Lender
for any deficiency with respect thereto. All cash proceeds received by
Administrative Lender upon any sale of, collection of, or other realization
upon, all or any part of the Collateral shall be applied as follows:
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First: To the payment of all out-of-pocket expenses incurred in connection
-----
with the sale of, collection of or other realization upon Collateral,
including reasonable attorneys' fees and disbursements;
Second: To the payment of the Obligations as provided in the Credit
------
Agreement and in such order and in such manner consistent with applicable
Laws as Administrative Lender in its discretion shall decide; and
Third: To the extent of the balance (if any) of such proceeds, to the
-----
payment to Pledgor or other Person legally entitled thereto.
Non-cash proceeds of any disposition of Collateral available to satisfy the
Obligations shall be applied to the Obligations in such order and in such manner
consistent with applicable Law as Administrative Lender in its discretion shall
decide.
4.06. Securities and Other Laws; Contractual Restrictions; Registration.
(a) Because of the Securities Act of 1933, as amended ("Securities
Act"), and other Laws, including without limitation state "blue sky" laws, or
contractual restrictions or agreements imposed upon certain Persons, there may
be legal restrictions or limitations affecting Administrative Lender in any
attempts to dispose of the Collateral and the enforcement of its Rights
hereunder. For these reasons, Administrative Lender is hereby authorized by
Pledgor, but not obligated, during the continuance of any Event of Default, to
sell or otherwise dispose of any of the Collateral at private sale, subject to
an investment letter, or in any other manner which will not require the
Collateral, or any part thereof, to be registered in accordance with the
Securities Act, or the rules and regulations promulgated thereunder, or any
other Law. Administrative Lender is also hereby authorized by Pledgor, but not
obligated, to take such actions, give such notices, obtain such consents, and do
such other things as Administrative Lender may deem required or appropriate
under the Securities Act or other securities Laws or other Laws or contractual
restrictions or agreements in the event of a sale or disposition of any
Collateral. Pledgor clearly understands that Administrative Lender may in its
discretion approach a restricted number of potential purchasers and that a sale
under such circumstances may yield a lower price for the Collateral than would
otherwise be obtainable if same were registered and sold in the open market. No
sale so made in good faith by Administrative Lender shall be deemed to be not
"commercially reasonable" because so made. Pledgor agrees that in the event
Administrative Lender shall, during the continuance of an Event of Default, sell
the Collateral or any portion thereof at any private sale or sales,
Administrative Lender shall have the Right to rely upon the advice and opinion
of appraisers and other Persons, which appraisers and other Persons are
acceptable to Administrative Lender, as to the best price reasonably obtainable
upon such a private sale thereof. In the absence of fraud, such reliance shall
be evidence that Administrative Lender handled such matter in a commercially
reasonable manner under applicable Law.
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(b) If Administrative Lender shall determine to exercise its Right to
sell any or all of the Collateral, and if in the opinion of counsel for
Administrative Lender it is necessary, or if in the opinion of Administrative
Lender it is advisable, to have the Collateral or that portion thereof to be
sold, registered under the provisions of the Securities Act, Pledgor will, to
the fullest extent it has the capability to do so, cause the issuers of the
Collateral contemplated to be sold to execute and deliver, and cause the
directors and officers of each thereof to execute and deliver, all at Pledgor's
expense, all such instruments and documents, and to do or cause to be done all
such other acts and things, as may be necessary or, in the opinion of
Administrative Lender, advisable to register the Collateral or that portion
thereof to be sold, under the provisions of the Securities Act and to cause the
registration statement relating thereto to become effective and to remain
effective for such period as Administrative Lender may deem appropriate to
facilitate the sale or other disposition of such Collateral from the date of the
first public offering of the Collateral or that portion thereof to be sold, and
to make all amendments thereto and/or to the related prospectus which, in the
opinion of Administrative Lender, are necessary or advisable, all in conformity
with the requirements of the Securities Act. Pledgor shall use its best efforts
to cause each Issuer to comply with the provisions of the securities or "blue
sky" laws of any jurisdiction which Administrative Lender shall designate and to
cause each Issuer to make available to its security holders, as soon as
practicable, an earnings statement which will satisfy the provisions of the
Securities Act and applicable "blue sky" laws.
4.07. Further Approvals Required.
(a) In connection with the exercise by Administrative Lender of its
Rights hereunder that effects the disposition of or use of any Collateral, it
may be necessary to obtain the prior consent, waiver or approval of Tribunals
and other Persons to a transfer or assignment of Collateral including, without
limitation, the FCC.
(b) Pledgor hereby agrees, during the continuance of an Event of
Default, to execute, deliver, and file, and hereby appoints (to the extent
permitted under applicable Law) Administrative Lender as its attorney-in-fact,
during the continuance of an Event of Default, to execute, deliver, and file on
Pledgor's behalf and in Pledgor's name, all applications, certificates, filings,
instruments, and other documents (including without limitation any application
for an assignment or transfer of control or ownership) that may be necessary or
appropriate, in Administrative Lender's opinion, to obtain such consents,
waivers or approvals. Pledgor acknowledges that there is no adequate remedy at
Law for failure by it to comply with the provisions of this Section 4.07 and
------------
that such failure would not be adequately compensable in damages, and therefore
agrees that this Section 4.07 may be specifically enforced.
------------
4.08. Convertible Securities. During the continuance of an Event of
Default, Administrative Lender may present for conversion any Collateral which
is convertible into any other instrument, investment security, or cash.
Administrative Lender shall not have any duty, however, to present for
conversion any of the Collateral, unless it shall have received from Pledgor
detailed written instructions to that effect at a time reasonably far in advance
of the final
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conversion date to make such conversion possible and such conversion does not
violate any provisions of any Loan Paper.
4.09. Issuer Liabilities. By taking a security interest in the Collateral
pursuant to this Agreement, neither Administrative Lender nor any Secured Party
assumes, accepts, or becomes liable with respect to any debts, liabilities, or
obligations of or owed to any issuer of any Collateral.
4.10. Power of Attorney. PLEDGOR HEREBY IRREVOCABLY GRANTS TO
ADMINISTRATIVE LENDER PLEDGOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE
OF AN EVENT OF DEFAULT WHICH IS CONTINUING) TO VOTE ANY COLLATERAL AND, DURING
THE CONTINUANCE OF AN EVENT OF DEFAULT, APPOINTS ADMINISTRATIVE LENDER PLEDGOR'S
ATTORNEY-IN-FACT TO PERFORM ALL OBLIGATIONS OF PLEDGOR UNDER THIS AGREEMENT AND
TO EXERCISE ALL OF ADMINISTRATIVE LENDER'S RIGHTS HEREUNDER. THE PROXY AND
POWER OF ATTORNEY HEREIN GRANTED, AND EACH STOCK, PARTNERSHIP INTEREST, OR LLC
MEMBERSHIP INTEREST POWER AND SIMILAR POWER NOW OR THEREAFTER GRANTED (INCLUDING
ANY EVIDENCED BY A SEPARATE WRITING), ARE COUPLED WITH AN INTEREST AND ARE
IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATIONS.
ARTICLE V. MISCELLANEOUS
5.01. Cumulative Rights. All Rights of Administrative Lender and Secured
Parties under the Loan Papers are cumulative of each other and of every other
Right which Administrative Lender and Secured Parties may otherwise have at Law
or in equity or under any other contract or other writing for the enforcement of
the security interest herein or the collection of the Obligations. The exercise
of one or more Rights shall not prejudice or impair the concurrent or subsequent
exercise of any other Right.
5.02. Administrative Lender's and Secured Parties' Duties. The powers
conferred on Administrative Lender hereunder are solely to protect
Administrative Lender's and Secured Parties' interest in the Collateral and
shall not impose any duty upon Administrative Lender or any Secured Party to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Administrative Lender shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Administrative Lender has or is deemed to have knowledge of such matters, or as
to the taking of any necessary steps to preserve Rights against prior parties or
any other Rights pertaining to any reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Administrative Lender accords its
own property. Except as provided in this Section 5.02, Administrative Lender
------------
shall not have any duty or liability to protect or preserve any Collateral
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or to preserve Rights pertaining thereto. Nothing contained in this Agreement
shall be construed as requiring or obligating Administrative Lender or any
Secured Party, and neither Administrative Lender nor any Secured Party shall be
required or obligated, to (a) present or file any claim or notice or take any
action, with respect to any Collateral or in connection therewith or (b) notify
Pledgor of any decline in the value of any Collateral.
5.03. Waiver. Should any part of the Obligations be payable in
installments, the acceptance by Administrative Lender or any Secured Party at
any time and from time to time of partial payment of the aggregate amount of all
installments then matured shall not be deemed as a waiver of any Event of
Default then existing. No waiver of any Event of Default shall be deemed to be
a waiver of any other subsequent Event of Default, nor shall any such waiver be
deemed to be a continuing waiver. No delay or omission by Administrative Lender
or any Secured Party in exercising any Right hereunder, or under any other Loan
Papers, shall impair any such Right or be construed as a waiver thereof or any
acquiescence therein, nor shall any single or partial exercise of any such Right
preclude other or further exercise thereof, or the exercise of any other Right
of Administrative Lender or any Secured Party hereunder or under such other
agreements.
5.04. Waivers by Pledgor. Pledgor waives notice of the creation, advance,
increase, existence, extension, or renewal of, or of any indulgence with respect
to, the Obligations; waives presentment, demand, notice of dishonor, and
protest; waives notice of the amount of the Obligations outstanding at any time,
notice of any Default or Event of Default, and all other notices respecting the
Obligations; and agrees that maturity of the Obligations and any part thereof
may be accelerated, extended, or renewed one or more times by Secured Parties,
in its or their discretion, without notice to Pledgor. Pledgor waives (a) any
claim that, as to any part of the Collateral, a public sale, should
Administrative Lender elect so to proceed, is, in and of itself, not a
commercially reasonable method of sale for such Collateral, (b) except as
otherwise provided in this Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE OR JUDICIAL HEARING IN CONNECTION WITH ADMINISTRATIVE LENDER'S
DISPOSITION OF ANY OF THE COLLATERAL INCLUDING ANY AND ALL PRIOR NOTICE AND
HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT PLEDGOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF
SALE OR OTHER REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF ADMINISTRATIVE
LENDER'S RIGHTS HEREUNDER and (c) all rights of redemption, appraisal or
valuation.
5.05. Other Parties and Other Collateral. No renewal, increase, or
extension of or any other indulgence with respect to, the Obligations or any
part thereof, no release, exchange, or taking of any security, no release of any
Person (including Pledgor, any Pledgor Subsidiary, maker, endorser, guarantor,
or surety) liable on the Obligations, no delay in enforcement of payment, no
delay or omission or lack of diligence or care in exercising any Right or power
with respect to the Obligations or any security therefor or guaranty thereof or
under this
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Agreement, and no other circumstance or event which might constitute a defense
available to or discharge of Pledgor, any of Pledgor's Subsidiaries or any other
Person, shall in any manner impair or affect the Rights of Administrative Lender
or any Secured Party hereunder, under any other Loan Papers, at Law, or in
equity. Neither Administrative Lender nor any Secured Party need file suit or
assert a claim for personal judgment against any Person for any part of the
Obligations or seek to realize upon any other security for the Obligations,
before foreclosing upon the Collateral for the purpose of paying the
Obligations. Pledgor waives any Right to the benefit of or to require or
control application of any other security or proceeds thereof, and agrees that
neither Administrative Lender nor any Secured Party shall have any duty or
obligation to Pledgor to apply any such other security or proceeds thereof to
the Obligations. Pledgor hereby waives all rights by which it might be entitled
to require suit on an accrued right of action in respect of any of the
Obligations or require suit against any of Pledgor's Subsidiaries, or others,
whether arising pursuant to Section 34.02 of the Texas Business and Commerce
Code, as amended, Section 17.001 of the Texas Civil Practice and Remedies Code,
as amended, or Rule 31 of the Texas Rules of Civil Procedure, as amended, or
otherwise.
5.06. Continuing Security Interest. This Agreement constitutes a
continuing security interest in the Collateral, and shall remain in full force
and effect until final payment and performance in full of the Obligations, and
termination of all commitments and the other Loan Papers.
5.07. Rate Provision. It is not the intention of any party to any Loan
Paper to make an agreement violative of the Laws of any applicable jurisdiction
relating to usury. In no event shall Pledgor be obligated to pay any amount in
excess of the maximum amount of interest permitted under applicable Law. If
from any circumstances Administrative Lender or any Secured Party shall ever
receive anything of value deemed excess interest under applicable Law, an amount
equal to such excess shall be applied to the reduction of the outstanding
balance of the Obligations and any remainder shall be promptly refunded to the
payor.
5.08. Parties Bound. This Agreement shall be binding on Pledgor and its
successors, assigns, and other legal representatives, and shall inure to the
benefit of Administrative Lender and Secured Parties, and their respective
successors and assigns; provided, however, that Pledgor may not assign its
-------- -------
Rights or obligations hereunder without the prior written consent of
Administrative Lender. The Rights, powers, and interests held by Administrative
Lender and Secured Parties hereunder may be transferred or assigned, in whole or
in part, in accordance with the Credit Agreement, without the consent of
Pledgor.
5.09. Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy
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between any telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Lender or Pledgor has acted in reliance on such telephonic
notice.
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
(i) if to Pledgor, to it at:
c\o Interstate FiberNet, Inc.
206 West Ninth Street
West Point, Georgia 31833
Telephone No.: (706) 645-8189
Telecopier No.: (706) 645-8989
Attention: Mr. Douglas A. Shumate
Chief Financial Officer
With a copy (which shall not constitute notice) to:
Hogan & Hartson, L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telephone No.: (202) 637-5600
Facsimile No.: (202) 637-5910
Attention: Benton R. Hammond, Esq.
(ii) If to the Administrative Lender:
NationsBank of Texas, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Telephone No.: (214)508-2576
Facsimile: (214)508-9390
Attention: Mr. Keith Wilson, Vice President
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<PAGE>
with a copy to:
Donohoe, Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telephone: (214) 698-3814
Telecopy: (214) 744-0231
Attention: Melissa R. Stewart, Esq.
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address."
(c) Effectiveness. Each notice, communication and any material to be
given or delivered to Administrative Lender or Pledgor pursuant to this
Agreement shall be effective or deemed delivered or furnished (i) if sent by
mail, on the fifth Business Day after such notice, communication or material is
deposited in the mail, addressed as above provided, (ii) if sent by telecopier,
when such notice, communication or material is transmitted to the appropriate
number determined as above provided in this Section 5.09 and the appropriate
------------
receipt is received or otherwise acknowledged, (iii) if sent by hand delivery or
overnight courier, when left at the address of the addressee addressed as above
provided, and (iv) if given by telephone, when communicated to the individual or
any member of the department specified as the individual or department to whose
attention notices, communications and materials are to be given or delivered
except that notices of a change of address, telecopier or telephone number or
individual or department to whose attention notices, communications and
materials are to be given or delivered shall not be effective until received.
5.10. Modifications; Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by Pledgor here
from, shall in any event be effective unless the same shall be in writing and
signed by Administrative Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
5.11. Financing Statement. A carbon, photographic, or other reproduction
of this Agreement or any financing statement covering the Collateral shall be
sufficient as a financing statement. Pledgor hereby authorizes Administrative
Lender to file one or more financing or continuation statements, and amendments
thereto, relating to any Collateral, without the signature of Pledgor where
permitted by Law.
5.12. Definitions. Unless otherwise defined in this Agreement, terms used
herein shall have the meanings set forth in the Credit Agreement. Unless the
context indicates otherwise or the terms are otherwise defined herein,
definitions in the UCC apply to words and phrases in
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this Agreement. "Pledgor" and "Issuer" include, without limitation, such
Person, such Person's heirs, successors and assigns, such Person as a debtor-in-
possession, and any receiver, trustee, liquidator, conservator, custodian, or
similar party appointed for such Person or all or substantially all of its
assets under any Law.
5.13. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part thereof, and the remaining provisions thereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance therefrom. Furthermore,
in lieu of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a legal, valid, and enforceable
provision as similar in terms to the illegal, invalid, or unenforceable
provision as may be possible.
5.14. Counterparts. This Agreement and the other Loan Papers may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
5.15. Control.
(a) Notwithstanding anything herein to the contrary, this Agreement, the
other Loan Papers, and the transactions contemplated hereby and thereby (i)
prior to a foreclosure of the Liens granted under this Agreement and the other
Loan Papers, do not and will not constitute, create, or have the effect of
constituting or creating, directly or indirectly, actual or practical ownership
of Pledgor, any issuer of any Collateral or any Subsidiary of Pledgor by
Administrative Lender or Secured Parties, or control, affirmative or negative,
direct or indirect, by Administrative Lender or Secured Parties over the
management or any other aspect of the operation of Pledgor, any issuer of
Collateral or any Subsidiary of Pledgor which ownership and control remains
exclusively and at all times in Pledgor such Subsidiary of Pledgor or any issuer
of Collateral, and (ii) do not and will not constitute the transfer, assignment,
or disposition in any manner, voluntarily or involuntarily, directly or
indirectly, of any license or certificate at any time issued by the FCC or other
applicable Tribunal to Pledgor, any issuer of Collateral or any Subsidiary of
Pledgor ("License"), or the transfer of control of Pledgor, any issuer of
Collateral or any Subsidiary of Pledgor within the meaning of Section 310(d) of
the Communications Act of 1934, as amended, or any other applicable laws.
(b) Notwithstanding any other provision of this Agreement, any
foreclosure on, sale, transfer or other disposition of, or the exercise of any
right to vote or consent with respect to, any of the Collateral, as provided
herein or any other action taken or proposed to be taken by Administrative
Lender hereunder which would affect the operational, voting, or other control of
Pledgor, any Subsidiary of Pledgor or any issuer of Collateral or any Subsidiary
of any issuer of Collateral, shall be in accordance with applicable Law.
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(c) Subject to Section 5.15(e), if an Event of Default shall have
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occurred and be continuing, Pledgor shall take any action which Administrative
Lender may reasonably require in order to transfer and assign to Administrative
Lender, or to such one or more third parties as Administrative Lender may
designate or to a combination of the foregoing, each License of the Pledgor,
each Subsidiary or any issuer of the Collateral. To enforce the provisions of
this Section 5.15, Administrative Lender is empowered, during the continuance of
------------
an Event of Default, to require the appointment of a receiver from any court of
competent jurisdiction. Such receiver shall be instructed to seek from the FCC
or other applicable Tribunal an involuntary transfer of control of each such
License for the purpose of seeking a bona fide purchaser to whom control will
ultimately be transferred. Pledgor hereby agrees to authorize such an
involuntary transfer of control upon the request of the receiver so appointed
and, if 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, Pledgor shall further use its best efforts to assist in
obtaining approval of the FCC or other applicable Tribunal, if required, for any
action or transactions contemplated by this Agreement, including, without
limitation, the preparation, execution, and filing with the FCC or other
applicable Tribunal of the assignor's or transferor's portion of any application
or applications for consent to the assignment of any License or transfer of
control necessary or appropriate under the rules and regulations of the FCC or
other applicable Tribunal for approval of the transfer or assignment of any
portion of the Collateral, together with any License.
(d) Pledgor acknowledges that the assignment or transfer of each License
of Pledgor, each Subsidiary and issuer of the Collateral is integral to
Administrative Lender's and Secured Parties' realization of the value of the
collateral pledged by Pledgor, that there is no adequate remedy at law for
failure by Pledgor to comply with the provisions of this Section 5.15 and that
------------
such failure would not be adequately compensable in damages, and therefore
agrees, without limiting the right of Administrative Lender to seek and obtain
specific performance of other obligations of Pledgor contained in this
Agreement, that the agreements contained in this Section 5.15 may be
------------
specifically enforced.
(e) Notwithstanding anything to the contrary contained in this Agreement
or in any other Loan Paper, Administrative Lender shall not, without first
obtaining the approval of the FCC or any other applicable Tribunal, take any
action pursuant to this Agreement which would constitute or result in any
assignment of a License of Pledgor, each Subsidiary or issuer of the Collateral
or any change of control of Pledgor, any Subsidiary of Pledgor or any issuer of
any Collateral or any Subsidiary of any issuer of Collateral, if such assignment
or change in control would require, under then existing Law (including the
written rules and regulations promulgated by the FCC or other applicable
Tribunal), the prior approval of the FCC or such other Tribunal.
5.16. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (OTHER THAN THE
CONFLICT OF LAWS RULES THEREOF AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY
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PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF TEXAS).
5.17. WAIVER OF JURY TRIAL. ADMINISTRATIVE LENDER AND PLEDGOR HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP
ESTABLISHED HEREUNDER.
5.18. Administrative Lender's Right to Use Agents. Administrative Lender
may exercise its Rights under this Agreement through an agent or other designee.
5.19. No Interference, Compensation or Expense. Administrative Lender may
exercise its Rights under this Agreement (a) without resistance or interference
by Pledgor and (b) without payment of any rent, license fee or compensation of
any kind to Pledgor.
5.20. Waiver of Subrogation. Pledgor shall not assert, enforce, or
otherwise exercise (a) any right of subrogation to any of the rights or Liens of
Administrative Lender or any Secured Party or any other Person against Pledgor,
any of Pledgor's Subsidiaries or any other Person on all or any part of the
Obligations or any collateral or other security, or (b) any right of recourse,
reimbursement, contribution, indemnification, or similar right against Pledgor,
any of Pledgor's Subsidiaries or any other Person on all or any part of the
Obligations or any collateral or any security, and Pledgor hereby agrees not to
exercise any and all of the foregoing rights, and any right to participate in,
any collateral or other security given to Administrative Lender or any Secured
Party or any other Person to secure payment of the Obligations, however any such
rights arise, whether hereunder or any other Loan Paper or by operation of Law
until the Obligation shall have been paid indefeasibly in full in cash and no
commitments of any Lender remain outstanding; and thereafter Pledgor will be
subrogated to the position of the Lenders to the extent of the payments made by
Pledgor. If any amount shall be paid to Pledgor in violation of the preceding
sentence and the Obligation shall not have been paid indefeasibly in full in
cash or any commitment of any Lender shall remain outstanding, such amount shall
be deemed to have been paid to Pledgor for the benefit of, and held in trust for
the benefit of, the Lenders, and shall forthwith be paid to the Administrative
Lender to be credited and applied upon the Obligation, whether matured or
unmatured, in accordance with the terms of the Credit Agreement. The provisions
of this Section 5.20 shall survive the termination of this Agreement, and any
------------
satisfaction and discharge of Pledgor and each other Person by virtue of any
payment, court order, or Law.
5.21. Loan Paper. This Agreement is a Loan Paper executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
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5.22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.23. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER
LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
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THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.
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IN WITNESS WHEREOF, Pledgor has executed this Pledge Agreement as of the
date first set forth above.
PLEDGOR
By:
Its:
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Exhibit 10.78.1
REVOLVING PROMISSORY NOTE
$8,750,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of NATIONSBANK OF
TEXAS, N.A. ("Lender") EIGHT MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($8,750,000.00), or so much thereof as may be advanced from time to time
and remain outstanding, payable at such times, and in such amounts, as are
specified in the Credit Agreement (as defined below). The books and records of
Lender shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.78.2
REVOLVING PROMISSORY NOTE
$3,750,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of AMSOUTH BANK
("Lender") THREE MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($3,750,000.00), or so much thereof as may be advanced from time to time and
remain outstanding, payable at such times, and in such amounts, as are specified
in the Credit Agreement (as defined below). The books and records of Lender
shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.78.3
REVOLVING PROMISSORY NOTE
$5,000,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of CREDITANSTALT-
BANKVEREIN ("Lender") FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or so
much thereof as may be advanced from time to time and remain outstanding,
payable at such times, and in such amounts, as are specified in the Credit
Agreement (as defined below). The books and records of Lender shall be prima
facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.78.4
REVOLVING PROMISSORY NOTE
$5,000,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of MEESPIERSON
CAPITAL CORP. ("Lender") FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or so
much thereof as may be advanced from time to time and remain outstanding,
payable at such times, and in such amounts, as are specified in the Credit
Agreement (as defined below). The books and records of Lender shall be prima
facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By:/s/Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.78.5
REVOLVING PROMISSORY NOTE
$5,000,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of STATE STREET
BANK AND TRUST COMPANY ("Lender") FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00), or so much thereof as may be advanced from time to time and
remain outstanding, payable at such times, and in such amounts, as are specified
in the Credit Agreement (as defined below). The books and records of Lender
shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By:/s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.78.6
REVOLVING PROMISSORY NOTE
$7,500,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of CORESTATES
BANK, N.A. ("Lender") SEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($7,500,000.00), or so much thereof as may be advanced from time to time and
remain outstanding, payable at such times, and in such amounts, as are specified
in the Credit Agreement (as defined below). The books and records of Lender
shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.78.7
REVOLVING PROMISSORY NOTE
$2,500,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of FIRST UNION
NATIONAL BANK ("Lender") TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($2,500,000.00), or so much thereof as may be advanced from time to time and
remain outstanding, payable at such times, and in such amounts, as are specified
in the Credit Agreement (as defined below). The books and records of Lender
shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By:/s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.78.8
REVOLVING PROMISSORY NOTE
$5,000,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of REGIONS BANK
("Lender") FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or so much thereof
as may be advanced from time to time and remain outstanding, payable at such
times, and in such amounts, as are specified in the Credit Agreement (as defined
below). The books and records of Lender shall be prima facie evidence of all
sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.78.9
REVOLVING PROMISSORY NOTE
$7,500,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of TORONTO
DOMINION (TEXAS), INC. ("Lender") SEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($7,500,000.00), or so much thereof as may be advanced from time to time
and remain outstanding, payable at such times, and in such amounts, as are
specified in the Credit Agreement (as defined below). The books and records of
Lender shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Revolving
Loan referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.1
TERM PROMISSORY NOTE
$8,750,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of NATIONSBANK OF
TEXAS, N.A. ("Lender") EIGHT MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($8,750,000.00), or so much thereof as may be advanced from time to time
and remain outstanding, payable at such times, and in such amounts, as are
specified in the Credit Agreement (as defined below). The books and records of
Lender shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.2
TERM PROMISSORY NOTE
$5,000,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of CREDITANSTALT-
BANKVEREIN ("Lender") FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or so
much thereof as may be advanced from time to time and remain outstanding,
payable at such times, and in such amounts, as are specified in the Credit
Agreement (as defined below). The books and records of Lender shall be prima
facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
-------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.3
TERM PROMISSORY NOTE
$5,000,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of MEESPIERSON
CAPITAL CORP. ("Lender") FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or so
much thereof as may be advanced from time to time and remain outstanding,
payable at such times, and in such amounts, as are specified in the Credit
Agreement (as defined below). The books and records of Lender shall be prima
facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.4
TERM PROMISSORY NOTE
$5,000,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of STATE STREET
BANK AND TRUST COMPANY ("Lender") FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00), or so much thereof as may be advanced from time to time and
remain outstanding, payable at such times, and in such amounts, as are specified
in the Credit Agreement (as defined below). The books and records of Lender
shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.5
TERM PROMISSORY NOTE
$7,500,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of CORESTATES
BANK, N.A. ("Lender") SEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($7,500,000.00), or so much thereof as may be advanced from time to time and
remain outstanding, payable at such times, and in such amounts, as are specified
in the Credit Agreement (as defined below). The books and records of Lender
shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.6
TERM PROMISSORY NOTE
$2,500,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of FIRST UNION
NATIONAL BANK ("Lender") TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($2,500,000.00), or so much thereof as may be advanced from time to time and
remain outstanding, payable at such times, and in such amounts, as are specified
in the Credit Agreement (as defined below). The books and records of Lender
shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.7
TERM PROMISSORY NOTE
$5,000,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of REGIONS BANK
("Lender") FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or so much thereof
as may be advanced from time to time and remain outstanding, payable at such
times, and in such amounts, as are specified in the Credit Agreement (as defined
below). The books and records of Lender shall be prima facie evidence of all
sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.8
TERM PROMISSORY NOTE
$7,500,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of TORONTO
DOMINION (TEXAS), INC. ("Lender") SEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($7,500,000.00), or so much thereof as may be advanced from time to time
and remain outstanding, payable at such times, and in such amounts, as are
specified in the Credit Agreement (as defined below). The books and records of
Lender shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.79.9
TERM PROMISSORY NOTE
$3,750,000.00 Dallas, Texas September 17, 1997
FOR VALUE RECEIVED, the undersigned, Interstate FiberNet, Inc., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of AMSOUTH BANK
("Lender") THREE MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($3,750,000.00), or so much thereof as may be advanced from time to time and
remain outstanding, payable at such times, and in such amounts, as are specified
in the Credit Agreement (as defined below). The books and records of Lender
shall be prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of each
Advance from the date such Advance is made until such Advance is paid in full,
at such interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Term Loan
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of September 17, 1997 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender and a Lender and certain other Lenders (as from time to
time amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees that extensions and renewals without limit as to number,
acceptance of any number of partial payments, releases of any party liable
hereon, and releases or substitutions of collateral, before or after maturity,
shall not release or discharge its obligation under this Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Note is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding. Borrower agrees that during
the full term hereof the maximum lawful interest rate for this Note determined
under Texas law shall be the indicated rate ceiling as specified in Article
5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate ceiling
exceeds the rate ceiling so determined, then the higher rate ceiling shall
apply. Chapter 15 of the Texas Credit Code does not apply to this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
INTERSTATE FIBERNET, INC.
a Delaware corporation
By: /s/ Douglas A. Shumate
---------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
<PAGE>
Exhibit 10.80.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITY AGREEMENT
Between
INTERSTATE FIBERNET, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender
September 17, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (as amended, restated, or otherwise modified from time
to time, this "Agreement"), dated as of September 17, 1997, made by Interstate
FiberNet, Inc. ("Debtor"), in favor of NationsBank of Texas, N.A., as
Administrative Lender ("Administrative Lender"), and each other lender a party
to the Credit Agreement described below (singly, a "Secured Party" and
collectively, the "Secured Parties").
BACKGROUND:
Administrative Lender, Secured Parties and Debtor have entered into the
Credit Agreement dated as of September 17, 1997 (as the same may be
supplemented, amended and modified from time to time, being the "Credit
Agreement"). It is the intention of the parties hereto that this Agreement
create a first priority security interest securing the payment of the
obligations set forth in Section 1.02. It is a condition precedent to the
------------
effectiveness of the Credit Agreement that Debtor shall have executed and
delivered this Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to make the Advances
under the Credit Agreement, Debtor hereby agrees with Administrative Lender for
its benefit and the Ratable benefit of Secured Parties as follows:
ARTICLE I. GRANT
1.01. Assignment and Grant of Security. Debtor hereby assigns and pledges
to Administrative Lender and the Secured Parties for its benefit and the benefit
of Secured Parties and hereby grants to Administrative Lender and the Secured
Parties for its benefit and the benefit of Secured Parties a security interest
in, the entire right, title and interest of Debtor, in and to all assets of
Debtor, whether now owned or hereafter acquired, including but not limited to
the following ("Collateral"):
(a) all equipment in all of its forms, wherever located, now or
hereafter existing, all parts thereof and all accessions thereto, including but
not limited to machinery, satellite receivers, antennas, headend electronics,
furniture, motor vehicles, aircraft and rolling stock (any and all such
equipment, parts and accessions being the "Equipment");
(b) all inventory in all of its forms, wherever located, now or
hereafter existing,
<PAGE>
including, but not limited to, (i) all raw materials and work in process
therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which Debtor has an interest in
mass or a joint or other interest or right of any kind (including, without
limitation, goods in which Debtor has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by Debtor, and all accessions
thereto and products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "Inventory");
(c) all accounts, accounts receivable, contract rights described on
Schedule 6 hereto, chattel paper, documents, instruments, deposit accounts,
- ----------
general intangibles, tax refunds and other obligations of any kind owing to
Debtor, now or hereafter existing, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements, leases,
subleases, and other contracts securing or otherwise relating to any such
accounts, contract rights, chattel paper, documents, instruments, deposit
accounts, general intangibles or obligations (any and all such accounts,
contract rights, chattel paper, documents, instruments, deposit accounts,
general intangibles and obligations including those described in Section 1.01(e)
---------------
herein being the "Receivables");
(d) all other general intangibles, whether now existing or hereafter
arising and wherever arising, including, but not limited to, all (i)
partnership, corporate, and other interests in and to any Person, (ii) permits,
licenses, consents, contract rights described on Schedule 6 hereto, franchises,
----------
documents, certificates, records, customer lists, customer and supplier
contracts, easements, variances, certifications and approvals of Tribunals,
bills of lading (negotiable and non-negotiable), warehouse receipts, any claim
of Debtor against any Secured Party, liquidated or unliquidated, and other
rights, privileges and goodwill obtained or used in connection with any property
described in this Section 1.01, and (iii) tax refunds and other refunds or
------------
rights to receive payment from U. S. federal, state or local governments or
foreign governments or other Tribunal;
(e) other than the Interest Reserve Escrow Account, all bank accounts,
deposit accounts, and margin accounts, maintained by Debtor with financial
institutions, brokers, dealers, and all other persons or entities relating to
commodities and/or securities, including all funds held therein and all
certificates and instruments, if any, from time to time representing or
evidencing such accounts;
(f) to the extent it is possible to create a security interest or
perfect a security interest in such Collateral by filing a UCC-1 financing
statement centrally, or in the case of dual filing states, centrally and at the
county level, as applicable, in the states of Georgia, Florida, Alabama,
Mississippi, Louisiana, Texas, North Carolina and South Carolina, all of
Debtor's fixtures now existing or hereafter acquired, all substitutes and
replacements therefor, all accessions and attachments thereto, and all tools,
parts and equipment now or hereafter added to or used in connection with the
fixtures on or above all real property now owned or hereafter acquired by Debtor
("Fixtures"); and
2
<PAGE>
(g) all substitutes and replacements for, accessions, attachments and
other additions to, tools, parts, and equipment used in connection with, and all
proceeds, products, and increases of, any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the types
described in this Section 1.01); interest, premium, and principal payments,
------------
redemption proceeds and subscription rights, and shares or other proceeds of
conversions or splits of any securities in Collateral, and returned or
repossessed Collateral; and, to the extent not otherwise included, all (i)
payments under insurance, or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral, (ii) cash and (iii) security for the payment of any of the
Collateral, and all goods which gave or will give rise to any of the Collateral
or are evidenced, identified, or represented therein or thereby. Notwithstanding
any of the foregoing, "Collateral" shall not include the Interest Reserve Escrow
Account.
1.02. Security for Obligations. This Agreement creates a first priority
security interest, securing the payment and performance of any and all
obligations now or hereafter existing of Debtor, each Subsidiary and any other
Person (other than Administrative Lender or any Secured Party) under the Credit
Agreement and Loan Papers, including any extensions, modifications,
substitutions, amendments and renewals thereof, whether for principal, interest,
fees, expenses, indemnification or otherwise (all such obligations of Debtor,
each Subsidiary and each other Person being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts which constitute part of the Obligations and would be owed by
Debtor, each Subsidiary or any other Person (other than Administrative Lender or
any Secured Party) to Administrative Lender or any Secured Party under any Loan
Paper, but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding under any Debtor
Relief Law involving Debtor, any Subsidiary or any other Person (including all
such amounts which would become due or would be secured but for the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of Debtor, any Subsidiary or any other Person
under any Debtor Relief Law).
1.03. Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Administrative Lender or
any Secured Party of any of the Rights hereunder shall not release Debtor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) neither Administrative Lender nor any Secured Party
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Administrative
Lender or any Secured Party be obligated to perform any of the obligations or
duties of Debtor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
1.04. Agreement With Respect to Collateral. Debtor and Administrative
Lender, on behalf of itself and each of the Lenders party to the Credit
Agreement, agree that to the extent
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that any of the Collateral may be deemed to be a Fixture as opposed to
Equipment, Inventory or any other form of Collateral that may be perfected by
the filing of a UCC financing statement, it is the intention of each of these
parties that such Collateral be deemed to be Equipment, Inventory or any other
form of Collateral that may be perfected by the filing of a UCC financing
statement and such Collateral not be deemed to be a Fixture.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.01. Representations and Warranties. Debtor represents and warrants,
with respect to itself and the Collateral, as follows:
(a) All of the Equipment and Inventory pledged by Debtor hereunder is
located at the places specified on Schedule 1 hereto (as supplemented from time
----------
to time by Debtor by written notice to Administrative Lender) or in transit to a
place specified on Schedule 1 hereto (as supplemented from time to time by
----------
Debtor by written notice to Administrative Lender) or in transit (i) for sale to
a third-party purchaser that upon such sale will become the obligor under a
Receivable or (ii) in the ordinary course of Debtor's business. The chief place
of business and chief executive office of Debtor and the office where Debtor
keeps all of its records concerning the Receivables, are located at 206 West
Ninth Street, West Point, Georgia 31833. All chattel paper, promissory notes or
other instruments evidencing the Receivables have been delivered and pledged to
Administrative Lender duly endorsed and accompanied by such duly executed
instruments of transfer or assignment as are necessary for such pledge, to be
held as pledged collateral.
(b) Debtor is the legal and beneficial owner of, or has valid leasehold
title to, the Collateral pledged by it free and clear of any Lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement (other than Permitted Liens). No effective financing
statement or other similar document used to perfect and preserve a security
interest under the Laws of any jurisdiction covering all or any part of the
Collateral is on file in any recording office, except such as may have been
filed (i) in respect of Permitted Liens and (ii) in favor of Administrative
Lender relating to this Agreement. As of the date hereof, Debtor has the trade
names set forth on Schedule 2 hereto (and no others). Debtor (including any
----------
corporate or partnership predecessor) has not existed or operated under any name
other than Interstate FiberNet, Inc. or as stated on Schedule 2 since the later
----------
of (i) September 17, 1987 or (ii) the date of Debtor's incorporation.
(c) Debtor has possession and/or control of the Equipment and Inventory
pledged by it hereunder.
(d) This Agreement and the pledge of the Collateral pursuant hereto
creates a valid first priority security interest in the Collateral (other than
deposit accounts in financial institutions which are not Administrative Lender
or a Secured Party and Permitted Liens), securing the payment of the Obligations
which upon filings and other necessary actions to perfect such security interest
will create a perfected, first priority security interest in such collateral, to
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the extent that such security interest can be perfected by filing a UCC
financing statement.
(e) Except as described on Schedule 3 hereto, no consent of any other
----------
Person and no authorization, approval or other action by, and no notice to or
filing with, any Tribunal is required (i) for the pledge by Debtor of the
Collateral pledged by it hereunder, for the grant by Debtor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Debtor, (ii) for maintenance of the pledge, assignment and security
interest created hereby or for the perfection of the pledge, assignment and
security interest created hereby by filing a UCC-1 financing statement
centrally, or in the case of dual filing states, centrally and at the county
level, as applicable, in the states of Georgia, Florida, Alabama, Mississippi,
Louisiana, Texas, North Carolina and South Carolina (including the first
priority nature of such pledge, assignment and security interest except for
Permitted Liens) or (iii) except as otherwise provided by law, for the exercise
by Administrative Lender of the Rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except for
consents, authorizations, filings, notices, actions and approvals by or with the
FCC or any applicable PUC ("FCC and PUC Consents").
(f) Debtor possesses all licenses and permits, including but not limited
to all applicable certificates of occupancy, licenses and permits and all health
and sanitation permits, required for the operations of its business. Schedule 4
----------
hereto is a complete and correct description of all of such licenses and
permits.
(g) Schedule 5 hereto, other than with respect to the Interest Reserve
----------
Escrow Account, is a complete and correct list of all deposit accounts (demand,
time, special or other) maintained by or in which Debtor has an interest and
correctly describes the financial institution in which such account is
maintained (including the specific branch), the address and ABA number of such
institution, the officer of such institution having primary responsibility for
Debtor's accounts, the account number and type (as supplemented from time to
time by Debtor by written notice to Administrative Lender).
ARTICLE III. COVENANTS
3.01. Further Assurances. (a) Debtor agrees that with respect to any
contract right constituting Collateral under this Agreement and with respect to
the leasehold mortgages in Arab, Alabama and Columbia, South Carolina, Debtor
will use its best efforts to obtain the necessary consent to or waiver of such
restriction from any Person so as to enable Debtor to effectively grant to
Secured Party such security interest under this Agreement.
(b) Debtor agrees that from time to time, at the expense of Debtor,
Debtor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that
Administrative Lender may reasonably request, in order to perfect and protect
any pledge, assignment or security interest granted or purported to be granted
hereby in the states of Georgia, Florida, Alabama, Mississippi, Louisiana,
Texas, North Carolina and South Carolina, and in such other Collateral as
outlined in Section 2.16(b)
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<PAGE>
of the Credit Agreement, and the priority thereof, or to enable Administrative
Lender to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, upon written
request by Administrative Lender, Debtor will: (i) mark conspicuously each
chattel paper included in Receivables, and, at the request of Administrative
Lender, each of its records pertaining to the Collateral with the following
legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO A
SECURITY AGREEMENT DATED SEPTEMBER 17, 1997 (AS THE SAME MAY BE MODIFIED OR
RESTATED) MADE BY BORROWER, IN FAVOR OF NATIONSBANK OF TEXAS, N.A., AS
ADMINISTRATIVE LENDER
or such other legend, in form and substance satisfactory to and as specified by
Administrative Lender, indicating that such chattel paper or Collateral is
subject to the pledge, assignment and security interest granted hereby; (ii) if
any Collateral shall be evidenced by a promissory note or other instrument or be
chattel paper, deliver and pledge to Administrative Lender hereunder such note,
instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
Administrative Lender; and (iii) execute and file such financing or continuation
statements, or amendments thereto in the states of Georgia, Florida, Alabama,
Mississippi, Louisiana, Texas, North Carolina and South Carolina, and such other
instruments or notices, as may be necessary or desirable, or as Administrative
Lender may request, in order to perfect and preserve the pledge, assignment and
security interest granted or purported to be granted hereby.
(c) Debtor hereby authorizes Administrative Lender to file one or more
financing or continuation statements, and amendments thereto in the states of
Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, North Carolina and
South Carolina, relating to all or any part of the Collateral without the
signature of Debtor where permitted by Law. A photocopy or other reproduction
of this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by Law.
(d) Debtor will furnish to Administrative Lender from time to time
statements and schedules (including Schedules to this Agreement) further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Administrative Lender may reasonably request, all in
reasonable detail. Debtor will promptly furnish to Administrative Lender a copy
of each new or renewal, restatement or modification of any agreement included in
Collateral or otherwise described in Section 1.01 herein.
------------
(e) Other than with respect to the Interest Reserve Escrow Account,
Debtor shall not establish or maintain any deposit or similar bank account not
listed on Schedule 5 hereto unless Administrative Lender receives prior written
notice thereof, Debtor executes and delivers to Administrative Lender
assignments of such account in such form as Administrative Lender may request
and the financial institution in which such account will be maintained delivers
to Administrative Lender acknowledgments of the assignment of such account in
form and
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<PAGE>
substance satisfactory to Administrative Lender.
(f) In addition to such other information as shall be specifically
provided for herein, Debtor, the Parent, and each of Debtor's Subsidiaries shall
permit such site visitations and inspections and furnish to Administrative
Lender such other information with respect to the Collateral as Administrative
Lender may reasonably request from time to time in connection with the
Collateral, or the protection, preservation, maintenance or enforcement of the
security interest or the Collateral as provided pursuant to the terms of the
Credit Agreement.
(g) Debtor shall not, and shall not permit the Parent, the Borrower or
any Subsidiary of the Debtor to, amend, waive or consent to any deviation from
any term or provision of any documentation or agreements relating to the Senior
Notes.
3.02. Equipment, Fixtures and Inventory.
(a) Debtor shall keep the Equipment, Fixtures and Inventory pledged by
it hereunder (other than Inventory sold in the ordinary course of business) at
the places therefor specified in Section 2.01(a) herein or, upon thirty days'
---------------
prior written notice to Administrative Lender, at such other places in such
jurisdiction where all action required by Section 3.01 herein shall have been
------------
taken with respect to the Equipment and Inventory.
(b) Debtor shall, and shall cause the Parent, and each Subsidiary of the
Debtor to, maintain or cause to be maintained all their material Properties
necessary to the conduct of their business (whether owned or held under lease)
in reasonably good repair, working order and condition, taken as a whole, and
from time to time make or cause to be made all appropriate repairs, renewals,
replacements, additions, betterments and improvements thereto.
(c) The Debtor shall, and shall cause the Parent, and each Subsidiary of
the Debtor to, pay and discharge all Taxes, assessments and governmental charges
or levies imposed upon it or its income or Properties prior to the date on which
penalties attach thereto, and all lawful material claims for labor, materials
and supplies which, if unpaid, might become a Lien upon any of their Properties,
except those Taxes, assessments and charges contested by the Debtor diligently
in good faith, and for which adequate reserves have been established in
accordance with GAAP. The Debtor shall, and shall cause the Parent, and each
Subsidiary of the Debtor to, timely file all information returns required by
federal, state or local Tax authorities.
3.03. Insurance. Debtor shall, and shall cause the Parent, and each
Subsidiary of the Debtor to, maintain insurance from responsible companies in
such amounts and against such risks as shall be customary and usual in the
industry for companies of similar size and capability, but in no event less than
the amount and types insured as of the Closing Date; provided, however, the
Debtor, the Parent and each Subsidiary may self-insure its outside plant
physical facilities, consisting of the fiber optic cable network. Debtor shall
promptly furnish to Administrative Lender evidence of such insurance in form and
content satisfactory to Administrative Lender. If Debtor fails to perform or
observe any applicable covenants as to
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<PAGE>
insurance on any of such Collateral, Administrative Lender may at its own option
obtain insurance on only Administrative Lender's interest in such Collateral,
any premium thereby paid by Administrative Lender to become part of the
Obligations, bear interest as provided in the Credit Agreement. In the event
Administrative Lender maintains such substitute insurance, the additional
premium for such insurance shall be due on demand and payable by Debtor to
Administrative Lender in accordance with any notice delivered to Debtor by
Administrative Lender. Debtor hereby grants Administrative Lender a security
interest in any refunds of unearned premiums in connection with any
cancellation, adjustment or termination of any policy of insurance required by
Administrative Lender and in all proceeds of such insurance and hereby appoints
Administrative Lender its attorney-in-fact to endorse any check or draft that
may be payable to Debtor in order to collect such refunds or proceeds. Any such
sums collected by Administrative Lender shall be credited, except to the extent
applied to the purchase by Administrative Lender of similar insurance, to any
amounts then owing on the Obligations in accordance with the Credit Agreement.
3.04. Place of Perfection; Records; Collection of Receivables, chattel
paper and Instruments.
(a) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables, and
the originals of all chattel paper (until delivered to Administrative Lender),
at the location therefor specified in Section 2.01(a) herein or at such other
---------------
location in the State of Georgia as Debtor shall have given written notice
thereof to Administrative Lender no later than thirty days prior to the moving
thereto. Debtor will hold and preserve such records and chattel paper and will
permit representatives of Administrative Lender to inspect and make abstracts
from and copies of such records and chattel paper as provided in the Credit
Agreement. Debtor shall deliver to Administrative Lender all Instruments to be
held by Administrative Lender as collateral.
(b) Except as otherwise provided in this Section 3.04(b), Debtor shall
---------------
continue to collect, at its own expense, all amounts due or to become due Debtor
under the Receivables, chattel paper and Instruments. In connection with such
collections, Debtor may take (and, at Administrative Lender's direction, shall
take) such action as Debtor or Administrative Lender may deem reasonably
necessary or advisable to enforce collection of the Receivables, chattel paper
and Instruments; provided, however, that Administrative Lender shall have the
-------- -------
right (upon an Event of Default which is continuing) (without notice to Debtor)
to notify the account debtors or obligors under any Receivables, chattel paper
and Instruments of the assignment of such Receivables, chattel paper and
Instruments to Administrative Lender and to direct such account debtors or
obligors to make payment of all amounts due or to become due to Debtor
thereunder directly to Administrative Lender and, at the expense of Debtor, to
enforce collection of any such Receivables, chattel paper and Instruments, and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as Debtor might have done. Upon and after the
occurrence of a Default or Event of Default that is continuing, all amounts and
proceeds (including Instruments) received by Debtor in respect of the
Receivables, chattel paper and Instruments shall be received in trust for the
benefit of Administrative Lender
8
<PAGE>
hereunder, shall be segregated from other funds of Debtor and shall be forthwith
paid over to Administrative Lender in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (a) released to
Debtor so long as no Default or Event of Default shall have occurred and be
continuing or (b) if any Default or Event of Default shall have occurred and be
continuing, applied as provided herein. Debtor shall not adjust, settle or
compromise the amount or payment of any Receivable, chattel paper or Instrument,
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
3.05. Transfers and Other Liens. Debtor shall not (a) sell, assign (by
operation of Law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except as permitted under the Credit
Agreement, or (b) create or permit to exist any Lien, security interest, option
or other charge or encumbrance upon or with respect to any of the Collateral,
except for the security interest under this Agreement (and except as provided
for in Section 8.03 of the Credit Agreement).
------------
3.06. Administrative Lender Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Administrative Lender Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to take any action and to execute any instrument which Administrative
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation (provided that the actions listed in
each clause below other than the obtainment and adjustment of insurance may only
be taken or exercised after the occurrence of an Event of Default which is
continuing):
(a) to obtain and adjust insurance required to be paid to Administrative
Lender pursuant to Section 3.03 herein,
------------
(b) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(c) to endorse and collect any drafts or other Instruments, documents
and chattel paper, and
(d) to file any claims or take any action or institute any proceedings
which Administrative Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce compliance with the terms and
conditions of any Collateral or the rights of Administrative Lender with respect
to any of the Collateral. UPON AND AFTER THE OCCURRENCE OF A DEFAULT OR EVENT
OF DEFAULT THAT IS CONTINUING, DEBTOR HEREBY IRREVOCABLY GRANTS TO
ADMINISTRATIVE LENDER DEBTOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE
OF AN EVENT OF DEFAULT WHICH IS CONTINUING) TO VOTE ANY SECURITIES COLLATERAL
AND APPOINTS ADMINISTRATIVE LENDER DEBTOR'S ATTORNEY-IN-FACT TO PERFORM ALL
OBLIGATIONS OF DEBTOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF ADMINISTRATIVE
9
<PAGE>
LENDER'S RIGHTS HEREUNDER. THE PROXY AND POWER OF ATTORNEY HEREIN GRANTED, AND
EACH STOCK POWER AND SIMILAR POWER NOW OR THEREAFTER GRANTED (INCLUDING ANY
EVIDENCED BY A SEPARATE WRITING), ARE COUPLED WITH AN INTEREST AND ARE
IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATIONS.
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER
4.01. Administrative Lender May Perform. If Debtor fails to perform any
agreement contained herein, Administrative Lender may itself perform, or cause
performance of, such agreement, and the expenses of Administrative Lender
incurred in connection therewith shall be payable by Debtor under Section 4.05
------------
herein.
4.02. Administrative Lender's Duties. The powers conferred on
Administrative Lender hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it or any Secured Party to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Administrative Lender shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Administrative Lender has or is deemed to have knowledge of such matters, or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Administrative Lender accords its
own property. Except as provided in this Section 4.02, Administrative Lender
------------
shall not have any duty or liability to protect or preserve any Collateral or to
preserve rights pertaining thereto. Nothing contained in this Agreement shall
be construed as requiring or obligating Administrative Lender, and
Administrative Lender shall not be required or obligated, to (a) present or file
any claim or notice or take any action, with respect to any Collateral or in
connection therewith or (b) notify Debtor of any decline in the value of any
Collateral.
4.03. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Administrative Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the state in which the Collateral is
located at that time (the "UCC") (whether or not the Uniform Commercial Code
applies to the affected Collateral), and also may (i) require Debtor to, and
Debtor hereby agrees that it will at its expense and upon request of
Administrative Lender forthwith, assemble all or part of the Collateral as
directed by Administrative Lender and make it available to Administrative Lender
at a place to be designated by Administrative Lender which is reasonably
convenient to both parties or (ii) without notice, except as specified below,
sell the Collateral or any portion thereof in one or more parcels at public or
private sale, at any of
10
<PAGE>
Administrative Lender's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Administrative Lender may deem
commercially reasonable. Debtor agrees that, to the extent notice of sale shall
be required by Law, ten days' notice to Debtor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Administrative Lender shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Administrative Lender may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by Administrative Lender upon any sale
of, collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all out-of-pocket costs and expenses incurred in
-----
connection with the sale of, collection of or other realization upon
Collateral, including reasonable attorneys' fees and disbursements;
Second: To the payment of the Obligations as provided in the Credit
------
Agreement and in such order and in such manner consistent with applicable
Laws as Administrative Lender in its reasonable discretion shall decide
(with Debtor remaining liable for any deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to the
-----
payment to Debtor or other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with any
Collateral shall be received in trust for the benefit of Administrative Lender,
shall be segregated from other funds of Debtor and shall be forthwith paid over
to Administrative Lender in the same form as so received (with any necessary
indorsement).
4.04. Indemnity and Expenses. (a) Debtor agrees to indemnify
Administrative Lender and each Secured Party from and against any and all
claims, losses and liabilities (including reasonable attorneys' fees) growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), expressly including such claims, losses or
liabilities arising out of mere negligence of Administrative Lender or any
Secured Party, except claims, losses or liabilities resulting from
Administrative Lender's or any Secured Party's gross negligence or willful
misconduct.
(b) Debtor will upon demand pay to Administrative Lender the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which Administrative Lender may incur
in connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Administrative Lender hereunder or (iv) the failure by
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<PAGE>
Debtor to perform or observe any of the provisions hereof. Any payments so made
shall be a part of the Obligation, shall be payable upon demand, and shall bear
interest as provided in Article II of the Credit Agreement.
----------
4.05. Further Approvals Required. In connection with the exercise by
Administrative Lender of its rights hereunder that effects the disposition of or
use of any Collateral, it may be necessary to obtain the prior consent or
approval of Tribunals and other Persons to a transfer or assignment of
Collateral, including, without limitation, the FCC and any applicable PUC. In
connection with the exercise by the Administrative Lender or any other Secured
Party of its rights hereunder relating to the disposition of or operation under
any license issued by the FCC or any applicable PUC, or any other
authorizations, agreements, permits, licenses and franchises constituting
property of the Debtor, it may be necessary to obtain the prior consent or
approval of the FCC or any applicable PUC, other governmental authority or other
Persons to the exercise of rights with respect to the Collateral. The Debtor
hereby agrees to execute, deliver and file, and hereby appoints (to the extent
permitted under applicable law) the Administrative Lender as its attorney upon
the occurrence and during the continuation of an Event of Default, to execute,
deliver and file on the Debtor's behalf and in the Debtor's name, all
applications, certificates, filings, instruments and other documents (including
without limitation any application for an assignment or transfer of control or
ownership) that may be necessary or appropriate, in the Administrative Lender's
opinion, to obtain such consents or approvals. The Debtor further agrees to use
its best efforts to obtain such consents or approvals upon and after the
occurrence of a Default or Event of Default that is continuing. The Debtor
acknowledges that there is no adequate remedy at law for failure by it to comply
with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that this Section may be
specifically enforced.
ARTICLE V. MISCELLANEOUS
5.01. Cumulative Rights. All Rights of Administrative Lender and Secured
Parties under the Loan Papers are cumulative of each other and of every other
Right which Administrative Lender and Secured Parties may otherwise have at Law
or in equity or under any other contract or other writing for the enforcement of
the security interest herein or the collection of the Obligations. The exercise
of one or more Rights shall not prejudice or impair the concurrent or subsequent
exercise of other Rights.
5.02. Modifications; Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by Debtor here
from, shall in any event be effective unless the same shall be in writing and
signed by Administrative Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
5.03. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement and (ii) the
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<PAGE>
expiration or termination of the obligations of Secured Party to extend credit
to Debtor, (b) be binding upon Debtor, its successors and assigns, and (c) inure
to the benefit of, and be enforceable by, Administrative Lender and its
successors, transferees and assigns. Upon any such termination, Administrative
Lender will, at Debtor's expense, execute and deliver to Debtor such documents
as such Debtor shall reasonably request to evidence such termination.
5.04. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA,
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. WITHOUT
EXCLUDING ANY OTHER JURISDICTION AND NOT AS A LIMITATION OF SECTION 5.04, DEBTOR
------------
AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, WILL
HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM
EXTENT PERMITTED BY LAW, DEBTOR AND ADMINISTRATIVE LENDER HEREBY WAIVE ANY RIGHT
THAT EITHER MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT,
CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE
OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREE THAT ANY SUCH DISPUTE SHALL
BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
(b) DEBTOR HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT.
DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL
(RETURN RECEIPT REQUESTED) DIRECTED TO DEBTOR AT ITS ADDRESS DESIGNATED FOR
NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION 5.04
------------
SHALL AFFECT THE RIGHT OF ADMINISTRATIVE LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
5.05. Administrative Lender's Right to Use Agents. Administrative Lender
may exercise its Rights under this Agreement through an agent or other designee.
5.06. No Interference, Compensation or Expense. Administrative Lender may
exercise its Rights under this Agreement (a) without resistance or interference
by Debtor and (b) without payment of any rent, license fee or compensation of
any kind to Debtor.
5.07. Waiver. Should any part of the Obligations be payable in
installments, the acceptance by Administrative Lender or any Secured Party at
any time and from time to time
13
<PAGE>
of partial payment of the aggregate amount of all installments then matured
shall not be deemed as a waiver of any Event of Default then existing. No
waiver of any Event of Default shall be deemed to be a waiver of any other
subsequent Event of Default, nor shall any such waiver be deemed to be a
continuing waiver. No delay or omission by Administrative Lender or any Secured
Party in exercising any Right hereunder, or under any other Loan Papers, shall
impair any such Right or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such Right preclude
other or further exercise thereof, or the exercise of any other Right of
Administrative Lender or any Secured Party hereunder or under such other
agreements.
5.08. Waivers by Debtor. Subject to the terms of the Credit Agreement,
Debtor waives notice of the creation, advance, increase, existence, extension,
or renewal of, or of any indulgence with respect to, the Obligations; waives
presentment, demand, notice of dishonor, and protest; and waives notice of the
amount of the Obligations outstanding at any time, notice of any change in
financial condition of any Subsidiary. Debtor waives (a) any claim that, as to
any part of the Collateral, a public sale, should Administrative Lender elect so
to proceed, is, in and of itself, not a commercially reasonable method of sale
for such Collateral, (b) except as otherwise provided in this Agreement, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL HEARING IN CONNECTION
WITH ADMINISTRATIVE LENDER'S DISPOSITION OF ANY OF THE COLLATERAL INCLUDING ANY
AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY
SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY
STATUTE OF THE UNITED STATES OR OF ANY STATE, AND ALL OTHER REQUIREMENTS AS TO
THE TIME, PLACE AND TERMS OF SALE OR OTHER REQUIREMENTS WITH RESPECT TO THE
ENFORCEMENT OF ADMINISTRATIVE LENDER'S RIGHTS HEREUNDER and (c) all rights of
redemption, appraisal or valuation.
5.09. Other Parties and Other Collateral. No renewal, increase, or
extension of or any other indulgence with respect to, the Obligations or any
part thereof, no release, exchange, or taking of any security, no release of any
Person (including any Subsidiary, maker, endorser, guarantor, or surety) liable
on the Obligations, no delay in enforcement of payment, no delay or omission or
lack of diligence or care in exercising any Right or power with respect to the
Obligations or any security therefor or guaranty thereof or under this
Agreement, and no other circumstance or event which might constitute a defense
available to or discharge of Debtor, any Subsidiary or any other Person, shall
in any manner impair or affect the Rights of Administrative Lender or any
Secured Party hereunder, under any other Loan Papers, at Law, or in equity.
Neither Administrative Lender nor any Secured Party need file suit or assert a
claim for personal judgment against any Person for any part of the Obligations
or seek to realize upon any other security for the Obligations, before
foreclosing upon the Collateral for the purpose of paying the Obligations.
Debtor waives any Right to the benefit of or to require or control application
of any other security or proceeds thereof, and agrees that neither
Administrative Lender nor any Secured Party shall have any duty or obligation to
Debtor to apply any such other security or proceeds thereof to the Obligations.
Debtor hereby waives all
14
<PAGE>
rights by which it might be entitled to require suit on an accrued right of
action in respect of any of the Obligations or require suit against Debtor, any
Subsidiary or others, whether arising pursuant to Section 34.02 of the Texas
Business and Commerce Code, as amended, Section 17.001 of the Texas Civil
Practice and Remedies Code, as amended, or Rule 31 of the Texas Rules of Civil
Procedure, as amended, or otherwise.
5.10. Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Lender or Debtor has acted in reliance on such telephonic notice.
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers as provided
in the Credit Agreement or at such other address or, telecopier or telephone
number or to the attention of such other individual or department as the party
to which such information pertains may hereafter specify for the purpose in a
notice to the other specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to be
given or delivered to Administrative Lender or Debtor pursuant to this Agreement
shall be effective or deemed delivered or furnished (i) if sent by mail, on the
fifth day after such notice, communication or material is deposited in the mail,
addressed as above provided, (ii) if sent by telecopier, when such notice,
communication or material is transmitted to the appropriate number determined as
above provided in this Section 5.10 and the appropriate receipt is received or
------------
otherwise acknowledged, (iii) if sent by hand delivery or overnight courier,
when left at the address of the addressee addressed as above provided, and (iv)
if given by telephone, when communicated to the individual or any member of the
department specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices of
a change of address, telecopier or telephone number or individual or department
to whose attention notices, communications and materials are to be given or
delivered shall not be effective until received.
5.11. Parties Bound. This Agreement shall be binding on Debtor and its
successors, assigns, and other legal representatives, and shall inure to the
benefit of Administrative Lender and Secured Parties, and their respective
successors and assigns; provided, however, that Debtor may not assign its Rights
-------- -------
or obligations hereunder without the prior written consent of Administrative
Lender. The Rights, powers, and interests held by Administrative Lender and
15
<PAGE>
Secured Parties hereunder may be transferred or assigned, in whole or in part,
in accordance with the Credit Agreement.
5.12. Definitions. Unless otherwise defined in this Agreement, terms used
herein shall have the meanings set forth in the Credit Agreement. Unless the
context indicates otherwise or the terms are otherwise defined herein,
definitions in the Uniform Commercial Code apply to words and phrases in this
Agreement. "Debtor" and includes, without limitation, such Person, such
Person's heirs, successors and assigns, such Person as a debtor-in-possession,
and any receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for such Person or all or substantially all of its assets under any
Law.
5.13. Severability. If any provision of any Loan Paper is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there
shall be added automatically as a part of such Loan Paper a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.
5.14. Control. Notwithstanding anything herein to the contrary, this
Agreement and the transactions contemplated hereby do not and shall not
constitute, create, or have the effect of constituting or creating, directly or
indirectly, actual or practical ownership by Administrative Lender or any
Secured Party of Debtor or any issuer of the Collateral, or control, affirmative
or negative, direct or indirect, by Administrative Lender or any Secured Party
over the management or any aspect of the day-to-day operation of Debtor or any
such issuer, which control remains in Debtor, each such issuer, and their
respective boards of directors, partners and officers (as appropriate);
provided, however, that if Administrative Lender or any Secured Party becomes
- -------- -------
the owner of any partnership interest, or other equity or ownership interest in
any Issuer whether through foreclosure or otherwise, it shall be entitled to
exercise such legal Rights as it may have by being an owner of such partnership
interest or other equity or ownership interest.
5.15. Loan Paper. This Agreement is a Loan Paper executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.17. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER
LOAN PAPERS, REPRESENT THE FINAL AGREEMENT
16
<PAGE>
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
================================================================================
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
================================================================================
17
<PAGE>
IN WITNESS WHEREOF, Debtor and Administrative Lender have caused this
Agreement to be duly executed and delivered as of the date first above written.
INTERSTATE FIBERNET, INC.
By:
----------------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By:/s/ Keith M. Wilson
----------------------------------------
Name: Keith M. Wilson
Title: Vice President
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
18
<PAGE>
Security Agreement Between Interstate FiberNet, Inc., as Pledgor and
NationsBank of Texas, N.A., as Administrative Lender
Schedule 1 Locations of Equipment and Inventory
Offices and Other Sites
-----------------------
Alabama
- -------
Street Address: 113 S Main St
City: Arab State/Province: AL Zip/Postal Code: 35016
Street Address: 120 S Main St, PO Box 1233
City: Arab State/Province: AL Zip/Postal Code: 35016
Street Address: 710 Stage Rd
City: Auburn State/Province: AL Zip/Postal Code: 36830
Street Address: 2200 Woodcrest Place, Suite 100
City: Birmingham State/Province: AL Zip/Postal Code: 35209
Street Address: 540 Valley Ave. Storage Unit # 203
City: Birmingham State/Province: AL Zip/Postal Code: 35212
Street Address: 900 Appalachee Street
City: Birmingham State/Province: AL Zip/Postal Code: 35212
Street Address: 600 North 18th Street
City: Birmingham State/Province: AL Zip/Postal Code: 35291
Street Address: 3245 Montgomery Hwy, Dogwood Ct, Suite 8
City: Dothan State/Province: AL Zip/Postal Code: 36303
Street Address: 124 W Tombigbee St, Suite 3
City: Florence State/Province: AL Zip/Postal Code: 35630
Street Address: 2611 Artie St
City: Huntsville State/Province: AL Zip/Postal Code: 35805
Street Address: 500 Blvd. South, Suite 203
City: Huntsville State/Province: AL Zip/Postal Code: 35802
Street Address: 600 Blvd South, Suite 303
City: Huntsville State/Province: AL Zip/Postal Code: 35802
<PAGE>
Street Address: 700 Blvd South, Suite 101
City: Huntsville State/Province: AL Zip/Postal Code: 35802
Street Address: 2106 West Ferry Way, Suite C
City: Huntsville State/Province: AL Zip/Postal Code: 35801
Street Address: 605 Bel Air Blvd, Suite 10
City: Mobile State/Province: AL Zip/Postal Code: 36606
Street Address: 4001 Carmichael Rd, Suite 570
City: Montgomery State/Province: AL Zip/Postal Code: 36106
Street Address: 1204 Cephyr Hill Drive
City: Montgomery State/Province: AL Zip/Postal Code: 36109
Street Address: 1707 A Hillyer Robinson Industrial Parkway, Suite A
City: Oxford State/Province: AL Zip/Postal Code: 36203
Street Address: 6401 25th Avenue
City: Valley State/Province: AL Zip/Postal Code: 36854
Florida
- -------
Street Address: P O Box 30480, 4400 Bayou Blvd, Suite 15-A
City: Pensacola State/Province: FL Zip/Postal Code: 32503
Georgia
- -------
Street Address: 2759 Delk Road, Suite 100
City: Marietta State/Province: GA Zip/Postal Code: 30067
Street Address: 3670 Holcomb Bridge Rd
City: Norcross State/Province: GA Zip/Postal Code: 30092
Street Address: 910 First Avenue
City: West Point State/Province: GA Zip/Postal Code: 31833
Street Address: 206 West 9th Street
City: West Point State/Province: GA Zip/Postal Code: 31833
Louisiana
- ---------
Street Address: 3636 South Sherwood Forest Blvd Suite 470
City: Baton Rouge State/Province: LA Zip/Postal Code: 70816
<PAGE>
Street Address: 3445 N Causeway Blvd Suite 202
City: Metairie State/Province: LA Zip/Postal Code: 70002
Mississippi
- -----------
Street Address: 304 South State Street
City: Jackson State/Province: MS Zip/Postal Code: 39225
North Carolina
- --------------
Street Address: 8720 Red Oak Blvd Suite 420
City: Charlotte State/Province: NC Zip/Postal Code: 28217
South Carolina
- --------------
Street Address: Palmetto Center, 1426 Main St., 20th Floor
City: Columbia State/Province: SC Zip/Postal Code: 29201
Street Address: 2000 Center Point Drive, Suite 2275
City: Columbia State/Province: SC Zip/Postal Code: 29210-5824
Street Address: 111 Smith Hines Rd, Suite D
City: Greenville State/Province: SC Zip/Postal Code: 29607
Texas
- -----
Street Address: 1601 West Cotton
City: Longview State/Province: TX Zip/Postal Code: 75604
POP Sites
---------
<TABLE>
<CAPTION>
City Address ZIP
---- ------- ---
<S> <C> <C>
Alabama
- -------
Anniston 410 West 10th Street 36201
Arab 113 South Main Street 35016
Auburn 100 Thatch Ave., 1424 Haley Center 36830
Dothan 2304 Industrial Road 36303
Dothan 510 N. Cherry Street 36303
Gadsden 749 Forrest Avenue 35901
Alabama Power Co. Headquarters
Huntsville 8600 S. Memorial Parkway 35802
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Montgomery 204 Jefferson Street 36104
Opelika 1015 West Point Parkway 36801
Arkansas
- --------
Little Rock Basement Telcom Room 72201
425 West Capital
Little Rock 124 W. Capitol Ave, Suite 700 72201
Pine Bluff 5201 West Barraque 71602
First Floor
Florida
- -------
Fort Myers 1520 Lee Street
Gainesville 301 SE 4th Ave 32601
Miami 45 NW 5th Street 33128
Miami 1921 NW 87th AVE.
Colo Room - First Floor
Ocala 319 E Broadway 32671
Orlando 201 South Orange Ave. 32803
7th Floor, Room 750
Panama City 1795 Industrial Drive 32405
Pompano Beach 599 SW 16th Terrace 33069
Sarasota 1717 Ringling Boulevard 34236
Tallahassee 132 N Calhoun Street, Suite 205 32301
Centel Building/Sprint United Office
Tampa 702 N Franklin Street, 10th Floor 33602
TECO Plaza, 10th Floor
West Palm Beach 3700 RCA Boulevard 33410
Georgia
- -------
Albany 2151 Gillionville Road 31703
Athens 125 Reese Street
Atlanta 55 Marietta 30303
Augusta 301 15th Street 30901
Carrollton Carroll Technical School 30117
Building C, Room 302
Columbus 422 B 14th Street 31908
LaGrange 300 South Broome Street 30240
Little Georgia Building
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Macon 185 State Street 31213
Newnan 291 Greenville Street 30263
Georgia Power Co. District Office
Rome 224 Holmes Road 30161
Georgia Power Building
Valdosta 111 Miller Street 31601
West Point 910 First Ave., 3rd Floor 31833
Louisiana
- ---------
Baton Rouge 446 North Boulevard 70801
Lake Charles 902 Railroad Avenue 70601
Lafayette 530 South Buchanon 70501
New Orleans 639 Loyola Avenue, 3rd Floor 70113
New Orleans 1001 Howard,Suite 1800 70113
Scott 220 Ruebon 70583
North Carolina
- --------------
Asheville 24 O'Henry Avenue
Charlotte 401 S. College Street 29242
Room #CS-119A
Charlotte 701 E Trade St., Suite 4 28202
Greensboro 301 South Elm Street 27401
Raleigh One Turner Street (Method) 27607
Durham 2003 East Highway 54 27713
Winston Salem 1480 Broad Street 27127
South Carolina
- --------------
Greenville 325 W. McBee Avenue 29601
Spartanburg 349 East Main Street 29301
</TABLE>
<PAGE>
Security Agreement Between Interstate FiberNet, Inc., as Pledgor and
NationsBank of Texas, N.A., as Administrative Lender
Schedule 2 Trade Names
EASTERN TELECOM, INC.
INTERQUEST
INTERSTATE FIBERNET
INTERSTATE FIBERNET, INC.
ITC TRANSMISSION SYSTEMS, INC.
ITC TRANSMISSION SYSTEMS II, INC.
<PAGE>
Security Agreement Between Interstate FiberNet, Inc., as Pledgor and
NationsBank of Texas, N.A., as Administrative Lender
Schedule 3 - Third Party Agreements, Waivers, and Consents
Assignments, waivers, and/or consents for the following agreements will be
provided on a best efforts basis after closing:
Fixed Fee Agreement for the Exchange of Use and Maintenance of Fiber Optic
Fibers with ALLTEL
Revised and Restated Fiber Optic Agreement with Southern Development and
Investment Group (The MPX Agreement)
Fiber Optic Facilities Agreement with Florida Power Corporation
<PAGE>
Security Agreement Between Interstate FiberNet, Inc., as Pledgor and
NationsBank of Texas, N.A., as Administrative Lender
Schedule 4 - Licenses and Permits
---------------------------------
Section 214 blanket authority (I-T-C-93-279) (held in the name of Eastern
Telecom, Inc.) to operate as an international resale carrier for international
switched voice and data services.
Note: The Section 214 certification has yet to be transferred into the name of
Interstate FiberNet, Inc. after the merger of Interstate FiberNet, Inc. and
Eastern Telecom, Inc. While steps have been taken to correctly reflect the
merger on the Section 214 authority, this has not yet been completed.
Certificates of Public Convenience and Necessity - Long Distance Services
- -------------------------------------------------------------------------
Alabama
Arkansas
Florida
Georgia
Kentucky
Louisiana
Mississippi
North Carolina
South Carolina
Texas
Virginia
NOTES:
1. We are in the process of filing tariffs noting the merger and the name
change to Interstate FiberNet, Inc. Some states noted above will have the
certificate in the name of Interstate FiberNet (the former partnership) or
Eastern Telecom, Inc. d/b/a InterQuest, no Interstate FiberNet, Inc.
2. We will also remove duplicate certificates in those states where Eastern
Telecom, Inc. and Interstate FiberNet partnership were both providing
telecommunications services such that Interstate FiberNet, Inc., will have one
certificate, not two. As part of this effort, we are in the process of
withdrawing Eastern Telecom, Inc.'s certificates from Maryland, New Jersey, and
Pennsylvania.
3. Interstate FiberNet, Inc. holds various State, County and City licenses to do
business for the certain offices from which it conducts business.
<PAGE>
Security Agreement Between Interstate FiberNet, Inc., as Pledgor and
NationsBank of Texas, N.A., as Administrative Lender
Schedule 5 -- Bank Accounts
<TABLE>
<CAPTION>
Interstate Fibernet Account Name Account Number Type of Account
- ------------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Bank: Nations Bank ITC Transmissions Systems Inc. 01000702324 Payroll Account
Branch: West Point
Delivery Address: 599 3rd Avenue
West Point, GA 31833
ABA #: 061000052
Contact Person: Faye Vaughn
Telephone : (706) 645-1151
Bank: First National Bank Interstate Fibernet 217-837 General Account
Branch: West Point
Delivery Address: West 10th Street Interstate Fibernet 708-173 Investment Account
West Point, GA 31833
ABA #: 061109487
Contact Person: Debbie Wilbanks
Telephone : (706) 645-6206
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Interquest Account Name Account Number Type of Account
- ---------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Bank: First National Bank Eastern Telecom 218-585 General Account
Branch: West Point DBA Interquest
Delivery Address: West 10th Street
West Point, GA 31833 Eastern Telecom 708-272 Investment Account
ABA #: 061109487 DBA Interquest
Contact Person: Debbie Wilbanks
Telephone : (706) 645-6206 Eastern Telecom 218-574 Payroll Account
DBA Interquest
</TABLE>
<PAGE>
Security Agreement Between Interstate Fibernet, Inc., as Pledgor and
NationsBank of Texas, N.A., as Administrative Lender
Schedule 6 -- Agreements Pledged as Collateral
Collateral assignments are made subject to receiving consent (where required)
after closing on a best-efforts basis:
Fixed Fee Agreement for the Exchange of Use and Maintenance of Fiber Optic
Fibers with ALLTEL.
Revised and Restated Fiber Optic Agreement with Southern Development and
Investment Group (The MPX Agreement)
Fiber Optic Facilities Agreement with Florida Power Corporation
* Fiber Optic Lease Agreement with Communications Systems Development, Inc.
* Fiber Systems Use Agreement with Lightwave Technologies, LLC
* Fiber Optic Lease Agreement with Troup Electric Municipal Co-op
* Fiber Optic Lease Agreement with Georgia Transmission Company
* Fiber Optic Lease Agreement with Municipal Electric Authority of Georgia
* Fiber Optic Lease Agreement with the City of Tallahassee Power Authority
Note: Agreements designated with an asterisk(*) have not been executed as of the
closing date.
<PAGE>
Exhibit 10.80.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITY AGREEMENT
Between
DELTACOM, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender
September 17, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (as amended, restated, or otherwise modified from time
to time, this "Agreement"), dated as of September 17, 1997, made by DeltaCom,
Inc. ("Debtor"), in favor of NationsBank of Texas, N.A., as Administrative
Lender ("Administrative Lender"), and each other lender a party to the Credit
Agreement described below (singly, a "Secured Party" and collectively, the
"Secured Parties").
BACKGROUND:
Administrative Lender, Secured Parties and Debtor have entered into the
Credit Agreement dated as of September 17, 1997 (as the same may be
supplemented, amended and modified from time to time, being the "Credit
Agreement"). It is the intention of the parties hereto that this Agreement
create a first priority security interest securing the payment of the
obligations set forth in Section 1.02. It is a condition precedent to the
------------
effectiveness of the Credit Agreement that Debtor shall have executed and
delivered this Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to make the Advances
under the Credit Agreement, Debtor hereby agrees with Administrative Lender for
its benefit and the Ratable benefit of Secured Parties as follows:
ARTICLE I. GRANT
1.01. Assignment and Grant of Security. Debtor hereby assigns and pledges
to Administrative Lender and the Secured Parties for its benefit and the benefit
of Secured Parties and hereby grants to Administrative Lender and the Secured
Parties for its benefit and the benefit of Secured Parties a security interest
in, the entire right, title and interest of Debtor, in and to all assets of
Debtor, whether now owned or hereafter acquired, including but not limited to
the following ("Collateral"):
(a) all equipment in all of its forms, wherever located, now or
hereafter existing, all parts thereof and all accessions thereto, including but
not limited to machinery, satellite receivers, antennas, headend electronics,
furniture, motor vehicles, aircraft and rolling stock (any and all such
equipment, parts and accessions being the "Equipment");
(b) all inventory in all of its forms, wherever located, now or
hereafter existing,
<PAGE>
including, but not limited to, (i) all raw materials and work in process
therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which Debtor has an interest in
mass or a joint or other interest or right of any kind (including, without
limitation, goods in which Debtor has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by Debtor, and all accessions
thereto and products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "Inventory");
(c) all accounts, accounts receivable, contract rights described on
Schedule 6 hereto, chattel paper, documents, instruments, deposit accounts,
- ----------
general intangibles, tax refunds and other obligations of any kind owing to
Debtor, now or hereafter existing, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements, leases,
subleases, and other contracts securing or otherwise relating to any such
accounts, contract rights, chattel paper, documents, instruments, deposit
accounts, general intangibles or obligations (any and all such accounts,
contract rights, chattel paper, documents, instruments, deposit accounts,
general intangibles and obligations including those described in Section 1.01(e)
---------------
herein being the "Receivables");
(d) all other general intangibles, whether now existing or hereafter
arising and wherever arising, including, but not limited to, all (i)
partnership, corporate, and other interests in and to any Person, (ii) permits,
licenses, consents, contract rights described on Schedule 6 hereto, franchises,
----------
documents, certificates, records, customer lists, customer and supplier
contracts, easements, variances, certifications and approvals of Tribunals,
bills of lading (negotiable and non-negotiable), warehouse receipts, any claim
of Debtor against any Secured Party, liquidated or unliquidated, and other
rights, privileges and goodwill obtained or used in connection with any property
described in this Section 1.01, and (iii) tax refunds and other refunds or
------------
rights to receive payment from U. S. federal, state or local governments or
foreign governments or other Tribunal;
(e) other than the Interest Reserve Escrow Account, all bank accounts,
deposit accounts, and margin accounts, maintained by Debtor with financial
institutions, brokers, dealers, and all other persons or entities relating to
commodities and/or securities, including all funds held therein and all
certificates and instruments, if any, from time to time representing or
evidencing such accounts;
(f) to the extent it is possible to create a security interest or
perfect a security interest in such Collateral by filing a UCC-1 financing
statement centrally, or in the case of dual filing states, centrally and at the
county level, as applicable, in the states of Georgia, Florida, Alabama,
Mississippi, Louisiana, Texas, North Carolina and South Carolina, all of
Debtor's fixtures now existing or hereafter acquired, all substitutes and
replacements therefor, all accessions and attachments thereto, and all tools,
parts and equipment now or hereafter added to or used in connection with the
fixtures on or above all real property now owned or hereafter acquired by Debtor
("Fixtures"); and
2
<PAGE>
(g) all substitutes and replacements for, accessions, attachments and
other additions to, tools, parts, and equipment used in connection with, and all
proceeds, products, and increases of, any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the types
described in this Section 1.01); interest, premium, and principal payments,
------------
redemption proceeds and subscription rights, and shares or other proceeds of
conversions or splits of any securities in Collateral, and returned or
repossessed Collateral; and, to the extent not otherwise included, all (i)
payments under insurance, or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral, (ii) cash and (iii) security for the payment of any of the
Collateral, and all goods which gave or will give rise to any of the Collateral
or are evidenced, identified, or represented therein or thereby.
Notwithstanding any of the foregoing, "Collateral" shall not include the
Interest Reserve Escrow Account.
1.02. Security for Obligations. This Agreement creates a first priority
security interest, securing the payment and performance of any and all
obligations now or hereafter existing of Debtor, each Subsidiary and any other
Person (other than Administrative Lender or any Secured Party) under the Credit
Agreement and Loan Papers, including any extensions, modifications,
substitutions, amendments and renewals thereof, whether for principal, interest,
fees, expenses, indemnification or otherwise (all such obligations of Debtor,
each Subsidiary and each other Person being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts which constitute part of the Obligations and would be owed by
Debtor, each Subsidiary or any other Person (other than Administrative Lender or
any Secured Party) to Administrative Lender or any Secured Party under any Loan
Paper, but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding under any Debtor
Relief Law involving Debtor, any Subsidiary or any other Person (including all
such amounts which would become due or would be secured but for the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of Debtor, any Subsidiary or any other Person
under any Debtor Relief Law).
1.03. Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Administrative Lender or
any Secured Party of any of the Rights hereunder shall not release Debtor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) neither Administrative Lender nor any Secured Party
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Administrative
Lender or any Secured Party be obligated to perform any of the obligations or
duties of Debtor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
1.04. Agreement With Respect to Collateral. Debtor and Administrative
Lender, on behalf of itself and each of the Lenders party to the Credit
Agreement, agree that to the extent
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that any of the Collateral may be deemed to be a Fixture as opposed to
Equipment, Inventory or any other form of Collateral that may be perfected by
the filing of a UCC financing statement, it is the intention of each of these
parties that such Collateral be deemed to be Equipment, Inventory or any other
form of Collateral that may be perfected by the filing of a UCC financing
statement and such Collateral not be deemed to be a Fixture.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.01. Representations and Warranties. Debtor represents and warrants,
with respect to itself and the Collateral, as follows:
(a) All of the Equipment and Inventory pledged by Debtor hereunder is
located at the places specified on Schedule 1 hereto (as supplemented from time
----------
to time by Debtor by written notice to Administrative Lender) or in transit to a
place specified on Schedule 1 hereto (as supplemented from time to time by
----------
Debtor by written notice to Administrative Lender) or in transit (i) for sale to
a third-party purchaser that upon such sale will become the obligor under a
Receivable or (ii) in the ordinary course of Debtor's business. The chief place
of business and chief executive office of Debtor and the office where Debtor
keeps all of its records concerning the Receivables, are located at 206 West
Ninth Street, West Point, Georgia 31833. All chattel paper, promissory notes or
other instruments evidencing the Receivables have been delivered and pledged to
Administrative Lender duly endorsed and accompanied by such duly executed
instruments of transfer or assignment as are necessary for such pledge, to be
held as pledged collateral.
(b) Debtor is the legal and beneficial owner of, or has valid leasehold
title to, the Collateral pledged by it free and clear of any Lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement (other than Permitted Liens). No effective financing
statement or other similar document used to perfect and preserve a security
interest under the Laws of any jurisdiction covering all or any part of the
Collateral is on file in any recording office, except such as may have been
filed (i) in respect of Permitted Liens and (ii) in favor of Administrative
Lender relating to this Agreement. As of the date hereof, Debtor has the trade
names set forth on Schedule 2 hereto (and no others). Debtor (including any
----------
corporate or partnership predecessor) has not existed or operated under any name
other than DeltaCom, Inc. or as stated on Schedule 2 since the later of (i)
----------
September 17, 1987 or (ii) the date of Debtor's incorporation.
(c) Debtor has possession and/or control of the Equipment and Inventory
pledged by it hereunder.
(d) This Agreement and the pledge of the Collateral pursuant hereto
creates a valid first priority security interest in the Collateral (other than
deposit accounts in financial institutions which are not Administrative Lender
or a Secured Party and Permitted Liens), securing the payment of the Obligations
which upon filings and other necessary actions to perfect such security interest
will create a perfected, first priority security interest in such collateral, to
4
<PAGE>
the extent that such security interest can be perfected by filing a UCC
financing statement.
(e) Except as described on Schedule 3 hereto, no consent of any other
----------
Person and no authorization, approval or other action by, and no notice to or
filing with, any Tribunal is required (i) for the pledge by Debtor of the
Collateral pledged by it hereunder, for the grant by Debtor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Debtor, (ii) for maintenance of the pledge, assignment and security
interest created hereby or for the perfection of the pledge, assignment and
security interest created hereby by filing a UCC-1 financing statement
centrally, or in the case of dual filing states, centrally and at the county
level, as applicable, in the states of Georgia, Florida, Alabama, Mississippi,
Louisiana, Texas, North Carolina and South Carolina (including the first
priority nature of such pledge, assignment and security interest except for
Permitted Liens) or (iii) except as otherwise provided by law, for the exercise
by Administrative Lender of the Rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except for
consents, authorizations, filings, notices, actions and approvals by or with the
FCC or any applicable PUC ("FCC and PUC Consents").
(f) Debtor possesses all licenses and permits, including but not limited
to all applicable certificates of occupancy, licenses and permits and all health
and sanitation permits, required for the operations of its business. Schedule 4
----------
hereto is a complete and correct description of all of such licenses and
permits.
(g) Schedule 5 hereto, other than with respect to the Interest Reserve
----------
Escrow Account, is a complete and correct list of all deposit accounts (demand,
time, special or other) maintained by or in which Debtor has an interest and
correctly describes the financial institution in which such account is
maintained (including the specific branch), the address and ABA number of such
institution, the officer of such institution having primary responsibility for
Debtor's accounts, the account number and type (as supplemented from time to
time by Debtor by written notice to Administrative Lender).
ARTICLE III. COVENANTS
3.01. Further Assurances. (a) Debtor agrees that with respect to any
contract right constituting Collateral under this Agreement and with respect to
the leasehold mortgages in Arab, Alabama and Columbia, South Carolina, Debtor
will use its best efforts to obtain the necessary consent to or waiver of such
restriction from any Person so as to enable Debtor to effectively grant to
Secured Party such security interest under this Agreement.
(b) Debtor agrees that from time to time, at the expense of Debtor,
Debtor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that
Administrative Lender may reasonably request, in order to perfect and protect
any pledge, assignment or security interest granted or purported to be granted
hereby in the states of Georgia, Florida, Alabama, Mississippi, Louisiana,
Texas, North Carolina and South Carolina, and in such other Collateral as
outlined in Section 2.16(b)
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<PAGE>
of the Credit Agreement, and the priority thereof, or to enable Administrative
Lender to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, upon written
request by Administrative Lender, Debtor will: (i) mark conspicuously each
chattel paper included in Receivables, and, at the request of Administrative
Lender, each of its records pertaining to the Collateral with the following
legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT
TO A SECURITY AGREEMENT DATED SEPTEMBER 17, 1997 (AS THE SAME MAY
BE MODIFIED OR RESTATED) MADE BY BORROWER, IN FAVOR OF NATIONSBANK
OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
or such other legend, in form and substance satisfactory to and as specified by
Administrative Lender, indicating that such chattel paper or Collateral is
subject to the pledge, assignment and security interest granted hereby; (ii) if
any Collateral shall be evidenced by a promissory note or other instrument or be
chattel paper, deliver and pledge to Administrative Lender hereunder such note,
instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
Administrative Lender; and (iii) execute and file such financing or continuation
statements, or amendments thereto in the states of Georgia, Florida, Alabama,
Mississippi, Louisiana, Texas, North Carolina and South Carolina, and such other
instruments or notices, as may be necessary or desirable, or as Administrative
Lender may request, in order to perfect and preserve the pledge, assignment and
security interest granted or purported to be granted hereby.
(c) Debtor hereby authorizes Administrative Lender to file one or more
financing or continuation statements, and amendments thereto in the states of
Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, North Carolina and
South Carolina, relating to all or any part of the Collateral without the
signature of Debtor where permitted by Law. A photocopy or other reproduction
of this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by Law.
(d) Debtor will furnish to Administrative Lender from time to time
statements and schedules (including Schedules to this Agreement) further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Administrative Lender may reasonably request, all in
reasonable detail. Debtor will promptly furnish to Administrative Lender a copy
of each new or renewal, restatement or modification of any agreement included in
Collateral or otherwise described in Section 1.01 herein.
------------
(e) Other than with respect to the Interest Reserve Escrow Account,
Debtor shall not establish or maintain any deposit or similar bank account not
listed on Schedule 5 hereto unless Administrative Lender receives prior written
----------
notice thereof, Debtor executes and delivers to Administrative Lender
assignments of such account in such form as Administrative Lender may request
and the financial institution in which such account will be maintained delivers
to Administrative Lender acknowledgments of the assignment of such account in
form and
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<PAGE>
substance satisfactory to Administrative Lender.
(f) In addition to such other information as shall be specifically
provided for herein, Debtor shall permit such site visitations and inspections
and furnish to Administrative Lender such other information with respect to the
Collateral as Administrative Lender may reasonably request from time to time in
connection with the Collateral, or the protection, preservation, maintenance or
enforcement of the security interest or the Collateral as provided pursuant to
the terms of the Credit Agreement.
(g) Debtor shall not amend, waive or consent to any deviation from any
term or provision of any documentation or agreements relating to the Senior
Notes.
3.02. Equipment, Fixtures and Inventory.
(a) Debtor shall keep the Equipment, Fixtures and Inventory pledged by
it hereunder (other than Inventory sold in the ordinary course of business) at
the places therefor specified in Section 2.01(a) herein or, upon thirty days'
---------------
prior written notice to Administrative Lender, at such other places in such
jurisdiction where all action required by Section 3.01 herein shall have been
------------
taken with respect to the Equipment and Inventory.
(b) Debtor shall maintain or cause to be maintained all their material
Properties necessary to the conduct of their business (whether owned or held
under lease) in reasonably good repair, working order and condition, taken as a
whole, and from time to time make or cause to be made all appropriate repairs,
renewals, replacements, additions, betterments and improvements thereto.
(c) The Debtor shall pay and discharge all Taxes, assessments and
governmental charges or levies imposed upon it or its income or Properties prior
to the date on which penalties attach thereto, and all lawful material claims
for labor, materials and supplies which, if unpaid, might become a Lien upon any
of their Properties, except those Taxes, assessments and charges contested by
the Debtor diligently in good faith, and for which adequate reserves have been
established in accordance with GAAP. The Debtor shall timely file all
information returns required by federal, state or local Tax authorities.
3.03. Insurance. Debtor shall maintain insurance from responsible
companies in such amounts and against such risks as shall be customary and usual
in the industry for companies of similar size and capability, but in no event
less than the amount and types insured as of the Closing Date; provided,
however, the Debtor may self-insure its outside plant physical facilities,
consisting of the fiber optic cable network. Debtor shall promptly furnish to
Administrative Lender evidence of such insurance in form and content
satisfactory to Administrative Lender. If Debtor fails to perform or observe
any applicable covenants as to insurance on any of such Collateral,
Administrative Lender may at its own option obtain insurance on only
Administrative Lender's interest in such Collateral, any premium thereby paid by
Administrative Lender to become part of the Obligations, bear interest as
provided in the Credit Agreement. In the event
7
<PAGE>
Administrative Lender maintains such substitute insurance, the additional
premium for such insurance shall be due on demand and payable by Debtor to
Administrative Lender in accordance with any notice delivered to Debtor by
Administrative Lender. Debtor hereby grants Administrative Lender a security
interest in any refunds of unearned premiums in connection with any
cancellation, adjustment or termination of any policy of insurance required by
Administrative Lender and in all proceeds of such insurance and hereby appoints
Administrative Lender its attorney-in-fact to endorse any check or draft that
may be payable to Debtor in order to collect such refunds or proceeds. Any such
sums collected by Administrative Lender shall be credited, except to the extent
applied to the purchase by Administrative Lender of similar insurance, to any
amounts then owing on the Obligations in accordance with the Credit Agreement.
3.04. Place of Perfection; Records; Collection of Receivables, chattel
paper and Instruments.
(a) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables, and
the originals of all chattel paper (until delivered to Administrative Lender),
at the location therefor specified in Section 2.01(a) herein or at such other
---------------
location in the State of Georgia as Debtor shall have given written notice
thereof to Administrative Lender no later than thirty days prior to the moving
thereto. Debtor will hold and preserve such records and chattel paper and will
permit representatives of Administrative Lender to inspect and make abstracts
from and copies of such records and chattel paper as provided in the Credit
Agreement. Debtor shall deliver to Administrative Lender all Instruments to be
held by Administrative Lender as collateral.
(b) Except as otherwise provided in this Section 3.04(b), Debtor shall
---------------
continue to collect, at its own expense, all amounts due or to become due Debtor
under the Receivables, chattel paper and Instruments. In connection with such
collections, Debtor may take (and, at Administrative Lender's direction, shall
take) such action as Debtor or Administrative Lender may deem reasonably
necessary or advisable to enforce collection of the Receivables, chattel paper
and Instruments; provided, however, that Administrative Lender shall have the
-------- -------
right (upon an Event of Default which is continuing) (without notice to Debtor)
to notify the account debtors or obligors under any Receivables, chattel paper
and Instruments of the assignment of such Receivables, chattel paper and
Instruments to Administrative Lender and to direct such account debtors or
obligors to make payment of all amounts due or to become due to Debtor
thereunder directly to Administrative Lender and, at the expense of Debtor, to
enforce collection of any such Receivables, chattel paper and Instruments, and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as Debtor might have done. Upon and after the
occurrence of a Default or Event of Default that is continuing, all amounts and
proceeds (including Instruments) received by Debtor in respect of the
Receivables, chattel paper and Instruments shall be received in trust for the
benefit of Administrative Lender hereunder, shall be segregated from other funds
of Debtor and shall be forthwith paid over to Administrative Lender in the same
form as so received (with any necessary indorsement) to be held as cash
collateral and either (a) released to Debtor so long as no Default or Event of
8
<PAGE>
Default shall have occurred and be continuing or (b) if any Default or Event of
Default shall have occurred and be continuing, applied as provided herein.
Debtor shall not adjust, settle or compromise the amount or payment of any
Receivable, chattel paper or Instrument, release wholly or partly any account
debtor or obligor thereof, or allow any credit or discount thereon.
3.05. Transfers and Other Liens. Debtor shall not (a) sell, assign (by
operation of Law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except as permitted under the Credit
Agreement, or (b) create or permit to exist any Lien, security interest, option
or other charge or encumbrance upon or with respect to any of the Collateral,
except for the security interest under this Agreement (and except as provided
for in Section 8.03 of the Credit Agreement).
------------
3.06. Administrative Lender Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Administrative Lender Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to take any action and to execute any instrument which Administrative
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation (provided that the actions listed in
each clause below other than the obtainment and adjustment of insurance may only
be taken or exercised after the occurrence of an Event of Default which is
continuing):
(a) to obtain and adjust insurance required to be paid to Administrative
Lender pursuant to Section 3.03 herein,
------------
(b) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(c) to endorse and collect any drafts or other Instruments, documents
and chattel paper, and
(d) to file any claims or take any action or institute any proceedings
which Administrative Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce compliance with the terms and
conditions of any Collateral or the rights of Administrative Lender with respect
to any of the Collateral. UPON AND AFTER THE OCCURRENCE OF A DEFAULT OR EVENT
OF DEFAULT THAT IS CONTINUING, DEBTOR HEREBY IRREVOCABLY GRANTS TO
ADMINISTRATIVE LENDER DEBTOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE
OF AN EVENT OF DEFAULT WHICH IS CONTINUING) TO VOTE ANY SECURITIES COLLATERAL
AND APPOINTS ADMINISTRATIVE LENDER DEBTOR'S ATTORNEY-IN-FACT TO PERFORM ALL
OBLIGATIONS OF DEBTOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF ADMINISTRATIVE
LENDER'S RIGHTS HEREUNDER. THE PROXY AND POWER OF ATTORNEY HEREIN GRANTED, AND
EACH STOCK POWER AND SIMILAR POWER NOW OR THEREAFTER GRANTED (INCLUDING ANY
EVIDENCED BY A SEPARATE
9
<PAGE>
WRITING), ARE COUPLED WITH AN INTEREST AND ARE IRREVOCABLE PRIOR TO FINAL
PAYMENT IN FULL OF THE OBLIGATIONS.
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER
4.01. Administrative Lender May Perform. If Debtor fails to perform any
agreement contained herein, Administrative Lender may itself perform, or cause
performance of, such agreement, and the expenses of Administrative Lender
incurred in connection therewith shall be payable by Debtor under Section 4.05
------------
herein.
4.02. Administrative Lender's Duties. The powers conferred on
Administrative Lender hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it or any Secured Party to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Administrative Lender shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Administrative Lender has or is deemed to have knowledge of such matters, or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Administrative Lender accords its
own property. Except as provided in this Section 4.02, Administrative Lender
------------
shall not have any duty or liability to protect or preserve any Collateral or to
preserve rights pertaining thereto. Nothing contained in this Agreement shall
be construed as requiring or obligating Administrative Lender, and
Administrative Lender shall not be required or obligated, to (a) present or file
any claim or notice or take any action, with respect to any Collateral or in
connection therewith or (b) notify Debtor of any decline in the value of any
Collateral.
4.03. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Administrative Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the state in which the Collateral is
located at that time (the "UCC") (whether or not the Uniform Commercial Code
applies to the affected Collateral), and also may (i) require Debtor to, and
Debtor hereby agrees that it will at its expense and upon request of
Administrative Lender forthwith, assemble all or part of the Collateral as
directed by Administrative Lender and make it available to Administrative Lender
at a place to be designated by Administrative Lender which is reasonably
convenient to both parties or (ii) without notice, except as specified below,
sell the Collateral or any portion thereof in one or more parcels at public or
private sale, at any of Administrative Lender's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as Administrative
Lender may deem commercially reasonable. Debtor agrees that, to the extent
notice of sale shall be required by Law, ten days' notice to Debtor of
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<PAGE>
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Administrative Lender
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. Administrative Lender may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) All cash proceeds received by Administrative Lender upon any sale
of, collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all out-of-pocket costs and expenses incurred in
-----
connection with the sale of, collection of or other realization upon
Collateral, including reasonable attorneys' fees and disbursements;
Second: To the payment of the Obligations as provided in the Credit
------
Agreement and in such order and in such manner consistent with applicable
Laws as Administrative Lender in its reasonable discretion shall decide
(with Debtor remaining liable for any deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to the
-----
payment to Debtor or other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with any
Collateral shall be received in trust for the benefit of Administrative Lender,
shall be segregated from other funds of Debtor and shall be forthwith paid over
to Administrative Lender in the same form as so received (with any necessary
indorsement).
4.04. Indemnity and Expenses. (a) Debtor agrees to indemnify
Administrative Lender and each Secured Party from and against any and all
claims, losses and liabilities (including reasonable attorneys' fees) growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), expressly including such claims, losses or
liabilities arising out of mere negligence of Administrative Lender or any
Secured Party, except claims, losses or liabilities resulting from
Administrative Lender's or any Secured Party's gross negligence or willful
misconduct.
(b) Debtor will upon demand pay to Administrative Lender the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which Administrative Lender may incur
in connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Administrative Lender hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof. Any payments so made
shall be a part of the Obligation, shall be payable upon demand, and shall bear
interest as provided in Article II of the Credit Agreement.
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11
<PAGE>
4.05. Further Approvals Required. In connection with the exercise by
Administrative Lender of its rights hereunder that effects the disposition of or
use of any Collateral, it may be necessary to obtain the prior consent or
approval of Tribunals and other Persons to a transfer or assignment of
Collateral, including, without limitation, the FCC and any applicable PUC. In
connection with the exercise by the Administrative Lender or any other Secured
Party of its rights hereunder relating to the disposition of or operation under
any license issued by the FCC or any applicable PUC, or any other
authorizations, agreements, permits, licenses and franchises constituting
property of the Debtor, it may be necessary to obtain the prior consent or
approval of the FCC or any applicable PUC, other governmental authority or other
Persons to the exercise of rights with respect to the Collateral. The Debtor
hereby agrees to execute, deliver and file, and hereby appoints (to the extent
permitted under applicable law) the Administrative Lender as its attorney upon
the occurrence and during the continuation of an Event of Default, to execute,
deliver and file on the Debtor's behalf and in the Debtor's name, all
applications, certificates, filings, instruments and other documents (including
without limitation any application for an assignment or transfer of control or
ownership) that may be necessary or appropriate, in the Administrative Lender's
opinion, to obtain such consents or approvals. The Debtor further agrees to use
its best efforts to obtain such consents or approvals upon and after the
occurrence of a Default or Event of Default that is continuing. The Debtor
acknowledges that there is no adequate remedy at law for failure by it to comply
with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that this Section may be
specifically enforced.
ARTICLE V. MISCELLANEOUS
5.01. Cumulative Rights. All Rights of Administrative Lender and Secured
Parties under the Loan Papers are cumulative of each other and of every other
Right which Administrative Lender and Secured Parties may otherwise have at Law
or in equity or under any other contract or other writing for the enforcement of
the security interest herein or the collection of the Obligations. The exercise
of one or more Rights shall not prejudice or impair the concurrent or subsequent
exercise of other Rights.
5.02. Modifications; Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by Debtor here
from, shall in any event be effective unless the same shall be in writing and
signed by Administrative Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that Debtor may change its name upon written notice to
Administrative Lender no less than 10 days prior to such name change.
5.03. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement and (ii) the expiration
or termination of the obligations of Secured Party to extend credit to Debtor,
(b) be binding upon Debtor, its successors and assigns, and (c) inure to the
benefit of, and be enforceable by, Administrative Lender and its successors,
transferees and assigns. Upon any
12
<PAGE>
such termination, Administrative Lender will, at Debtor's expense, execute and
deliver to Debtor such documents as such Debtor shall reasonably request to
evidence such termination.
5.04. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA,
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. WITHOUT
EXCLUDING ANY OTHER JURISDICTION AND NOT AS A LIMITATION OF SECTION 5.04, DEBTOR
------------
AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, WILL
HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM
EXTENT PERMITTED BY LAW, DEBTOR AND ADMINISTRATIVE LENDER HEREBY WAIVE ANY RIGHT
THAT EITHER MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT,
CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE
OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREE THAT ANY SUCH DISPUTE SHALL
BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
(b) DEBTOR HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT.
DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL
(RETURN RECEIPT REQUESTED) DIRECTED TO DEBTOR AT ITS ADDRESS DESIGNATED FOR
NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION 5.04
------------
SHALL AFFECT THE RIGHT OF ADMINISTRATIVE LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
5.05. Administrative Lender's Right to Use Agents. Administrative Lender
may exercise its Rights under this Agreement through an agent or other designee.
5.06. No Interference, Compensation or Expense. Administrative Lender may
exercise its Rights under this Agreement (a) without resistance or interference
by Debtor and (b) without payment of any rent, license fee or compensation of
any kind to Debtor.
5.07. Waiver. Should any part of the Obligations be payable in
installments, the acceptance by Administrative Lender or any Secured Party at
any time and from time to time of partial payment of the aggregate amount of all
installments then matured shall not be deemed as a waiver of any Event of
Default then existing. No waiver of any Event of Default shall be deemed to be
a waiver of any other subsequent Event of Default, nor shall any such waiver be
13
<PAGE>
deemed to be a continuing waiver. No delay or omission by Administrative Lender
or any Secured Party in exercising any Right hereunder, or under any other Loan
Papers, shall impair any such Right or be construed as a waiver thereof or any
acquiescence therein, nor shall any single or partial exercise of any such Right
preclude other or further exercise thereof, or the exercise of any other Right
of Administrative Lender or any Secured Party hereunder or under such other
agreements.
5.08. Waivers by Debtor. Debtor waives notice of the creation, advance,
increase, existence, extension, or renewal of, or of any indulgence with respect
to, the Obligations; waives presentment, demand, notice of dishonor, and
protest; waives notice of the amount of the Obligations outstanding at any time,
notice of any change in financial condition of any Subsidiary, notice of any
Default or Event of Default, and all other notices respecting the Obligations;
and agrees that maturity of the Obligations and any part thereof may be
accelerated, extended, or renewed one or more times by Secured Parties, in its
or their discretion, without notice to Debtor. Debtor waives (a) any claim
that, as to any part of the Collateral, a public sale, should Administrative
Lender elect so to proceed, is, in and of itself, not a commercially reasonable
method of sale for such Collateral, (b) except as otherwise provided in this
Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL HEARING
IN CONNECTION WITH ADMINISTRATIVE LENDER'S DISPOSITION OF ANY OF THE COLLATERAL
INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND ALL OTHER
REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER REQUIREMENTS WITH
RESPECT TO THE ENFORCEMENT OF ADMINISTRATIVE LENDER'S RIGHTS HEREUNDER and (c)
all rights of redemption, appraisal or valuation.
5.09. Other Parties and Other Collateral. No renewal, increase, or
extension of or any other indulgence with respect to, the Obligations or any
part thereof, no release, exchange, or taking of any security, no release of any
Person (including any Subsidiary, maker, endorser, guarantor, or surety) liable
on the Obligations, no delay in enforcement of payment, no delay or omission or
lack of diligence or care in exercising any Right or power with respect to the
Obligations or any security therefor or guaranty thereof or under this
Agreement, and no other circumstance or event which might constitute a defense
available to or discharge of Debtor, any Subsidiary or any other Person, shall
in any manner impair or affect the Rights of Administrative Lender or any
Secured Party hereunder, under any other Loan Papers, at Law, or in equity.
Neither Administrative Lender nor any Secured Party need file suit or assert a
claim for personal judgment against any Person for any part of the Obligations
or seek to realize upon any other security for the Obligations, before
foreclosing upon the Collateral for the purpose of paying the Obligations.
Debtor waives any Right to the benefit of or to require or control application
of any other security or proceeds thereof, and agrees that neither
Administrative Lender nor any Secured Party shall have any duty or obligation to
Debtor to apply any such other security or proceeds thereof to the Obligations.
Debtor hereby waives all
14
<PAGE>
rights by which it might be entitled to require suit on an accrued right of
action in respect of any of the Obligations or require suit against Debtor, any
Subsidiary or others, whether arising pursuant to Section 34.02 of the Texas
Business and Commerce Code, as amended, Section 17.001 of the Texas Civil
Practice and Remedies Code, as amended, or Rule 31 of the Texas Rules of Civil
Procedure, as amended, or otherwise.
5.10. Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Lender or Debtor has acted in reliance on such telephonic notice.
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers as provided
in the Credit Agreement or at such other address or, telecopier or telephone
number or to the attention of such other individual or department as the party
to which such information pertains may hereafter specify for the purpose in a
notice to the other specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to be
given or delivered to Administrative Lender or Debtor pursuant to this Agreement
shall be effective or deemed delivered or furnished (i) if sent by mail, on the
fifth day after such notice, communication or material is deposited in the mail,
addressed as above provided, (ii) if sent by telecopier, when such notice,
communication or material is transmitted to the appropriate number determined as
above provided in this Section 5.10 and the appropriate receipt is received or
------------
otherwise acknowledged, (iii) if sent by hand delivery or overnight courier,
when left at the address of the addressee addressed as above provided, and (iv)
if given by telephone, when communicated to the individual or any member of the
department specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices of
a change of address, telecopier or telephone number or individual or department
to whose attention notices, communications and materials are to be given or
delivered shall not be effective until received.
5.11. Parties Bound. This Agreement shall be binding on Debtor and its
successors, assigns, and other legal representatives, and shall inure to the
benefit of Administrative Lender and Secured Parties, and their respective
successors and assigns; provided, however, that Debtor may not assign its Rights
-------- -------
or obligations hereunder without the prior written consent of Administrative
Lender. The Rights, powers, and interests held by Administrative Lender and
15
<PAGE>
Secured Parties hereunder may be transferred or assigned, in whole or in part,
in accordance with the Credit Agreement.
5.12. Definitions. Unless otherwise defined in this Agreement, terms used
herein shall have the meanings set forth in the Credit Agreement. Unless the
context indicates otherwise or the terms are otherwise defined herein,
definitions in the Uniform Commercial Code apply to words and phrases in this
Agreement. "Debtor" and includes, without limitation, such Person, such
Person's heirs, successors and assigns, such Person as a debtor-in-possession,
and any receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for such Person or all or substantially all of its assets under any
Law.
5.13. Severability. If any provision of any Loan Paper is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there
shall be added automatically as a part of such Loan Paper a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.
5.14. Control. Notwithstanding anything herein to the contrary, this
Agreement and the transactions contemplated hereby do not and shall not
constitute, create, or have the effect of constituting or creating, directly or
indirectly, actual or practical ownership by Administrative Lender or any
Secured Party of Debtor or any issuer of the Collateral, or control, affirmative
or negative, direct or indirect, by Administrative Lender or any Secured Party
over the management or any aspect of the day-to-day operation of Debtor or any
such issuer, which control remains in Debtor, each such issuer, and their
respective boards of directors, partners and officers (as appropriate);
provided, however, that if Administrative Lender or any Secured Party becomes
- -------- -------
the owner of any partnership interest, or other equity or ownership interest in
any Issuer whether through foreclosure or otherwise, it shall be entitled to
exercise such legal Rights as it may have by being an owner of such partnership
interest or other equity or ownership interest.
5.15. Loan Paper. This Agreement is a Loan Paper executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.17. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER
LOAN PAPERS, REPRESENT THE FINAL AGREEMENT
16
<PAGE>
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
================================================================================
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
================================================================================
17
<PAGE>
IN WITNESS WHEREOF, Debtor and Administrative Lender have caused this
Agreement to be duly executed and delivered as of the date first above written.
DELTACOM, INC.
By: /s/ Douglas A. Shumate
--------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By:/s/ Keith M. Wilson
--------------------------------
Name: Keith M. Wilson
Title: Vice President
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
18
<PAGE>
Security Agreement Between DeltaCom, Inc., as Pledgor and NationsBank
of Texas, N.A., as Administrative Lender
Schedule 1 Locations of Equipment and Inventory
Offices and Other Sites
-----------------------
<TABLE>
<CAPTION>
Alabama
- -------
<S> <C>
Street Address: 113 S Main St.
City: Arab State/Province: AL Zip/Postal Code: 35016
Street Address: 120 S Main St., PO Box 1233
City: Arab State/Province: AL Zip/Postal Code: 35016
Street Address: 710 Stage Rd
City: Auburn State/Province: AL Zip/Postal Code: 36830
Street Address: 2200 Woodcrest Place, Suite 100
City: Birmingham State/Province: AL Zip/Postal Code: 35209
Street Address: 540 Valley Ave. Storage Unit # 203
City: Birmingham State/Province: AL Zip/Postal Code: 35212
Street Address: 900 Appalachee Street
City: Birmingham State/Province: AL Zip/Postal Code: 35212
Street Address: 600 North 18th Street
City: Birmingham State/Province: AL Zip/Postal Code: 35291
Street Address: 3245 Montgomery Hwy., Dogwood Ct, Suite 8
City: Dothan State/Province: AL Zip/Postal Code: 36303
Street Address: 124 W Tombigbee St., Suite 3
City: Florence State/Province: AL Zip/Postal Code: 35630
Street Address: 2611 Artie St.
City: Huntsville State/Province: AL Zip/Postal Code: 35805
Street Address: 500 Blvd. South, Suite 203
City: Huntsville State/Province: AL Zip/Postal Code: 35802
Street Address: 600 Blvd. South, Suite 303
City: Huntsville State/Province: AL Zip/Postal Code: 35802
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Street Address: 700 Blvd. South, Suite 101
City: Huntsville State/Province: AL Zip/Postal Code: 35802
Street Address: 2106 West Ferry Way, Suite C
City: Huntsville State/Province: AL Zip/Postal Code: 35801
Street Address: 605 Bel Air Blvd., Suite 10
City: Mobile State/Province: AL Zip/Postal Code: 36606
Street Address: 4001 Carmichael Rd, Suite 570
City: Montgomery State/Province: AL Zip/Postal Code: 36106
Street Address: 1204 Cephyr Hill Drive
City: Montgomery State/Province: AL Zip/Postal Code: 36109
Street Address: 1707 A Hillyer Robinson Industrial Parkway, Suite A
City: Oxford State/Province: AL Zip/Postal Code: 36203
Street Address: 6401 25th Avenue
City: Valley State/Province: AL Zip/Postal Code: 36854
Florida
- -------
Street Address: P O Box 30480, 4400 Bayou Blvd., Suite 15-A
City: Pensacola State/Province: FL Zip/Postal Code: 32503
Georgia
- -------
Street Address: 2759 Delk Road, Suite 100
City: Marietta State/Province: GA Zip/Postal Code: 30067
Street Address: 3670 Holcomb Bridge Rd
City: Norcross State/Province: GA Zip/Postal Code: 30092
Street Address: 910 First Avenue
City: West Point State/Province: GA Zip/Postal Code: 31833
Street Address: 206 West 9th Street
City: West Point State/Province: GA Zip/Postal Code: 31833
Louisiana
- ---------
Street Address: 3636 South Sherwood Forest Blvd. Suite 470
City: Baton Rouge State/Province: LA Zip/Postal Code: 70816
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Street Address: 3445 N Causeway Blvd. Suite 202
City: Metairie State/Province: LA Zip/Postal Code: 70002
Mississippi
- -----------
Street Address: 304 South State Street
City: Jackson State/Province: MS Zip/Postal Code: 39225
North Carolina
- --------------
Street Address: 8720 Red Oak Blvd. Suite 420
City: Charlotte State/Province: NC Zip/Postal Code: 28217
South Carolina
- --------------
Street Address: Palmetto Center, 1426 Main St., 20th Floor
City: Columbia State/Province: SC Zip/Postal Code: 29201
Street Address: 2000 Center Point Drive, Suite 2275
City: Columbia State/Province: SC Zip/Postal Code: 29210-5824
Street Address: 111 Smith Hines Rd Suite D
City: Greenville State/Province: SC Zip/Postal Code: 29607
Texas
- -----
Street Address: 1601 West Cotton
City: Longview State/Province: TX Zip/Postal Code: 75604
</TABLE>
POP Sites
---------
<TABLE>
<CAPTION>
City Address ZIP
---- ------- ---
Alabama
- -------
<S> <C> <C>
Anniston 410 West 10th Street 36201
Arab 113 South Main Street 35016
Auburn 100 Thatch Ave., 1424 Haley Center 36830
Dothan 2304 Industrial Road 36303
Dothan 510 N. Cherry Street 36303
Gadsden 749 Forrest Avenue 35901
Alabama Power Co. Headquarters
Huntsville 8600 S. Memorial Parkway 35802
Montgomery 204 Jefferson Street 36104
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Opelika 1015 West Point Parkway 36801
Arkansas
- --------
Little Rock Basement Telcom Room 72201
425 West Capital
Little Rock 124 W. Capitol Ave, Suite 700 72201
Pine Bluff 5201 West Barraque 71602
First Floor
Florida
- -------
Fort Myers 1520 Lee Street
Gainesville 301 SE 4th Ave 32601
Miami 45 NW 5th Street 33128
Miami 1921 NW 87th AVE.
Colo Room - First Floor
Ocala 319 E Broadway 32671
Orlando 201 South Orange Ave. 32803
7th Floor, Room 750
Panama City 1795 Industrial Drive 32405
Pompano Beach 599 SW 16th Terrace 33069
Sarasota 1717 Ringling Boulevard 34236
Tallahassee 132 N Calhoun Street, Suite 205 32301
Centel Building/Sprint United Office
Tampa 702 N Franklin Street, 10th Floor 33602
TECO Plaza, 10th Floor
West Palm Beach 3700 RCA Boulevard 33410
Georgia
- -------
Albany 2151 Gillionville Road 31703
Athens 125 Reese Street
Atlanta 55 Marietta 30303
Augusta 301 15th Street 30901
Carrollton Carroll Technical School 30117
Building C, Room 302
Columbus 422 B 14th Street 31908
LaGrange 300 South Broome Street 30240
Little Georgia Building
Macon 185 State Street 31213
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Newnan 291 Greenville Street 30263
Georgia Power Co. District Office
Rome 224 Holmes Road 30161
Georgia Power Building
Valdosta 111 Miller Street 31601
West Point 910 First Ave., 3rd Floor 31833
Louisiana
- ---------
Baton Rouge 446 North Boulevard 70801
Lake Charles 902 Railroad Avenue 70601
Lafayette 530 South Buchanon 70501
New Orleans 639 Loyola Avenue, 3rd Floor 70113
New Orleans 1001 Howard,Suite 1800 70113
Scott 220 Ruebon 70583
North Carolina
- --------------
Asheville 24 O'Henry Avenue
Charlotte 401 S. College Street 29242
Room #CS-119A
Charlotte 701 E Trade St., Suite 4 28202
Greensboro 301 South Elm Street 27401
Raleigh One Turner Street ( Method) 27607
Durham 2003 East Highway 54 27713
Winston Salem 1480 Broad Street 27127
South Carolina
- --------------
Greenville 325 W. McBee Avenue 29601
Spartanburg 349 East Main Street 29301
</TABLE>
<PAGE>
Security Agreement Between Interstate FiberNet, Inc., as Pledgor and NationsBank
of Texas, N.A., as Administrative Lender
Schedule 2 Trade Names
DELTACOM
DELTACOM, INC.
DELTACOMM, INC.
DELTACOM OF ALABAMA, INC.
DELTACOM OF ARIZONA, INC.
DELTACOM OF DELAWARE, INC.
DELTACOM OF LOUISIANA, INC.
DELTA COMMUNICATIONS, INC.
DELTACOM LONG DISTANCE SERVICES
DELTACOM LONG DISTANCE SERVICES, INC.
DELTACOM INFORMATION SYSTEMS, INC.
VIPERNET
VIPER COMPUTER SYSTEMS, INC.
CONSOLIDATED COMMUNICATION CORPORATION
SCI COMMUNICATIONS, INC.
SOUTHERN INTEREXCHANGE FACILITIES
SOUTHERN INTEREXCHANGE SERVICES
<PAGE>
Security Agreement Between DeltaCom, Inc., as Pledgor and NationsBank
of Texas, N.A., as Administrative Lender
Schedule 3 - Third Party Agreements, Waivers, and Consents
The following agreements, waivers, and/or consents regarding the following
properties will be provided on a best efforts basis after closing.
Lease Agreement with Brindlee Mountain Telephone Company (Arab Switch Site)
Sub-Lease Agreement with SCANA (Columbia Switch Site)
<PAGE>
Security Agreement Between DeltaCom, Inc., as Pledgor and NationsBank
of Texas, N.A., as Administrative Lender
Schedule 4 -- Licenses and Permits
DeltaCom has the following licenses to provide long distance tele-communications
services:
Section 214 blanket authority (I-T-C-94-385) to operate as an international
resale carrier for international switched voice and data services.
Competitive Local Exchange Certificates/Authorization
- -----------------------------------------------------
Alabama
Georgia
Florida
Kentucky
Louisiana
Mississippi
North Carolina
South Carolina
Tennessee
Long Distance Telecommunications State Certifications/Consents/Permits (as of
- ----------------------------------------------------------------------
9/4/97):
<TABLE>
<S> <C> <C> <C>
Alabama Kansas New York * Washington
Arkansas Kentucky North Carolina W. Virginia
Arizona** Louisiana North Dakota Wisconsin
California Maryland Ohio Wyoming
Colorado * Massachusetts Oklahoma
Delaware Michigan * Oregon *
District of Columbia * Mississippi Pennsylvania**
Georgia Missouri Rhode Island
Florida Montana * South Carolina
Idaho Nebraska South Dakota
Illinois Nevada Utah
Indiana New Hampshire Tennessee
Iowa New Jersey * Texas *
Connecticut Virginia *
Vermont
</TABLE>
* Please note the states where an approval is not required.
** Arizona and Pennsylvania allow telecommunication providers to operate while
an application is pending.
<PAGE>
Operator Services -- Note: Many states do not require separate certificates for
- -----------------
operator services.
<TABLE>
<S> <C>
Alabama Nebraska
Arizona Nevada
Delaware New Hampshire
California North Carolina
Georgia Ohio
Florida Oklahoma
Louisiana Pennsylvania
Kentucky Rhode Island
Illinois South Carolina
Massachusetts South Dakota
Maryland Tennessee
Mississippi Utah
Missouri Vermont
Wisconsin Wyoming
</TABLE>
Point to Point Microwave - Fixed Licenses
- -----------------------------------------
<TABLE>
<CAPTION>
Location Call Sign
- ------------------ ---------
<S> <C>
Huntsville, AL WHE554
Arab Site, AL WHE556
Remlap, AL WHT455
Dogwood, AL WLA869
Evergreen, AL WLA899
Montgomery, AL WLA904
Mobile, AL WLK594
Atmore, AL WLK596
Monroeville, AL WLK598
Tilden, AL WLK600
Clinton, AL WLN700
Brindley,AL WHE555
Blountsville, AL WHT454
Birmingham, AL WHT456
Clanton, AL WLA896
Forrester, AL WLA903
Lacey, AL WLC905
Pine Grove, AL WLK595
Barnett Cxr, AL WLK597
Beatrice, AL WLK599
Polk, AL WLK601
</TABLE>
NOTE: DeltaCom, Inc. holds various State, County, and City licenses to do
business for the certain offices from which it conducts business.
<PAGE>
Security Agreement Between DeltaCom, Inc., as Pledgor and
NationsBank of Texas, N.A., as Administrative Lender
Schedule 5 Bank Accounts
<TABLE>
<CAPTION>
DeltaCom, Inc.
- --------------
Account Name Account Number Type of Account
------------ -------------- ---------------
<S> <C> <C> <C> <C>
Bank: SouthTrust Bank DeltaCom Incorporated 61-957-670 401K Profit Sharing Plan
Branch: Marshall County AKA Consolidated Communications Corp
Delivery Address: P.O. Box 635
Boaz, AL 35957 DeltaCom, Inc. 65-831-111 Investment Account
ABA #: 062-000080
Contact Person: Patsy Walls DeltaCom Incorporated 0-022-438 General Account
Telephone : (205) 571-0100 AKA Delta Communications, Inc.
DeltaCom Incorporated 63-763-056 Payroll Account
AKA Consolidated Communications Corp
SCI Communications DBA 63-763-133 General Account
Southern Interexchange Facilities
Southern Interexchange Services, Inc. 0-022-411 General Account
SCI Communications, Inc. D/B/A 63-763-188 Investment Account
Southern Interexchange Facilities
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Bank: Regions Bank Consolidated Communications Corp. 11-6005-1817 Payroll Account
Branch: Arab
Delivery Address: P.O. Box 681
Birmingham, AL 35201
ABA #: 06-200-5690
Contact Person: Edwin Wilson
Telephone : (205) 586-8166
</TABLE>
<PAGE>
Security Agreement Between DeltaCom, Inc., as Pledgor and NationsBank
of Texas, N.A., as Administrative Lender
Schedule 6 - Agreements Pledged as Collateral
Collateral assignments are made subject to receiving consent (where required)
after closing on a best-efforts basis:
Lease Agreement with Brindlee Mountain Telephone Company (Arab Switch Site)
Sub-Lease Agreement with SCANA (Columbia Switch Site)
<PAGE>
Exhibit 10.80.3
================================================================================
SECURITY AGREEMENT
Between
GULF STATES TRANSMISSION SYSTEMS, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender
September 17, 1997
================================================================================
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (as amended, restated, or otherwise modified from time
to time, this "Agreement"), dated as of September 17, 1997, made by Gulf States
Transmission Systems, Inc. ("Debtor"), in favor of NationsBank of Texas, N.A.,
as Administrative Lender ("Administrative Lender"), and each other lender a
party to the Credit Agreement described below (singly, a "Secured Party" and
collectively, the "Secured Parties").
BACKGROUND:
Administrative Lender, Secured Parties and Debtor have entered into the
Credit Agreement dated as of September 17, 1997 (as the same may be
supplemented, amended and modified from time to time, being the "Credit
Agreement"). It is the intention of the parties hereto that this Agreement
create a first priority security interest securing the payment of the
obligations set forth in Section 1.02. It is a condition precedent to the
------------
effectiveness of the Credit Agreement that Debtor shall have executed and
delivered this Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to make the Advances
under the Credit Agreement, Debtor hereby agrees with Administrative Lender for
its benefit and the Ratable benefit of Secured Parties as follows:
ARTICLE I. GRANT
1.01. Assignment and Grant of Security. Debtor hereby assigns and pledges
to Administrative Lender and the Secured Parties for its benefit and the benefit
of Secured Parties and hereby grants to Administrative Lender and the Secured
Parties for its benefit and the benefit of Secured Parties a security interest
in, the entire right, title and interest of Debtor, in and to all assets of
Debtor, whether now owned or hereafter acquired, including but not limited to
the following ("Collateral"):
(a) all equipment in all of its forms, wherever located, now or
hereafter existing, all parts thereof and all accessions thereto, including but
not limited to machinery, satellite receivers, antennas, headend electronics,
furniture, motor vehicles, aircraft and rolling stock (any and all such
equipment, parts and accessions being the "Equipment");
(b) all inventory in all of its forms, wherever located, now or
hereafter existing,
<PAGE>
including, but not limited to, (i) all raw materials and work in process
therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which Debtor has an interest in
mass or a joint or other interest or right of any kind (including, without
limitation, goods in which Debtor has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by Debtor, and all accessions
thereto and products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "Inventory");
(c) all accounts, accounts receivable, contract rights described on
Schedule 6 hereto, chattel paper, documents, instruments, deposit accounts,
- ----------
general intangibles, tax refunds and other obligations of any kind owing to
Debtor, now or hereafter existing, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements, leases,
subleases, and other contracts securing or otherwise relating to any such
accounts, contract rights, chattel paper, documents, instruments, deposit
accounts, general intangibles or obligations (any and all such accounts,
contract rights, chattel paper, documents, instruments, deposit accounts,
general intangibles and obligations including those described in Section 1.01(e)
---------------
herein being the "Receivables");
(d) all other general intangibles, whether now existing or hereafter
arising and wherever arising, including, but not limited to, all (i)
partnership, corporate, and other interests in and to any Person, (ii) permits,
licenses, consents, contract rights described on Schedule 6 hereto, franchises,
----------
documents, certificates, records, customer lists, customer and supplier
contracts, easements, variances, certifications and approvals of Tribunals,
bills of lading (negotiable and non-negotiable), warehouse receipts, any claim
of Debtor against any Secured Party, liquidated or unliquidated, and other
rights, privileges and goodwill obtained or used in connection with any property
described in this Section 1.01, and (iii) tax refunds and other refunds or
------------
rights to receive payment from U. S. federal, state or local governments or
foreign governments or other Tribunal;
(e) other than the Interest Reserve Escrow Account, all bank accounts,
deposit accounts, and margin accounts, maintained by Debtor with financial
institutions, brokers, dealers, and all other persons or entities relating to
commodities and/or securities, including all funds held therein and all
certificates and instruments, if any, from time to time representing or
evidencing such accounts;
(f) to the extent it is possible to create a security interest or
perfect a security interest in such Collateral by filing a UCC-1 financing
statement centrally, or in the case of dual filing states, centrally and at the
county level, as applicable, in the states of Georgia, Florida, Alabama,
Mississippi, Louisiana, Texas, North Carolina and South Carolina, all of
Debtor's fixtures now existing or hereafter acquired, all substitutes and
replacements therefor, all accessions and attachments thereto, and all tools,
parts and equipment now or hereafter added to or used in connection with the
fixtures on or above all real property now owned or hereafter acquired by Debtor
("Fixtures"); and
2
<PAGE>
(g) all substitutes and replacements for, accessions, attachments and
other additions to, tools, parts, and equipment used in connection with, and all
proceeds, products, and increases of, any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the types
described in this Section 1.01); interest, premium, and principal payments,
------------
redemption proceeds and subscription rights, and shares or other proceeds of
conversions or splits of any securities in Collateral, and returned or
repossessed Collateral; and, to the extent not otherwise included, all (i)
payments under insurance, or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral, (ii) cash and (iii) security for the payment of any of the
Collateral, and all goods which gave or will give rise to any of the Collateral
or are evidenced, identified, or represented therein or thereby. Notwithstanding
any of the foregoing, "Collateral" shall not include the Interest Reserve Escrow
Account.
1.02. Security for Obligations. This Agreement creates a first priority
security interest, securing the payment and performance of any and all
obligations now or hereafter existing of Debtor, each Subsidiary and any other
Person (other than Administrative Lender or any Secured Party) under the Credit
Agreement and Loan Papers, including any extensions, modifications,
substitutions, amendments and renewals thereof, whether for principal, interest,
fees, expenses, indemnification or otherwise (all such obligations of Debtor,
each Subsidiary and each other Person being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts which constitute part of the Obligations and would be owed by
Debtor, each Subsidiary or any other Person (other than Administrative Lender or
any Secured Party) to Administrative Lender or any Secured Party under any Loan
Paper, but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding under any Debtor
Relief Law involving Debtor, any Subsidiary or any other Person (including all
such amounts which would become due or would be secured but for the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of Debtor, any Subsidiary or any other Person
under any Debtor Relief Law).
1.03. Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Administrative Lender or
any Secured Party of any of the Rights hereunder shall not release Debtor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) neither Administrative Lender nor any Secured Party
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Administrative
Lender or any Secured Party be obligated to perform any of the obligations or
duties of Debtor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
1.04. Agreement With Respect to Collateral. Debtor and Administrative
Lender, on behalf of itself and each of the Lenders party to the Credit
Agreement, agree that to the extent
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that any of the Collateral may be deemed to be a Fixture as opposed to
Equipment, Inventory or any other form of Collateral that may be perfected by
the filing of a UCC financing statement, it is the intention of each of these
parties that such Collateral be deemed to be Equipment, Inventory or any other
form of Collateral that may be perfected by the filing of a UCC financing
statement and such Collateral not be deemed to be a Fixture.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.01. Representations and Warranties. Debtor represents and warrants,
with respect to itself and the Collateral, as follows:
(a) All of the Equipment and Inventory pledged by Debtor hereunder is
located at the places specified on Schedule 1 hereto (as supplemented from time
----------
to time by Debtor by written notice to Administrative Lender) or in transit to a
place specified on Schedule 1 hereto (as supplemented from time to time by
----------
Debtor by written notice to Administrative Lender) or in transit (i) for sale to
a third-party purchaser that upon such sale will become the obligor under a
Receivable or (ii) in the ordinary course of Debtor's business. The chief place
of business and chief executive office of Debtor and the office where Debtor
keeps all of its records concerning the Receivables, are located at 206 West
Ninth Street, West Point, Georgia 31833. All chattel paper, promissory notes or
other instruments evidencing the Receivables have been delivered and pledged to
Administrative Lender duly endorsed and accompanied by such duly executed
instruments of transfer or assignment as are necessary for such pledge, to be
held as pledged collateral.
(b) Debtor is the legal and beneficial owner of, or has valid leasehold
title to, the Collateral pledged by it free and clear of any Lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement (other than Permitted Liens). No effective financing
statement or other similar document used to perfect and preserve a security
interest under the Laws of any jurisdiction covering all or any part of the
Collateral is on file in any recording office, except such as may have been
filed (i) in respect of Permitted Liens and (ii) in favor of Administrative
Lender relating to this Agreement. As of the date hereof, Debtor has the trade
names set forth on Schedule 2 hereto (and no others). Debtor (including any
----------
corporate or partnership predecessor) has not existed or operated under any name
other than Gulf States Transmission Systems, Inc. or as stated on Schedule 2
----------
since the later of (i) September 17, 1987 or (ii) the date of Debtor's
incorporation.
(c) Debtor has possession and/or control of the Equipment and Inventory
pledged by it hereunder.
(d) This Agreement and the pledge of the Collateral pursuant hereto
creates a valid first priority security interest in the Collateral (other than
deposit accounts in financial institutions which are not Administrative Lender
or a Secured Party and Permitted Liens), securing the payment of the Obligations
which upon filings and other necessary actions to perfect such security interest
will create a perfected, first priority security interest in such collateral, to
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the extent that such security interest can be perfected by filing a UCC
financing statement.
(e) Except as described on Schedule 3 hereto, no consent of any other
----------
Person and no authorization, approval or other action by, and no notice to or
filing with, any Tribunal is required (i) for the pledge by Debtor of the
Collateral pledged by it hereunder, for the grant by Debtor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Debtor, (ii) for maintenance of the pledge, assignment and security
interest created hereby or for the perfection of the pledge, assignment and
security interest created hereby by filing a UCC-1 financing statement
centrally, or in the case of dual filing states, centrally and at the county
level, as applicable, in the states of Georgia, Florida, Alabama, Mississippi,
Louisiana, Texas, North Carolina and South Carolina (including the first
priority nature of such pledge, assignment and security interest except for
Permitted Liens) or (iii) except as otherwise provided by law, for the exercise
by Administrative Lender of the Rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except for
consents, authorizations, filings, notices, actions and approvals by or with the
FCC or any applicable PUC ("FCC and PUC Consents").
(f) Debtor possesses all licenses and permits, including but not limited
to all applicable certificates of occupancy, licenses and permits and all health
and sanitation permits, required for the operations of its business. Schedule 4
----------
hereto is a complete and correct description of all of such licenses and
permits.
(g) Schedule 5 hereto, other than with respect to the Interest Reserve
----------
Escrow Account, is a complete and correct list of all deposit accounts (demand,
time, special or other) maintained by or in which Debtor has an interest and
correctly describes the financial institution in which such account is
maintained (including the specific branch), the address and ABA number of such
institution, the officer of such institution having primary responsibility for
Debtor's accounts, the account number and type (as supplemented from time to
time by Debtor by written notice to Administrative Lender).
ARTICLE III. COVENANTS
3.01. Further Assurances. (a) Debtor agrees that with respect to any
contract right constituting Collateral under this Agreement and with respect to
the leasehold mortgages in Arab, Alabama and Columbia, South Carolina, Debtor
will use its best efforts to obtain the necessary consent to or waiver of such
restriction from any Person so as to enable Debtor to effectively grant to
Secured Party such security interest under this Agreement.
(b) Debtor agrees that from time to time, at the expense of Debtor,
Debtor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that
Administrative Lender may reasonably request, in order to perfect and protect
any pledge, assignment or security interest granted or purported to be granted
hereby in the states of Georgia, Florida, Alabama, Mississippi, Louisiana,
Texas, North Carolina and South Carolina, and in such other Collateral as
outlined in Section 2.16(b)
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<PAGE>
of the Credit Agreement, and the priority thereof, or to enable Administrative
Lender to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, upon written
request by Administrative Lender, Debtor will: (i) mark conspicuously each
chattel paper included in Receivables, and, at the request of Administrative
Lender, each of its records pertaining to the Collateral with the following
legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT
TO A SECURITY AGREEMENT DATED SEPTEMBER 17, 1997 (AS THE SAME MAY
BE MODIFIED OR RESTATED) MADE BY BORROWER, IN FAVOR OF NATIONSBANK
OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
or such other legend, in form and substance satisfactory to and as specified by
Administrative Lender, indicating that such chattel paper or Collateral is
subject to the pledge, assignment and security interest granted hereby; (ii) if
any Collateral shall be evidenced by a promissory note or other instrument or be
chattel paper, deliver and pledge to Administrative Lender hereunder such note,
instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
Administrative Lender; and (iii) execute and file such financing or continuation
statements, or amendments thereto in the states of Georgia, Florida, Alabama,
Mississippi, Louisiana, Texas, North Carolina and South Carolina, and such other
instruments or notices, as may be necessary or desirable, or as Administrative
Lender may request, in order to perfect and preserve the pledge, assignment and
security interest granted or purported to be granted hereby.
(c) Debtor hereby authorizes Administrative Lender to file one or more
financing or continuation statements, and amendments thereto in the states of
Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, North Carolina and
South Carolina, relating to all or any part of the Collateral without the
signature of Debtor where permitted by Law. A photocopy or other reproduction
of this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by Law.
(d) Debtor will furnish to Administrative Lender from time to time
statements and schedules (including Schedules to this Agreement) further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Administrative Lender may reasonably request, all in
reasonable detail. Debtor will promptly furnish to Administrative Lender a copy
of each new or renewal, restatement or modification of any agreement included in
Collateral or otherwise described in Section 1.01 herein.
------------
(e) Other than with respect to the Interest Reserve Escrow Account,
Debtor shall not establish or maintain any deposit or similar bank account not
listed on Schedule 5 hereto unless Administrative Lender receives prior written
----------
notice thereof, Debtor executes and delivers to Administrative Lender
assignments of such account in such form as Administrative Lender may request
and the financial institution in which such account will be maintained delivers
to Administrative Lender acknowledgments of the assignment of such account in
form and
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<PAGE>
substance satisfactory to Administrative Lender.
(f) In addition to such other information as shall be specifically
provided for herein, Debtor shall permit such site visitations and inspections
and furnish to Administrative Lender such other information with respect to the
Collateral as Administrative Lender may reasonably request from time to time in
connection with the Collateral, or the protection, preservation, maintenance or
enforcement of the security interest or the Collateral as provided pursuant to
the terms of the Credit Agreement.
(g) Debtor shall not amend, waive or consent to any deviation from any
term or provision of any documentation or agreements relating to the Senior
Notes.
3.02. Equipment, Fixtures and Inventory.
(a) Debtor shall keep the Equipment, Fixtures and Inventory pledged by
it hereunder (other than Inventory sold in the ordinary course of business) at
the places therefor specified in Section 2.01(a) herein or, upon thirty days'
---------------
prior written notice to Administrative Lender, at such other places in such
jurisdiction where all action required by Section 3.01 herein shall have been
------------
taken with respect to the Equipment and Inventory.
(b) Debtor shall maintain or cause to be maintained all their material
Properties necessary to the conduct of their business (whether owned or held
under lease) in reasonably good repair, working order and condition, taken as a
whole, and from time to time make or cause to be made all appropriate repairs,
renewals, replacements, additions, betterments and improvements thereto.
(c) The Debtor shall pay and discharge all Taxes, assessments and
governmental charges or levies imposed upon it or its income or Properties prior
to the date on which penalties attach thereto, and all lawful material claims
for labor, materials and supplies which, if unpaid, might become a Lien upon any
of their Properties, except those Taxes, assessments and charges contested by
the Debtor diligently in good faith, and for which adequate reserves have been
established in accordance with GAAP. The Debtor shall timely file all
information returns required by federal, state or local Tax authorities.
3.03. Insurance. Debtor shall maintain insurance from responsible
companies in such amounts and against such risks as shall be customary and usual
in the industry for companies of similar size and capability, but in no event
less than the amount and types insured as of the Closing Date; provided,
however, the Debtor may self-insure its outside plant physical facilities,
consisting of the fiber optic cable network. Debtor shall promptly furnish to
Administrative Lender evidence of such insurance in form and content
satisfactory to Administrative Lender. If Debtor fails to perform or observe
any applicable covenants as to insurance on any of such Collateral,
Administrative Lender may at its own option obtain insurance on only
Administrative Lender's interest in such Collateral, any premium thereby paid by
Administrative Lender to
7
<PAGE>
become part of the Obligations, bear interest as provided in the Credit
Agreement. In the event Administrative Lender maintains such substitute
insurance, the additional premium for such insurance shall be due on demand and
payable by Debtor to Administrative Lender in accordance with any notice
delivered to Debtor by Administrative Lender. Debtor hereby grants
Administrative Lender a security interest in any refunds of unearned premiums in
connection with any cancellation, adjustment or termination of any policy of
insurance required by Administrative Lender and in all proceeds of such
insurance and hereby appoints Administrative Lender its attorney-in-fact to
endorse any check or draft that may be payable to Debtor in order to collect
such refunds or proceeds. Any such sums collected by Administrative Lender
shall be credited, except to the extent applied to the purchase by
Administrative Lender of similar insurance, to any amounts then owing on the
Obligations in accordance with the Credit Agreement.
3.04. Place of Perfection; Records; Collection of Receivables, chattel
paper and Instruments.
(a) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables, and
the originals of all chattel paper (until delivered to Administrative Lender),
at the location therefor specified in Section 2.01(a) herein or at such other
---------------
location in the State of Georgia as Debtor shall have given written notice
thereof to Administrative Lender no later than thirty days prior to the moving
thereto. Debtor will hold and preserve such records and chattel paper and will
permit representatives of Administrative Lender to inspect and make abstracts
from and copies of such records and chattel paper as provided in the Credit
Agreement. Debtor shall deliver to Administrative Lender all Instruments to be
held by Administrative Lender as collateral.
(b) Except as otherwise provided in this Section 3.04(b), Debtor shall
---------------
continue to collect, at its own expense, all amounts due or to become due Debtor
under the Receivables, chattel paper and Instruments. In connection with such
collections, Debtor may take (and, at Administrative Lender's direction, shall
take) such action as Debtor or Administrative Lender may deem reasonably
necessary or advisable to enforce collection of the Receivables, chattel paper
and Instruments; provided, however, that Administrative Lender shall have the
-------- -------
right (upon an Event of Default which is continuing) (without notice to Debtor)
to notify the account debtors or obligors under any Receivables, chattel paper
and Instruments of the assignment of such Receivables, chattel paper and
Instruments to Administrative Lender and to direct such account debtors or
obligors to make payment of all amounts due or to become due to Debtor
thereunder directly to Administrative Lender and, at the expense of Debtor, to
enforce collection of any such Receivables, chattel paper and Instruments, and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as Debtor might have done. Upon and after the
occurrence of a Default or Event of Default that is continuing, all amounts and
proceeds (including Instruments) received by Debtor in respect of the
Receivables, chattel paper and Instruments shall be received in trust for the
benefit of Administrative Lender hereunder, shall be segregated from other funds
of Debtor and shall be forthwith paid over to Administrative Lender in the same
form as so received (with any necessary indorsement) to be
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<PAGE>
held as cash collateral and either (a) released to Debtor so long as no Default
or Event of Default shall have occurred and be continuing or (b) if any Default
or Event of Default shall have occurred and be continuing, applied as provided
herein. Debtor shall not adjust, settle or compromise the amount or payment of
any Receivable, chattel paper or Instrument, release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon.
3.05. Transfers and Other Liens. Debtor shall not (a) sell, assign (by
operation of Law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except as permitted under the Credit
Agreement, or (b) create or permit to exist any Lien, security interest, option
or other charge or encumbrance upon or with respect to any of the Collateral,
except for the security interest under this Agreement (and except as provided
for in Section 8.03 of the Credit Agreement).
------------
3.06. Administrative Lender Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Administrative Lender Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to take any action and to execute any instrument which Administrative
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation (provided that the actions listed in
each clause below other than the obtainment and adjustment of insurance may only
be taken or exercised after the occurrence of an Event of Default which is
continuing):
(a) to obtain and adjust insurance required to be paid to Administrative
Lender pursuant to Section 3.03 herein,
------------
(b) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(c) to endorse and collect any drafts or other Instruments, documents
and chattel paper, and
(d) to file any claims or take any action or institute any proceedings
which Administrative Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce compliance with the terms and
conditions of any Collateral or the rights of Administrative Lender with respect
to any of the Collateral. UPON AND AFTER THE OCCURRENCE OF A DEFAULT OR EVENT OF
DEFAULT THAT IS CONTINUING, DEBTOR HEREBY IRREVOCABLY GRANTS TO ADMINISTRATIVE
LENDER DEBTOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT WHICH IS CONTINUING) TO VOTE ANY SECURITIES COLLATERAL AND APPOINTS
ADMINISTRATIVE LENDER DEBTOR'S ATTORNEY-IN-FACT TO PERFORM ALL OBLIGATIONS OF
DEBTOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF ADMINISTRATIVE LENDER'S
RIGHTS HEREUNDER. THE PROXY AND POWER OF ATTORNEY HEREIN GRANTED, AND EACH STOCK
POWER AND SIMILAR POWER NOW OR
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<PAGE>
THEREAFTER GRANTED (INCLUDING ANY EVIDENCED BY A SEPARATE WRITING), ARE COUPLED
WITH AN INTEREST AND ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE
OBLIGATIONS.
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER
4.01. Administrative Lender May Perform. If Debtor fails to perform any
agreement contained herein, Administrative Lender may itself perform, or cause
performance of, such agreement, and the expenses of Administrative Lender
incurred in connection therewith shall be payable by Debtor under Section 4.05
------------
herein.
4.02. Administrative Lender's Duties. The powers conferred on
Administrative Lender hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it or any Secured Party to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Administrative Lender shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Administrative Lender has or is deemed to have knowledge of such matters, or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Administrative Lender accords its
own property. Except as provided in this Section 4.02, Administrative Lender
------------
shall not have any duty or liability to protect or preserve any Collateral or to
preserve rights pertaining thereto. Nothing contained in this Agreement shall
be construed as requiring or obligating Administrative Lender, and
Administrative Lender shall not be required or obligated, to (a) present or file
any claim or notice or take any action, with respect to any Collateral or in
connection therewith or (b) notify Debtor of any decline in the value of any
Collateral.
4.03. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Administrative Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the state in which the Collateral is
located at that time (the "UCC") (whether or not the Uniform Commercial Code
applies to the affected Collateral), and also may (i) require Debtor to, and
Debtor hereby agrees that it will at its expense and upon request of
Administrative Lender forthwith, assemble all or part of the Collateral as
directed by Administrative Lender and make it available to Administrative Lender
at a place to be designated by Administrative Lender which is reasonably
convenient to both parties or (ii) without notice, except as specified below,
sell the Collateral or any portion thereof in one or more parcels at public or
private sale, at any of Administrative Lender's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as Administrative
Lender may deem commercially reasonable. Debtor
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<PAGE>
agrees that, to the extent notice of sale shall be required by Law, ten days'
notice to Debtor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
Administrative Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Administrative Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(b) All cash proceeds received by Administrative Lender upon any sale
of, collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all out-of-pocket costs and expenses incurred in
-----
connection with the sale of, collection of or other realization upon
Collateral, including reasonable attorneys' fees and disbursements;
Second: To the payment of the Obligations as provided in the Credit
------
Agreement and in such order and in such manner consistent with applicable
Laws as Administrative Lender in its reasonable discretion shall decide
(with Debtor remaining liable for any deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to the
-----
payment to Debtor or other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with any
Collateral shall be received in trust for the benefit of Administrative Lender,
shall be segregated from other funds of Debtor and shall be forthwith paid over
to Administrative Lender in the same form as so received (with any necessary
indorsement).
4.04. Indemnity and Expenses. (a) Debtor agrees to indemnify
Administrative Lender and each Secured Party from and against any and all
claims, losses and liabilities (including reasonable attorneys' fees) growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), expressly including such claims, losses or
liabilities arising out of mere negligence of Administrative Lender or any
Secured Party, except claims, losses or liabilities resulting from
Administrative Lender's or any Secured Party's gross negligence or willful
misconduct.
(b) Debtor will upon demand pay to Administrative Lender the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which Administrative Lender may incur
in connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Administrative Lender hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof. Any payments so made
shall be a part of the Obligation, shall be payable upon demand, and shall bear
interest as provided in
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Article II of the Credit Agreement.
- ----------
4.05. Further Approvals Required. In connection with the exercise by
Administrative Lender of its rights hereunder that effects the disposition of or
use of any Collateral, it may be necessary to obtain the prior consent or
approval of Tribunals and other Persons to a transfer or assignment of
Collateral, including, without limitation, the FCC and any applicable PUC. In
connection with the exercise by the Administrative Lender or any other Secured
Party of its rights hereunder relating to the disposition of or operation under
any license issued by the FCC or any applicable PUC, or any other
authorizations, agreements, permits, licenses and franchises constituting
property of the Debtor, it may be necessary to obtain the prior consent or
approval of the FCC or any applicable PUC, other governmental authority or other
Persons to the exercise of rights with respect to the Collateral. The Debtor
hereby agrees to execute, deliver and file, and hereby appoints (to the extent
permitted under applicable law) the Administrative Lender as its attorney upon
the occurrence and during the continuation of an Event of Default, to execute,
deliver and file on the Debtor's behalf and in the Debtor's name, all
applications, certificates, filings, instruments and other documents (including
without limitation any application for an assignment or transfer of control or
ownership) that may be necessary or appropriate, in the Administrative Lender's
opinion, to obtain such consents or approvals. The Debtor further agrees to use
its best efforts to obtain such consents or approvals upon and after the
occurrence of a Default or Event of Default that is continuing. The Debtor
acknowledges that there is no adequate remedy at law for failure by it to comply
with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that this Section may be
specifically enforced.
ARTICLE V. MISCELLANEOUS
5.01. Cumulative Rights. All Rights of Administrative Lender and Secured
Parties under the Loan Papers are cumulative of each other and of every other
Right which Administrative Lender and Secured Parties may otherwise have at Law
or in equity or under any other contract or other writing for the enforcement of
the security interest herein or the collection of the Obligations. The exercise
of one or more Rights shall not prejudice or impair the concurrent or subsequent
exercise of other Rights.
5.02. Modifications; Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by Debtor here
from, shall in any event be effective unless the same shall be in writing and
signed by Administrative Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
5.03. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement and (ii) the expiration
or termination of the obligations of Secured Party to extend credit to Debtor,
(b) be binding upon Debtor, its successors and assigns, and (c) inure to the
benefit of, and be
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enforceable by, Administrative Lender and its successors, transferees and
assigns. Upon any such termination, Administrative Lender will, at Debtor's
expense, execute and deliver to Debtor such documents as such Debtor shall
reasonably request to evidence such termination.
5.04. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA,
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. WITHOUT
EXCLUDING ANY OTHER JURISDICTION AND NOT AS A LIMITATION OF SECTION 5.04, DEBTOR
------------
AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, WILL
HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM
EXTENT PERMITTED BY LAW, DEBTOR AND ADMINISTRATIVE LENDER HEREBY WAIVE ANY RIGHT
THAT EITHER MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT,
CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE
OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREE THAT ANY SUCH DISPUTE SHALL
BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
(b) DEBTOR HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT.
DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL
(RETURN RECEIPT REQUESTED) DIRECTED TO DEBTOR AT ITS ADDRESS DESIGNATED FOR
NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION 5.04
------------
SHALL AFFECT THE RIGHT OF ADMINISTRATIVE LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
5.05. Administrative Lender's Right to Use Agents. Administrative Lender
may exercise its Rights under this Agreement through an agent or other designee.
5.06. No Interference, Compensation or Expense. Administrative Lender may
exercise its Rights under this Agreement (a) without resistance or interference
by Debtor and (b) without payment of any rent, license fee or compensation of
any kind to Debtor.
5.07. Waiver. Should any part of the Obligations be payable in
installments, the acceptance by Administrative Lender or any Secured Party at
any time and from time to time of partial payment of the aggregate amount of all
installments then matured shall not be deemed as a waiver of any Event of
Default then existing. No waiver of any Event of Default shall be
13
<PAGE>
deemed to be a waiver of any other subsequent Event of Default, nor shall any
such waiver be deemed to be a continuing waiver. No delay or omission by
Administrative Lender or any Secured Party in exercising any Right hereunder, or
under any other Loan Papers, shall impair any such Right or be construed as a
waiver thereof or any acquiescence therein, nor shall any single or partial
exercise of any such Right preclude other or further exercise thereof, or the
exercise of any other Right of Administrative Lender or any Secured Party
hereunder or under such other agreements.
5.08. Waivers by Debtor. Debtor waives notice of the creation, advance,
increase, existence, extension, or renewal of, or of any indulgence with respect
to, the Obligations; waives presentment, demand, notice of dishonor, and
protest; waives notice of the amount of the Obligations outstanding at any time,
notice of any change in financial condition of any Subsidiary, notice of any
Default or Event of Default, and all other notices respecting the Obligations;
and agrees that maturity of the Obligations and any part thereof may be
accelerated, extended, or renewed one or more times by Secured Parties, in its
or their discretion, without notice to Debtor. Debtor waives (a) any claim
that, as to any part of the Collateral, a public sale, should Administrative
Lender elect so to proceed, is, in and of itself, not a commercially reasonable
method of sale for such Collateral, (b) except as otherwise provided in this
Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL HEARING
IN CONNECTION WITH ADMINISTRATIVE LENDER'S DISPOSITION OF ANY OF THE COLLATERAL
INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND ALL OTHER
REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER REQUIREMENTS WITH
RESPECT TO THE ENFORCEMENT OF ADMINISTRATIVE LENDER'S RIGHTS HEREUNDER and (c)
all rights of redemption, appraisal or valuation.
5.09. Other Parties and Other Collateral. No renewal, increase, or
extension of or any other indulgence with respect to, the Obligations or any
part thereof, no release, exchange, or taking of any security, no release of any
Person (including any Subsidiary, maker, endorser, guarantor, or surety) liable
on the Obligations, no delay in enforcement of payment, no delay or omission or
lack of diligence or care in exercising any Right or power with respect to the
Obligations or any security therefor or guaranty thereof or under this
Agreement, and no other circumstance or event which might constitute a defense
available to or discharge of Debtor, any Subsidiary or any other Person, shall
in any manner impair or affect the Rights of Administrative Lender or any
Secured Party hereunder, under any other Loan Papers, at Law, or in equity.
Neither Administrative Lender nor any Secured Party need file suit or assert a
claim for personal judgment against any Person for any part of the Obligations
or seek to realize upon any other security for the Obligations, before
foreclosing upon the Collateral for the purpose of paying the Obligations.
Debtor waives any Right to the benefit of or to require or control application
of any other security or proceeds thereof, and agrees that neither
Administrative Lender nor any Secured Party shall have any duty or obligation to
Debtor to
14
<PAGE>
apply any such other security or proceeds thereof to the Obligations. Debtor
hereby waives all rights by which it might be entitled to require suit on an
accrued right of action in respect of any of the Obligations or require suit
against Debtor, any Subsidiary or others, whether arising pursuant to Section
34.02 of the Texas Business and Commerce Code, as amended, Section 17.001 of the
Texas Civil Practice and Remedies Code, as amended, or Rule 31 of the Texas
Rules of Civil Procedure, as amended, or otherwise.
5.10. Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Lender or Debtor has acted in reliance on such telephonic notice.
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers as provided
in the Credit Agreement or at such other address or, telecopier or telephone
number or to the attention of such other individual or department as the party
to which such information pertains may hereafter specify for the purpose in a
notice to the other specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to be
given or delivered to Administrative Lender or Debtor pursuant to this Agreement
shall be effective or deemed delivered or furnished (i) if sent by mail, on the
fifth day after such notice, communication or material is deposited in the mail,
addressed as above provided, (ii) if sent by telecopier, when such notice,
communication or material is transmitted to the appropriate number determined as
above provided in this Section 5.10 and the appropriate receipt is received or
------------
otherwise acknowledged, (iii) if sent by hand delivery or overnight courier,
when left at the address of the addressee addressed as above provided, and (iv)
if given by telephone, when communicated to the individual or any member of the
department specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices of
a change of address, telecopier or telephone number or individual or department
to whose attention notices, communications and materials are to be given or
delivered shall not be effective until received.
5.11. Parties Bound. This Agreement shall be binding on Debtor and its
successors, assigns, and other legal representatives, and shall inure to the
benefit of Administrative Lender and Secured Parties, and their respective
successors and assigns; provided, however, that Debtor may not assign its Rights
-------- -------
or obligations hereunder without the prior written consent of
15
<PAGE>
Administrative Lender. The Rights, powers, and interests held by Administrative
Lender and Secured Parties hereunder may be transferred or assigned, in whole or
in part, in accordance with the Credit Agreement.
5.12. Definitions. Unless otherwise defined in this Agreement, terms used
herein shall have the meanings set forth in the Credit Agreement. Unless the
context indicates otherwise or the terms are otherwise defined herein,
definitions in the Uniform Commercial Code apply to words and phrases in this
Agreement. "Debtor" and includes, without limitation, such Person, such
Person's heirs, successors and assigns, such Person as a debtor-in-possession,
and any receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for such Person or all or substantially all of its assets under any
Law.
5.13. Severability. If any provision of any Loan Paper is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there
shall be added automatically as a part of such Loan Paper a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.
5.14. Control. Notwithstanding anything herein to the contrary, this
Agreement and the transactions contemplated hereby do not and shall not
constitute, create, or have the effect of constituting or creating, directly or
indirectly, actual or practical ownership by Administrative Lender or any
Secured Party of Debtor or any issuer of the Collateral, or control, affirmative
or negative, direct or indirect, by Administrative Lender or any Secured Party
over the management or any aspect of the day-to-day operation of Debtor or any
such issuer, which control remains in Debtor, each such issuer, and their
respective boards of directors, partners and officers (as appropriate);
provided, however, that if Administrative Lender or any Secured Party becomes
- -------- -------
the owner of any partnership interest, or other equity or ownership interest in
any Issuer whether through foreclosure or otherwise, it shall be entitled to
exercise such legal Rights as it may have by being an owner of such partnership
interest or other equity or ownership interest.
5.15. Loan Paper. This Agreement is a Loan Paper executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.17. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER
16
<PAGE>
WITH THE OTHER LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
================================================================================
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
================================================================================
17
<PAGE>
IN WITNESS WHEREOF, Debtor and Administrative Lender have caused this
Agreement to be duly executed and delivered as of the date first above written.
GULF STATES TRANSMISSION SYSTEMS, INC.
By: /s/ Douglas A. Shumate
-----------------------------------
Name: Douglas A. Shumate
Title: Senior Vice President -- Chief
Financial Officer
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: /s/ Keith M. Wilson
-----------------------------------
Name: Keith M. Wilson
Title: Vice President
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
18
<PAGE>
Security Agreement Between Gulf States Transmission Systems, Inc., as
Pledgor and NationsBank of Texas, N.A., as Administrative Lender
Schedule 1 Locations of Equipment and Inventory
Offices and Other Sites
-----------------------
Georgia
- -------
Street Address: 206 West 9th Street
City: West Point State/Province: GA Zip/Postal Code: 31833
POP Sites
---------
<TABLE>
<CAPTION>
City Address ZIP
---- ------- ---
<S> <C> <C>
Alabama
- -------
Birmingham 600 North 18 Street 35291
Medical Forum Bldg
Leeds Highway 119
Pell City Cogswell Avenue
Tuscaloosa 2200 4th Street 35401
Tuscaloosa 415 Hackberry Lane 35487
Gordan Palmer Hall Bldg 168
Georgia
- -------
Atlanta 55 Park Place, NE 30303
Suite 360
Gainesville 340 Jesse Jewell Parkway 30501
Louisiana
- ---------
Monroe 117 Hart Street 71207
Shreveport 724 McNeil 71130
2nd Floor, Suite 200
Shreveport 400 Travis St., Suite 2010 71101
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Mississippi
- -----------
Gulfport 2221 17th Street
Hattiesburg 100 Brunie Street 39401
Jackson 248 East Capitol, Suite 939
Jackson 200 East Capitol
Jackson 308 E. Pearl Street 39215
McComb 2156 Summit-Homeville Road 39648
1st Floor, Room 1
Meridian 2401 11th Street 39301
Mississippi Power Building
Vicksburg 1715 Cherry Street 39180
Texas
- -----
Longview 119 West Tyler Street, Suite 137
Atrium Building
</TABLE>
<PAGE>
Security Agreement Between Gulf States Transmission Systems, Inc., as
Pledgor and NationsBank of Texas, N.A., as Administrative Lender
Schedule 2 Trade Names
GULFSTATES FIBERNET
GULF STATES FIBERNET
<PAGE>
Security Agreement Between Gulf States Transmission Systems, Inc., as
Pledgor and NationsBank of Texas, N.A., as Administrative Lender
Schedule 3 Third Party Agreements, Waivers, and Consents
Assignments, waivers, and/or consents for the following agreements will be
provided on a best efforts basis after closing:
Fiber System Lease Agreement dated January 30, 1996 with CSW Communications
Fixed Fee Agreement for the Exchange of Use and Maintenance of Fiber Optic
Fibers with ALLTEL
Revised and Restated Fiber Optic Agreement with Southern Development and
Investment Group (The MPX Agreement)
Operating Agreement with Kansas City Southern Railway
Fiber Optic Facility Lease Agreement with Southern Telecom 1. Inc.
Operating Agreement with Illinois Central Railroad Company
<PAGE>
Security Agreement Between Gulf States Transmission Systems, Inc., as
Pledgor and NationsBank of Texas, N.A., as Administrative Lender
Schedule 4 -- Licenses and Permits
Nothing to Schedule
<PAGE>
Security Agreement Between Gulf States Transmission Systems, Inc., as Pledgor
and NationsBank of Texas, N.A., as Administrative Lender
Schedule 5 -- Bank Accounts
<TABLE>
<CAPTION>
Gulf States
- -----------
Fibernet Account Name Account Number Type of Account
- -------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Bank: First National Bank Gulf States Fibernet 218-640 General Account
Branch: West Point
Delivery Address: West 10th Street Gulf States Fibernet 708-657 Investment Account
West Point, GA 31833
ABA #: 061109487
Contact Person: Debbie Wilbanks
Telephone : (706) 645-6206
Bank: Nations Bank, N.A. (South) Gulf States Fibernet 01020011102 Revenue Account
Branch: Atlanta, 000000012
Delivery Address: 600 Peachtree Street N.E. Gulf States Fibernet 5000000272 Securities Revenue
GA1-006-12-22
Atlanta, GA 30308
ABA #: 061000052
Contact Person: Alison Adams
Telephone : (800) 634-0376
</TABLE>
<PAGE>
Security Agreement Between Gulf States Transmission Systems, Inc., as
Pledgor and NationsBank of Texas, N.A., as Administrative Lender
Schedule 6 - Agreements Pledged as Collateral
Collateral assignments are made subject to receiving consent (where required)
after closing on a best-efforts basis:
Fiber System Lease Agreement with CSW Communications
Fixed Fee Agreement for the Exchange of Use and Maintenance of Fiber Optic
Fibers with ALLTEL
Revised and Restated Fiber Optic Agreement with Southern Development and
Investment Group (The MPX Agreement)
Operating Agreement with Kansas City Southern Railway
Fiber Optic Facility Lease Agreement with Southern Telecom 1, Inc.
Operating Agreement with Illinois Central Railroad Company
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
Amendment No. 3 of this Registration Statement of our report on the financial
statements of ITC/\DeltaCom, Inc. as of June 30, 1997 and for the period from
inception (March 24, 1997) to June 30, 1997 dated July 31, 1997 (except with
respect to the Credit Agreement discussion in Note 4, as to which the date is
September 17, 1997); our report on the combined financial statements of
ITC/\DeltaCom, Inc., Interstate FiberNet, Inc. (formerly ITC Transmission
Systems, Inc.), ITC Transmission Systems II, Inc., Gulf States Transmission
Systems, Inc., Eastern Telecom, Inc., d.b.a. InterQuest, DeltaCom, Inc. and
ITC/\DeltaCom, Inc. (reorganized as ITC/\DeltaCom, Inc.) as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31, 1996
dated March 27, 1997 (except with respect to Note 16, as to which the date is
September 17, 1997); our report on the statements of operations, stockholders'
equity, and cash flows of DeltaCom, Inc. for the year ended December 31, 1995
dated March 27, 1997; and our report on the financial statements of Gulf
States FiberNet as of December 31, 1995 and 1996 and for the period from
inception (August 17, 1994) through December 31, 1994 and for the two years in
the period ended December 31, 1996, dated March 27, 1997 (except with respect
to the ITC/\DeltaCom Debt Offering discussion in Note 8, as to which the date
is July 25, 1997), and to all references to our Firm included in or made a
part of this Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia September 23, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the use of our report
dated March 19, 1997 related to DeltaCom, Inc. (and to all references to our
Firm) included in or made a part of Amendment No. 3 to this Registration
Statement.
MARTIN STUEDEMAN & ASSOCIATES, P.C.
Birmingham, Alabama September 23, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 3 to this Registration Statement of
ITC DeltaCom, Inc. on Form S-4 of our report dated May 23, 1997 relating to
the financial statements of Georgia Fiber (a business unit of SCANA
Communications, Inc.), appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Columbia, South Carolina
September 23, 1997
<PAGE>
EXHIBIT 99.3
ITC/\DELTACOM, INC.
OFFER TO EXCHANGE ITS
11% SENIOR NOTES DUE JUNE 1, 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11% SENIOR NOTES DUE JUNE 1, 2007
PURSUANT TO THE PROSPECTUS DATED , 1997
TO:BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES
ITC/\DeltaCom, Inc. (the "Company") is offering to exchange (the "Exchange
Offer"), upon and subject to the terms and conditions set forth in the
enclosed Prospectus, dated , 1997 (the "Prospectus"), and the enclosed
Letter of Transmittal (the "Letter of Transmittal"), its 11% Senior Notes Due
June 1, 2007 which have been registered under the Securities Act of 1933 (the
"Exchange Notes") for any and all of its outstanding 11% Senior Notes Due June
1, 2007 (the "Senior Notes"). The Exchange Offer is being made in order to
satisfy certain obligations of the Company contained in the Registration
Rights Agreement dated as of June 3, 1997, among the Company and Morgan
Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, First Union Capital Markets Corp. and NationsBanc Capital
Markets, Inc.
In connection with the Exchange Offer, we are requesting that you contact
your clients for whom you hold Senior Notes registered in your name or in the
name of your nominee, or who hold Senior Notes registered in their own names.
The Company will not pay any fees or commissions to any broker, dealer or
other person in connection with the solicitation of tenders pursuant to the
Exchange Offer. However, you will, upon request, be reimbursed for reasonable
out-of-pocket expenses incurred in connection with soliciting acceptances of
the Exchange Offer. The Company will pay or cause to be paid all transfer
taxes applicable to the exchange of Senior Notes pursuant to the Exchange
Offer, except as set forth in the Prospectus and the Letter of Transmittal.
For your information and for forwarding to your clients, we are enclosing
the following documents:
1. Prospectus dated , 1997;
2. A Letter of Transmittal for your use and for the information of your
clients;
3. A form of Notice of Guaranteed Delivery; and
4. A form of letter which may be sent to your clients for whose account you
hold Senior Notes registered in your name or the name of your nominee,
with space provided for obtaining such clients' instructions with regard
to the Exchange Offer.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1997 (THE "EXPIRATION DATE"), UNLESS
EXTENDED BY THE COMPANY (IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN
THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED). THE SENIOR
NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN, SUBJECT TO THE
PROCEDURES DESCRIBED IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL, AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Senior Notes should be delivered to
the Exchange Agent, all in accordance with the instructions set forth in the
Prospectus and the Letter of Transmittal.
<PAGE>
If holders of Senior Notes wish to tender, but it is impracticable for them
to forward their certificates for Senior Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus and the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Senior Notes, at its address and telephone number set
forth on the front of the Letter of Transmittal.
Very truly yours,
ITC/\DeltaCom, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF
OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.4
ITC/\DELTACOM, INC.
OFFER TO EXCHANGE ITS
11% SENIOR NOTES DUE JUNE 1, 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11% SENIOR NOTES DUE JUNE 1, 2007
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated , 1997 (the
"Prospectus"), and a form of Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of ITC/\DeltaCom,
Inc. (the "Company") to exchange its 11% Senior Notes due June 1, 2007 which
have been registered under the Securities Act of 1933 (the "Exchange Notes")
for any and all of its outstanding 11% Senior Notes due June 1, 2007 (the
"Senior Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated as of June 3, 1997, among the Company and
Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, First Union Capital Markets Corp. and NationsBanc Capital
Markets, Inc.
This material is being forwarded to you as the beneficial owner of the
Senior Notes carried by us in your account but not registered in your name. A
TENDER OF SUCH SENIOR NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Senior Notes held by us for your account, pursuant to the
terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Senior Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997, unless extended by the Company (the
"Expiration Date"). Any Senior Notes tendered pursuant to the Exchange Offer
may be withdrawn, subject to the procedures described in the Prospectus and
the Letter of Transmittal, at any time prior to the Expiration Date.
If you wish to have us tender your Senior Notes, please so instruct us by
completing, executing and returning to us the instruction form included with
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION
ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER SENIOR NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein, including the Prospectus and the accompanying
form of Letter of Transmittal, relating to the Exchange Offer made by
ITC/\DeltaCom, Inc. with respect to its Senior Notes.
This will instruct you as to the action to be taken by you relating to the
Exchange Offer with respect to the Senior Notes held by you for the account of
the undersigned, upon and subject to the terms and conditions set forth in the
Prospectus and the Letter of Transmittal.
The aggregate principal amount at maturity of the Senior Notes held by you
for the account of the undersigned is (fill in amount):
$ _____________________________
of the 11% Senior Notes due
June 1, 2007
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Senior Notes held by you for the account of the
undersigned (insert aggregate principal amount at maturity of Senior
Notes to be tendered, in integral multiples of $1,000):
$ _____________________________
of the 11% Senior Notes
due June 1, 2007
[_] NOT to tender any Senior Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Senior Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations, warranties and agreements
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as beneficial owner.
SIGN HERE
Name of beneficial owner(s):
--------------------------------------------------
Signature(s):
-----------------------------------------------------------------
Name(s) (please print):
-------------------------------------------------------
Address:
----------------------------------------------------------------------
Telephone Number:
-------------------------------------------------------------
Taxpayer Identification or Social Security Number(s):
-------------------------
Date:
-------------------------------------------------------------------------
None of the Senior Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Senior Notes held by us for
your account.
